UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest reported): 11-16-04
Multiband Corporation
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(Exact name of registrant as specified in its chapter)
Minnesota 13529 41-1255001
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
9449 Science Center Drive
New Hope, Minnesota 55428
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 763-504-3000
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(Former name or former address, if changed since last report)
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Item 3.02 Unregistered Sale of Equity Securities
On November 16, 2004, Multiband Corporation finalized a private placement of the
company's Series H Convertible Preferred Stock. The Series H Preferred Stock
offering was funded by a group of institutional and accredited investors.
Multiband intends on utilizing the proceeds received from the offering to retire
short-term debt and for general working capital purposes.
Under the terms of the preferred stock offering, the Company will issue shares
of its Series H Convertible Preferred Stock in the aggregate offering amount of
approximately $1,050,000. The shares of Series H Convertible Preferred Stock
accrue dividends at the rate of 6% per annum, are payable semi-annually at the
option of the Company in cash or shares of the Company's common stock, and are
convertible into shares of common stock at the rate of $1.00 per share. In
addition, the investors will also receive five-year warrants to purchase an
aggregate of approximately 3,150,000 shares of Common Stock at an exercise price
of $1.25 per share. The Company also is required to file a registration
statement providing for the resale of the shares issuable upon the conversion of
the Series H Convertible Preferred Stock and upon exercise of the warrants.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Form 8-K report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: 11-24-04 Multiband Corporation
By James L. Mandel
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James L. Mandel
Chief Executive Officer
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Exhibit Index
Multiband Corporation - Series H Preferred Stock Purchase Agreement Multiband
Corporation - Certificate of Designation - Series H Preferred Multiband
Corporation - Registration Rights Agreement for Series H Preferred Multiband
Corporation - Form of Warrant (fka Series B Warrant) Multiband Corporation -
Press Release
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF NOVEMBER 16, 2004
AMONG
MULTIBAND CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock...........................................ERROR! BOOKMARK NOT DEFINED.
Section 1.1 Purchase and Sale of Preferred Stock and Warrants.............ERROR! BOOKMARK NOT DEFINED.
Section 1.2 The Conversion Shares....................................................................1
Section 1.3 Purchase Price and Closing....................................ERROR! BOOKMARK NOT DEFINED.
ARTICLE II Representations and Warranties................................................ERROR! BOOKMARK NOT DEFINED.
Section 2.1 Representations and Warranties of the Company.................ERROR! BOOKMARK NOT DEFINED.
Section 2.2 Representations and Warranties of the Purchasers..............ERROR! BOOKMARK NOT DEFINED.
ARTICLE III Covenants ...................................................................ERROR! BOOKMARK NOT DEFINED.
Section 3.1 Securities Compliance.........................................ERROR! BOOKMARK NOT DEFINED.
Section 3.2 Registration and Listing......................................ERROR! BOOKMARK NOT DEFINED.
Section 3.3 Inspection Rights.............................................ERROR! BOOKMARK NOT DEFINED.
Section 3.4 Compliance with Laws..........................................ERROR! BOOKMARK NOT DEFINED.
Section 3.5 Keeping of Records and Books of Account.......................ERROR! BOOKMARK NOT DEFINED.
Section 3.6 Reporting Requirements........................................ERROR! BOOKMARK NOT DEFINED.
Section 3.7 Amendments....................................................ERROR! BOOKMARK NOT DEFINED.
Section 3.8 Other Agreements........................................................................16
Section 3.9 Distributions...........................................................................17
Section 3.10 Status of Dividends.....................................................................17
Section 3.11 Use of Proceeds.........................................................................18
Section 3.12 Future Financings; Right of First Offer and Refusal.....................................18
Section 3.13 Reservation of Shares...................................................................19
Section 3.14 Transfer Agent Instructions.............................................................19
Section 3.15 Disposition of Assets...................................................................20
Section 3.16 Reporting Status........................................................................20
Section 3.17 Disclosure of Transaction ..............................................................20
Section 3.18 Disclosure of Material Information......................................................21
Section 3.19 Pledge of Securities....................................................................21
Section 3.20 Stockholder Approval....................................................................21
Section 3.21 Acquisition Indebtedness................................................................22
ARTICLE IV Conditions 22
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares..................................................................................22
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares....................................................ERROR! BOOKMARK NOT DEFINED.
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ARTICLE V Stock Certificate Legend.......................................................ERROR! BOOKMARK NOT DEFINED.
Section 5.1 Legend........................................................ERROR! BOOKMARK NOT DEFINED.
ARTICLE VI Indemnification.........................................................................................26
Section 6.1 General Indemnity.......................................................................26
Section 6.2 Indemnification Procedure.....................................ERROR! BOOKMARK NOT DEFINED.
ARTICLE VII Miscellaneous................................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.1 Fees and Expenses.............................................ERROR! BOOKMARK NOT DEFINED.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.................ERROR! BOOKMARK NOT DEFINED.
Section 7.3 Entire Agreement; Amendment...................................ERROR! BOOKMARK NOT DEFINED.
Section 7.4 Notices.......................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.5 Waivers.......................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.6 Headings......................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.7 Successors and Assigns........................................ERROR! BOOKMARK NOT DEFINED.
Section 7.8 No Third Party Beneficiaries..................................ERROR! BOOKMARK NOT DEFINED.
Section 7.9 Governing Law...........................................................................30
Section 7.10 Waiver of Jury Trial....................................................................30
Section 7.11 Survival................................................................................30
Section 7.12 Counterparts..................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.13 Publicity.....................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.14 Severability..................................................ERROR! BOOKMARK NOT DEFINED.
Section 7.15 Further Assurances......................................................................31
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SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of November 16, 2004 by and among Multiband
Corporation, a Minnesota corporation (the "Company"), and each of the Purchasers
of shares of Series H Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Preferred Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers and each of the Purchasers shall purchase from the
Company, the number of shares of the Company's Series H Convertible Preferred
Stock, no par value per share (the "Preferred Shares"), at a purchase price of
$100,000 per share, set forth opposite such Purchaser's name on Exhibit A
hereto, convertible into shares of the Company's Common Stock, no par value per
share (the "Common Stock"). The aggregate purchase price for the Preferred
Shares and the Warrants shall be up to $1,083,333. The designation, rights,
preferences and other terms and provisions of the Series H Convertible Preferred
Stock are set forth in the Certificate of Designation of the Relative Rights and
Preferences of the Series H Convertible Preferred Stock attached hereto as
Exhibit B (the "Certificate of Designation"). The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in reliance upon
the exemption from securities registration afforded by Rule 506 of Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") or Section 4(2) of the Securities Act.
(b) Upon the following terms and conditions, each of the
Purchasers shall be issued Warrants, in substantially the form attached hereto
as Exhibit C (the "Warrants"), to purchase the number of shares of Common Stock,
such number to be set forth opposite such Purchaser's name on Exhibit A hereto.
The Warrants shall have an exercise price per share equal to $1.25, shall be
exercisable beginning six (6) months and one (1) day following the Closing Date
and shall have a term of five (5) years following the date that the Warrants
become exercisable.
Section 1.2 The Conversion Shares. The Company has authorized and
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, such number of shares of
Common Stock equal to one hundred ten percent (110%) of the number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and exercise of the Warrants then outstanding.
Any shares of Common Stock issuable upon conversion of the Preferred Shares are
herein referred to as the "Conversion Shares". Any shares of Common Stock
issuable upon exercise of the Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares". The Preferred Shares, the Conversion Shares
and the Warrant Shares are sometimes collectively referred to as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares and Warrants set forth opposite their respective names on
Exhibit A. The aggregate purchase price of the Preferred Shares and Warrants
being acquired by each Purchaser is set forth opposite such Purchaser's name on
Exhibit A (for each such Purchaser, the "Purchase Price" and collectively
referred to as the "Purchase Prices"). The closing of the purchase and sale of
the Preferred Shares and Warrants shall take place at the offices of Jenkens &
Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174 (the "Closing") at 1:00 p.m. (eastern time) upon the
satisfaction of each of the conditions set forth in Article IV hereof (the
"Closing Date"). Funding with respect to the Closing shall take place by wire
transfer of immediately available funds on or prior to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers,
except as set forth in the Company's disclosure schedule delivered with this
Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Minnesota and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Company's Form 10-K for the year ended December 31, 2003, including the
accompanying financial statements (the "Form 10-K"), or in the Company's Form
10-Q for the fiscal quarters ended June 30, 2004 or March 31, 2004
(collectively, the "Form 10-Q"), or on Schedule 2.1(a) hereto. The Company and
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined in
Section 2.1(c) hereof).
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit D (the "Registration Rights
Agreement"), the Irrevocable Transfer Agent Instructions (as defined in Section
3.14), the Certificate of Designation, and the Warrants (collectively, the
"Transaction Documents") and to issue and sell the Shares and the Warrants in
accordance with the terms hereof. The execution, delivery and the performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
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authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of November 16, 2004 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and Series H Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth on Schedule 2.1(c) hereto, no shares of Common Stock
are entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and the Registration Rights Agreement or
on Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as set forth on Schedule 2.1(c) hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth on Schedule 2.1(c) hereto, the offer and
sale of all capital stock, convertible securities, rights, warrants, or options
of the Company issued prior to the Closing complied with all applicable Federal
and state securities laws, and no stockholder has a right of rescission or claim
for damages with respect thereto which would have a Material Adverse Effect (as
defined below). The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws"). For the purposes of this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under any Transaction Document in any material
respect.
(d) Issuance of Shares. The Preferred Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and the Preferred Shares, when paid for or issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares
are issued and paid for in accordance with the terms of the Certificate of
Designation and the Warrants, respectively, such shares will be duly authorized
by all necessary corporate action and validly issued and outstanding, fully paid
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and nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and the performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, except as set forth on Schedule
2.1(f) hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents filed with the Commission since June 30, 2004. The Company has not
provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was required
to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. At the times of their respective filings, the Form 10-K and the Form
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10-Q complied in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, none of the Form 10-K and the Form
10-Q contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership. For the purposes of this
Agreement, "subsidiary" shall mean any corporation or other entity of which at
least twenty percent (20%) of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since June 30, 2004, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as set forth on Schedule 2.1(i)
hereto, or in the Commission Documents, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its subsidiaries respective businesses since June 30, 2004 and which,
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individually or in the aggregate, do not or would not have a Material Adverse
Effect.
(j) No Undisclosed Events or Circumstances. Except as set forth on
Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(k) Indebtedness. The Form 10-K, Form 10-Q or Schedule 2.1(k) hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and its subsidiaries has good
and marketable title to all of its real and personal property reflected in the
Form 10-K, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the Form 10-K,
Form 10-Q or on Schedule 2.1(l) hereto or such that, individually or in the
aggregate, do not cause a Material Adverse Effect. All leases of the Company and
each of its subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Form 10-K, Form 10-Q or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-K, Form 10-Q
or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-K, Form 10-Q, or such that,
individually or in the aggregate, do not or would not cause a Material Adverse
Effect. Each of the Company and each of its subsidiaries has all franchises,
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permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. The Company and each of the subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the subsidiaries
for all current taxes and other charges to which the Company or any subsidiary
is subject and which are not currently due and payable. None of the federal
income tax returns of the Company or any subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or commissions
will be payable by the Company or any subsidiary or any Purchaser with respect
to the transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual Property. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations and all rights with
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. The Form 10-K or Form 10-Q describes all material permits, licenses and
other authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
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nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law or that may give rise to any environmental
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance.
(t) Books and Record Internal Accounting Controls. The books and
records of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the reasonable judgment of
the Company, to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.
(u) Material Agreements. Except as set forth in the Form 10-K, Form
10-Q or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary is a
party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-1 or
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. All Material
Agreements are valid and subsisting and in full force and effect. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, the Company and each of
its subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. Except as set forth on Schedule 2.1(u) or
in the Commission Documents, no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Preferred
Shares, other preferred stock of the Company ("Preferred Stock"), if any, or its
Common Stock.
8
(v) Transactions with Affiliates. Except as set forth in the Form 10-K,
Form 10-Q or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.
(x) Governmental Approvals. Except as set forth in the Form 10-K or
Form 10-Q, and except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D and a registration statement or statements pursuant to
the Registration Rights Agreement, and the filing of the Certificate of
Designation with the Secretary of State for the State of Minnesota, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto.
Except as set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto,
neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
December 31, 2003, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
9
(z) Absence of Certain Developments. Except as provided on Schedule
2.1(z) hereto, since June 30, 2004, neither the Company nor any subsidiary has:
10
(i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
other liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and amount to
the current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the business of the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade name s, copyrights, trade secrets or other intangible assets
or intellectual property rights or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices; (ix) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered into any material transaction, whether or not in
the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
11
(aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(bb) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
subsidiaries which has caused or will cause a Material Adverse Effect. The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(bb), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(cc) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares and
the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(dd) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under the Transaction Documents. The decision of each Purchaser
to purchase the Shares and Warrants pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions. The Company
acknowledges that nothing contained herein, or in any Transaction Document, and
12
no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
(ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and, except as set forth on Schedule 2.1(ee)
hereto, since April 1, 2004, the Company has not offered or sold any of its
equity or debt securities.
(ff) Sarbanes-Oxley Act. The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act"), and the rules and regulations promulgated thereunder, that are effective
as of the date hereof, and intends to comply with other applicable provisions of
the Sarbanes-Oxley Act, and the rules and regulations promulgated thereunder,
upon the effectiveness of such provisions.
(gg) Nasdaq. The Company has not, in the twelve (12) months preceding
the date hereof, received notice from the Nasdaq SmallCap Market to the effect
that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements. The issuance and sale of the securities
hereunder does not contravene the rules and regulations of the Nasdaq SmallCap
Market.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares and Warrants being sold to it hereunder. The execution, delivery and
13
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. Each
of this Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by such Purchaser and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition for Investment. Each Purchaser is acquiring the
Preferred Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Each Purchaser does not have a present intention to sell the Preferred Shares or
the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(h) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and its subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.
(e) Status of Purchasers. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
14
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.
(f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
Shares were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Shares are being
offered and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Shares purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Shares.
15
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents, including filing a Form D with
respect to the Preferred Shares, Warrants, Conversion Shares and Warrant Shares
as required under Regulation D, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers or
subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Nasdaq SmallCap Market.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
16
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Commission ceases making
periodic reports filed under Section 13 of the Exchange Act available via its
Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Shares or shall
beneficially own any Shares, or shall own Shares which, in the aggregate,
represent more than 2% of the total combined voting power of all voting
securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
practical after the document is filed with the Commission, and in any event
within fifty-five (55) days after the end of each of the first three fiscal
quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
practical after the document is filed with the Commission, and in any event
within one hundred (100) days after the end of each fiscal year of the Company;
and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws in any way that would adversely affect the
liquidation preferences, dividends rights, conversion rights, voting rights or
redemption rights of the Preferred Shares; provided, however, that any creation
and issuance of another series of Junior Stock (as defined in the Certificate of
Designation) shall not be deemed to materially and adversely affect such rights,
preferences or privileges.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Preferred Shares or Warrants
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.10 Status of Dividends. The Company covenants and agrees that
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
17
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Internal Revenue Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Company's expense. In addition, the Company will reasonably
cooperate with the Purchasers (at Company's expense) in any litigation, appeal
or other proceeding challenging or contesting any ruling, technical advice,
finding or determination that earnings and profits are not eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision to the extent that the position to be taken in any such
litigation, appeal, or other proceeding is not contrary to any provision of the
Code or incurred in connection with any such submission, litigation, appeal or
other proceeding. Notwithstanding the foregoing, nothing herein contained shall
be deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Shares should not be treated as dividends for Federal income tax purposes or
that a deduction with respect to all or a portion of the dividends on the Shares
is allowable for Federal income tax purposes, or (ii) in the absence of such an
amendment, issuance or modification and after a submission of a request for
ruling or technical advice, the service shall rule or advise that dividends on
the shares should not be treated as dividends for Federal income tax purposes.
If the Service determines that the Preferred Shares or Conversion Shares
constitute debt, the Company may file protective claims for refund.
Section 3.11 Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for general corporate purposes,
including, without limitation, acquisitions and the retirement of indebtedness
owed to the lenders set forth on Schedule 3.11 hereto (the "Acquisition
Indebtedness").
Section 3.12 Future Financings; Right of First Offer and Refusal. (a)
During the period commencing on the Closing Date and ending on the date that is
six (6) months and one (1) day following the Closing Date, the Company covenants
and agrees that it will not enter into any subsequent offer or sale to, or
exchange with (or other type of distribution to), any third party (a "Subsequent
Financing"), of Common Stock or Preferred Stock or any securities convertible,
exercisable or exchangeable into Common Stock or Preferred Stock, including debt
securities so convertible (collectively, the "Financing Securities"), other than
18
a Permitted Financing. For purposes of this Agreement, "Permitted Financing"
shall mean any transaction involving (i) the Company's issuance of any Financing
Securities (other than for cash) in connection with a merger, acquisition or
consolidation, (ii) the Company's issuance of Financing Securities in connection
with strategic license agreements and other partnering arrangements so long as
such issuances are not for the purpose of raising capital, (iii) the Company's
issuance of Financing Securities in connection with bona fide firm underwritten
public offerings of its securities, (iv) the Company's issuance of Common Stock
or the issuance or grants of options to purchase Common Stock pursuant to the
Company's stock option plans and employee stock purchase plans outstanding as
they now exist, (v) as a result of the exercise of options or warrants or
conversion of convertible notes or preferred stock which are granted or issued
as of the date of this Agreement, (vi) any Warrants issued to the Purchasers and
any warrants issued to the placement agent for the transactions contemplated by
this Agreement, (vii) the payment of any dividends on the Preferred Shares,
(viii) the issuance of up to 1,000,000 shares of Common Stock at a price per
share greater than $1.00 and (ix) the issuance of secured convertible promissory
notes pursuant to the Note Purchase Agreement dated as of November 12, 2004 by
and among the Issuer and the signatories thereto (the "Note Purchase Agreement")
and shares of Common Stock issuable upon conversion of such secured convertible
promissory notes and the payment of interest accrued thereon.
(b) During the period commencing on the Closing Date and ending on the
date that is one (1) year following the Closing Date, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") each Purchaser of
the terms and conditions of any proposed Subsequent Financing. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
proposed closing date of the Subsequent Financing, which shall be within thirty
(30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the "Rights Option") during the ten (10)
Trading Days (as defined in Section 3.17 hereof) following delivery of the
Rights Notice (the "Option Period") to inform the Company whether such Purchaser
will purchase up to its pro rata portion of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing. If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata basis
so long as such participation in the aggregate does not exceed the total
Purchase Price hereunder. For purposes of this Section, all references to "pro
rata" means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the total number of Preferred
Shares purchased by such Purchaser at the Closing by (y) the total number of
Preferred Shares purchased at the Closing by all of the Purchasers electing to
participate in such Subsequent Financing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
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Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing on the scheduled closing date with a
third party; provided that all of the material terms and conditions of the
closing are the same as those provided to the Purchasers in the Rights Notice.
If the closing of the proposed Subsequent Financing does not occur on that date,
any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.12,
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.
(c) During the period commencing on the Closing Date and ending on the
date that is thirty six (36) months following the Closing Date, if the Company
enters into any Subsequent Financing, then each Purchaser in its sole discretion
may exchange its Preferred Shares then outstanding, valued at one hundred
percent (100%) of their face value, for the securities issued or to be issued in
the Subsequent Financing so long as such exchange is in compliance with
applicable securities laws. The Company covenants and agrees to promptly notify
in writing the Purchasers of the terms and conditions of any such proposed
Subsequent Financing. The Company is under no obligation, nor does the Company
have any present intention, to participate in a Subsequent Financing.
Section 3.13 Reservation of Shares. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit E attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
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Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
Section 3.15 Disposition of Assets. So long as the Preferred Shares
remain outstanding, neither the Company nor any of its subsidiaries shall sell,
transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business or with
the prior written consent of the holders of a majority of the Preferred Shares
then outstanding.
Section 3.16 Reporting Status. So long as any Purchaser beneficially
owns any of the Shares, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.17 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") as soon as practicable after the Closing but in no event
later than four hours after the Closing; provided, however, that if Closing
occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company shall issue
the Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the form of Warrant) as soon as practicable following the Closing Date but in no
event more than two (2) Trading Days following the Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means any day during which the Nasdaq SmallCap Market
(or other principal exchange on which the Common Stock is traded) shall be open
for trading.
Section 3.18 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
Section 3.19 Pledge of Securities. The Company acknowledges and agrees
that the Shares may be pledged by any Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
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Common Stock. Such a pledge of Common Stock shall not be deemed to be a
transfer, sale or assignment of the Common Stock hereunder, and no Purchaser
effecting such a pledge of Common Stock shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document; provided that a Purchaser
and its pledgee shall be required to comply with the provisions of Article V
hereof in order to effect a sale, transfer or assignment of Common Stock to such
pledgee. At each Purchaser's expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Common Stock may reasonably
request in connection with any pledge contemplated by this Section 3.19.
Section 3.20 Stockholder Approval. In connection with any Subsequent
Financing, the Company covenants and agrees to use its best efforts to obtain
stockholder approval to authorize the issuance of shares of Common Stock in
connection with such Subsequent Financing in excess of 19.99% of the number of
shares of Common Stock outstanding immediately prior to the closing date of such
Subsequent Financing.
Section 3.21 Acquisition Indebtedness. The Company shall use it best
efforts to arrange for extensions of payments due in connection with the
Acquisition Indebtedness and shall use its best efforts to raise additional
capital through the sale of its equity securities, the proceeds of which will be
used to satisfy the Acquisition Indebtedness.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
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(d) Delivery of Purchase Price. The Purchase Price for the Preferred
Shares and Warrants shall have been delivered to the Company at or prior to the
Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents to
which the Purchasers are parties have been duly executed and delivered by the
Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all material respects as of
such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement other Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall not
have been suspended by the Commission or the Nasdaq SmallCap Market (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing Date), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
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(f) Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit B attached hereto
shall have been executed by the Company and filed with the Secretary of State of
Minnesota.
(g) Opinion of Counsel, Etc. At the Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the Closing Date, in the
form of Exhibit F hereto, and such other certificates and documents as each
Purchaser or its counsel shall reasonably require incident to the Closing.
(h) Registration Rights Agreement. At the Closing, the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
(i) Certificates. The Company shall have executed and delivered to each
Purchaser the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing.
(j) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to one hundred ten
percent (110%) of the aggregate number of Conversion Shares issuable upon
conversion of the Preferred Shares outstanding on the Closing Date and the
number of Warrant Shares issuable upon exercise of the number of Warrants
assuming such Warrants were granted on the Closing Date (after giving effect to
the Preferred Shares and the Warrants to be issued on the Closing Date and
assuming all such Preferred Shares and Warrants were fully convertible or
exercisable on such date regardless of any limitation on the timing or amount of
such conversions or exercises).
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered to such
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.
(n) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
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(o) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
ARTICLE V
STOCK CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Shares shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR MULTIBAND CORPORATION
SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 5.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
25
transfer contained in this Section 5.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares, provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Conversion Shares or Warrant Shares to a
Purchaser by crediting the account of such Purchaser's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers or any such other persons as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein. Each Purchaser severally but not jointly agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable
attorneys' fees, charges and disbursements) incurred by the Company as result of
any inaccuracy in or breach of the representations, warranties or covenants made
by such Purchaser herein. The maximum aggregate liability of each Purchaser
pursuant to its indemnification obligations under this Article VI shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
26
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement, provided that the Company shall pay all actual attorneys' fees
and expenses (including disbursements and out-of-pocket expenses) incurred by
the Purchasers in connection with (i) the preparation, negotiation, execution
and delivery of this Agreement, the Registration Rights Agreement and the
transactions contemplated thereunder and the preparation, negotiation, execution
and delivery of the Note Purchase Agreement and the transactions contemplated
thereunder, which payment shall be made in cash at Closing and shall not exceed
$30,000 (exclusive of disbursements and out-of-pocket expenses), of which
$20,000 shall be payable directly to Gryphon Master Fund, L.P. and/or its
counsel to reimburse it for the fees and expenses, including attorneys' fees, in
connection with its due diligence review of the Company and review of the
Transaction Documents, (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
27
Agreement) and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
the enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement; Amendment. This Agreement and the other
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least three-fourths (3/4)
of the Preferred Shares then outstanding, and no provision hereof may be waived
other than by an a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Preferred Shares then outstanding. No consideration shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration is also
offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
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Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Multiband Corporation
9449 Science Center Drive
New Hope, MN 55428
Attention:
Tel No.: (763) 504-3000
Fax No.: (763) 504-3060
with copies to: [Insert Address]
If to any Purchaser: At the address of such Purchaser set
forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set forth on
Exhibit A or as specified in writing
by such Purchaser with copies to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attention: Christopher S. Auguste, Esq.
Tel No.: (212) 704-6000
Fax No.: (212) 704-6288
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
29
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Waiver of Jury Trial. Each party hereto hereby waives to
the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any litigation directly or indirectly arising out of,
under, or in connection with, this Agreement. Each party hereto (A) certifies
that no representative, agent or attorney of any other party has represented
expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (B) acknowledges that it
and the other parties hereto have been induced to enter into this Agreement, by
among other things, the mutual waivers and certifications in this Section 7.10.
Section 7.11 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date three (3) years from the Closing Date, and the agreements and
covenants set forth in Articles I, III, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder; provided,
that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11, 3.13, 3.14, 3.15,
3.16, and 3.18 shall not expire until the Registration Statement required by
Section 2 of the Registration Rights Agreement is no longer required to be
effective under the terms and conditions of Registration Rights Agreement.
Section 7.12 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 7.13 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
Section 7.14 Severability. The provisions of this Agreement, the
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
30
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 7.15 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
MULTIBAND CORPORATION
By:
--------------------------
Name:
Title:
PURCHASER
By:
--------------------------
Name:
Title:
EXHIBIT A TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
NAMES AND ADDRESSES NUMBER OF PREFERRED SHARES DOLLAR AMOUNT OF
OF PURCHASERS & WARRANTS PURCHASED INVESTMENT
------------------- -------------------------- ----------------
EXHIBIT B TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF CERTIFICATE OF DESIGNATION
2
EXHIBIT C TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF WARRANT
3
EXHIBIT D TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF REGISTRATION RIGHTS AGREEMENT
4
EXHIBIT E TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
MULTIBAND CORPORATION
as of November 16, 2004
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Series H Convertible Preferred Stock
Purchase Agreement (the "Purchase Agreement"), dated as of November 16, 2004, by
and among Multiband Corporation, a Minnesota corporation (the "COMPANY"), and
the purchasers named therein (collectively, the "PURCHASERS") pursuant to which
the Company is issuing to the Purchasers shares of its Series H Convertible
Preferred Stock, no par value per share, (the "PREFERRED SHARES") and warrants
(the "WARRANTS") to purchase shares of the Company's common stock, no par value
per share (the "COMMON STOCK"). This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of the
Preferred Shares (the "CONVERSION SHARES") and exercise of the Warrants (the
"WARRANT SHARES") to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Preferred
Shares, a copy of the certificates (with the original certificates delivered to
the Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the case
of their loss, theft or destruction), and (iii) delivery of a treasury order or
other appropriate order duly executed by a duly authorized officer of the
Company. So long as you have previously received (x) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT"), and no subsequent notice by the Company or
its counsel of the suspension or termination of its effectiveness and (y) a copy
of such registration statement, and if the Purchaser represents in writing that
the Conversion Shares or the Warrant Shares, as the case may be, were sold
pursuant to the Registration Statement, then certificates representing the
Conversion Shares and the Warrant Shares, as the case may be, shall not bear any
legend restricting transfer of the Conversion Shares and the Warrant Shares, as
the case may be, thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the SEC under the 1933 Act, and (ii) a copy of such
5
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS, OR MULTIBAND CORPORATION SHALL HAVE RECEIVED
AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Purchase Agreement and, accordingly, each
Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
MULTIBAND CORPORATION
By:
---------------------------------
Name:
-------------------------
Title:
-----------------------
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Date:
------------------
6
EXHIBIT I
MULTIBAND CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series H Convertible Preferred Stock of Multiband Corporation
(the "Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series H Convertible Preferred Stock, no par value per share (the
"Preferred Shares"), of Multiband Corporation, a Minnesota corporation (the
"Company"), indicated below into shares of Common Stock, no par value per share
(the "Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:
------------------
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
---------
The Common Stock has been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
------------------
Number of shares of Common Stock
to be issued:
------------------
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
--------------------------------
Authorization:
--------------------------------
By:
---------------------------
Title:
------------------------
Dated:
7
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
MULTIBAND CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Multiband
Corporation covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address ___________________________________
___________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address ___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address ___________________________
___________________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
8
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: MULTIBAND CORPORATION
Ladies and Gentlemen:
We are counsel to Multiband Corporation, a Minnesota corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Series H Convertible Preferred Stock Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of November 16, 2004, by and among the Company and the
purchasers named therein (collectively, the "PURCHASERS") pursuant to which the
Company issued to the Purchasers shares of its Series H Convertible Preferred
Stock, no par value per share, (the "PREFERRED SHARES") and warrants (the
"WARRANTS") to purchase shares of the Company's common stock, no par value per
share (the "COMMON STOCK"). Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), dated as of November 16, 2004, pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 ACT"). In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2004, the Company filed a Registration
Statement on Form S-1 (File No. 333-________) (the "REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names each of the present Purchasers as a
selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
-----------------------------
cc: [LIST NAMES OF PURCHASERS]
9
EXHIBIT F TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
MULTIBAND CORPORATION
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of Minnesota and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive rights under the Articles of Incorporation or the
Bylaws.
3. The Preferred Stock and the Warrants have been duly authorized and,
when delivered against payment in full as provided in the Purchase Agreement,
will be validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants,
have been duly authorized and reserved for issuance, and, when delivered upon
conversion or against payment in full as provided in the Certificate of
Designation and the Warrants, as applicable, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants do not (i) violate any provision of the Articles of
Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clause (i) above, for such conflicts, default, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
10
valid execution and delivery of the Transaction Documents, or the offer, sale or
issuance of the Preferred Stock, the Warrants or the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants other than the
Certificate of Designation and the Registration Statement.
6. There is no action, suit, claim, investigation or proceeding pending
or threatened against the Company which questions the validity of this Agreement
or the transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation or
proceeding pending, or to our knowledge, threatened, against or involving the
Company or any of its properties or assets and which, if adversely determined,
is reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Preferred Stock and the Warrants
and the offer, issuance and sale of the shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants pursuant to the
Purchase Agreement, the Certificate of Designation and the Warrants, as
applicable, are exempt from the registration requirements of the Securities Act.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Very truly yours,
11
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES H CONVERTIBLE PREFERRED STOCK
OF
MULTIBAND CORPORATION
The undersigned, the Chief Executive Officer of Multiband Corporation,
a Minnesota corporation (the "Company"), in accordance with the provisions of
the Minnesota Business Corporation Act, does hereby certify that, pursuant to
the authority conferred upon the Board of Directors by the Articles of
Incorporation of the Company, the following resolution creating a series of
Series H Convertible Preferred Stock, was duly adopted on November __, 2004:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company by provisions of the Articles of
Incorporation of the Company (the "Articles of Incorporation"), there hereby is
created out of the shares of Preferred Stock, no par value per share, of the
Company authorized in Article 3.1 of the Articles of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Company, to be named
"Series H Convertible Preferred Stock," consisting of fifteen (15) shares, which
series shall have the following designations, powers, preferences and relative
and other special rights and the following qualifications, limitations and
restrictions:
ARTICLE VIII DESIGNATION AND RANK. THE DESIGNATION OF SUCH SERIES OF
THE PREFERRED STOCK SHALL BE THE SERIES H CONVERTIBLE PREFERRED STOCK, NO PAR
VALUE PER SHARE (THE "SERIES H PREFERRED STOCK"). THE MAXIMUM NUMBER OF SHARES
OF SERIES H PREFERRED STOCK SHALL BE FIFTEEN (15) SHARES. THE SERIES H PREFERRED
STOCK SHALL RANK SENIOR TO THE COMMON STOCK, NO PAR VALUE PER SHARE (THE "COMMON
STOCK"), AND TO ALL OTHER CLASSES AND SERIES OF EQUITY SECURITIES OF THE COMPANY
WHICH BY THEIR TERMS DO NOT RANK SENIOR TO THE SERIES H PREFERRED STOCK ("JUNIOR
STOCK"). THE SERIES H PREFERRED STOCK SHALL BE SUBORDINATE TO AND RANK JUNIOR TO
ALL INDEBTEDNESS OF THE COMPANY NOW OR HEREAFTER OUTSTANDING.
ARTICLE IX DIVIDENDS.
Section 9.1 Payment of Dividends. The holders of record of shares of
Series H Preferred Stock shall be entitled to receive, out of any assets at the
time legally available therefor, dividends at the rate of six percent (6%) of
the stated Liquidation Preference Amount (as defined in Section 4 hereof) per
share per annum commencing on the date of issuance (the "Issuance Date") of the
Series H Preferred Stock (the "Dividend Payment"), and no more, payable
semi-annually at the option of the Company in cash or registered shares of
Common Stock. If the Company elects to pay any dividend in registered shares of
Common Stock, the number of registered shares of Common Stock to be issued to
the holder shall be an amount equal to the quotient of (i) the Dividend Payment
divided by (ii) the then effective Conversion Price (as defined in Section 5(d)
hereof). If the Company elects to pay any dividends in registered shares of
Common Stock, the Company will give the holders of record of shares of the
Series H Preferred Stock ten (10) trading days notice prior to the date of the
applicable Dividend Payment. In the case of shares of Series H Preferred Stock
outstanding for less than a full year, dividends shall be pro rated based on the
12
portion of each year during which such shares are outstanding. Dividends on the
Series H Preferred Stock shall be cumulative, shall accrue and be payable
semi-annually, on December 31 and June 30 of each year, commencing December 31,
2004, except that if such date is not a business day then the dividends shall be
payable on the first immediately succeeding business day. Dividends on the
Series H Preferred Stock are prior and in preference to any declaration or
payment of any distribution (as defined below) on any outstanding shares of
Junior Stock. Such dividends shall accrue on each share of Series H Preferred
Stock from day to day whether or not earned or declared so that if such
dividends with respect to any previous dividend period at the rate provided for
herein have not been paid on, or declared and set apart for, all shares of
Series H Preferred Stock at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata basis with all
other equity securities of the Company ranking on a parity with the Series H
Preferred Stock as to the payment of dividends before any distribution shall be
paid on, or declared and set apart for Junior Stock.
Section 9.2 So long as any shares of Series H Preferred Stock are
outstanding, the Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than dividends or
distributions payable in additional shares of Junior Stock), unless at the time
of such dividend or distribution the Company shall have paid all accrued and
unpaid dividends on the outstanding shares of Series H Preferred Stock.
Section 9.3 In the event of a dissolution, liquidation or winding up of
the Company pursuant to Section 4, all accrued and unpaid dividends on the
Series H Preferred Stock shall be payable on the day immediately preceding the
date of payment of the preferential amount to the holders of Series H Preferred
Stock. In the event of (i) a mandatory redemption pursuant to Section 9 or (ii)
a redemption upon the occurrence of a Major Transaction (as defined in Section
8(c)) or a Triggering Event (as defined in Section 8(d)), all accrued and unpaid
dividends on the Series H Preferred Stock shall be payable on the day
immediately preceding the date of such redemption. In the event of a conversion
pursuant to Section 5(a) or Section 5(c), all accrued and unpaid dividends on
the Series H Preferred Stock being converted shall be payable on the day
immediately preceding the Conversion Date (as defined in Section 5(c)(i)).
Section 9.4 For purposes hereof, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the Company, or the
purchase or redemption of shares of the Company (other than redemptions set
forth in Section 8 below or repurchases of Common Stock held by employees or
consultants of the Company upon termination of their employment or services
pursuant to agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or property.
13
ARTICLE X VOTING RIGHTS.
Section 10.1 Class Voting Rights. The Series H Preferred Stock shall
have the following class voting rights (in addition to the voting rights set
forth in Section 3(b) hereof). So long as any shares of the Series H Preferred
Stock remain outstanding, the Company shall not, without the affirmative vote or
consent of the holders of at least three-fourths (3/4) of the shares of the
Series H Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a meeting, in which the holders of the Series H
Preferred Stock vote separately as a class: (i) amend, alter or repeal the
provisions of the Series H Preferred Stock, whether by merger, consolidation or
otherwise, so as to adversely affect any right, preference, privilege or voting
power of the Series H Preferred Stock; provided, however, that any creation and
issuance of another series of Junior Stock shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers; (ii) repurchase,
redeem or pay dividends on, shares of Common Stock or any other shares of the
Company's Junior Stock (other than de minimus repurchases from employees of the
Company in certain circumstances); (iii) amend the Articles of Incorporation or
By-Laws of the Company so as to affect adversely any right, preference,
privilege or voting power of the Series H Preferred Stock; provided, however,
that any creation and issuance of another series of Junior Stock shall not be
deemed to adversely affect such rights, preferences, privileges or voting
powers; (iv) effect any distribution with respect to Junior Stock; (v)
reclassify the Company's outstanding securities; (vi) voluntarily file for
bankruptcy, liquidate the Company's assets or make an assignment for the benefit
of the Company's creditors; or (vii) change the nature of the Company's
business.
Section 10.2 General Voting Rights. In addition to the transactions
upon which the Series H Preferred Stock shall be entitled to vote separately as
a class pursuant to Section 3(a) above and except as otherwise required by
Minnesota law, each holder of shares of Series H Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series H Preferred Stock could be converted and shall
have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise expressly provided herein or as required by
law), voting together with the Common Stock as a single class and shall be
entitled to notice of any stockholders' meeting in accordance with the Articles
of Incorporation and the Bylaws of the Company.
ARTICLE XI LIQUIDATION PREFERENCE.
Section 11.1 In the event of the liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or involuntary, the holders of
shares of the Series H Preferred Stock then outstanding shall be entitled to
receive, out of the remaining assets of the Company available for distribution
to its stockholders, an amount equal to $100,000 per share (the "Liquidation
Preference Amount") of the Series H Preferred Stock plus any accrued and unpaid
dividends before any payment shall be made or any assets distributed to the
holders of the Common Stock or any other Junior Stock. If the assets of the
Company are not sufficient to pay in full the Liquidation Preference Amount plus
any accrued and unpaid dividends payable to the holders of outstanding shares of
the Series H Preferred Stock and any series of preferred stock or any other
class of stock on a parity, as to rights on liquidation, dissolution or winding
up, with the Series H Preferred Stock, then all of said assets will be
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distributed among the holders of the Series H Preferred Stock and the other
classes of stock on a parity with the Series H Preferred Stock, if any, ratably
in accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full. The liquidation payment with
respect to each outstanding fractional share of Series H Preferred Stock shall
be equal to a ratably proportionate amount of the liquidation payment with
respect to each outstanding share of Series H Preferred Stock. All payments for
which this Section 4(a) provides shall be in cash, property (valued at its fair
market value as determined by an independent appraiser reasonably acceptable to
the holders of a majority of the Series H Preferred Stock) or a combination
thereof; provided, however, that no cash shall be paid to holders of Junior
Stock unless each holder of the outstanding shares of Series H Preferred Stock
has been paid in cash the full Liquidation Preference Amount plus any accrued
and unpaid dividends to which such holder is entitled as provided herein. After
payment of the full Liquidation Preference Amount plus any accrued and unpaid
dividends to which each holder is entitled, such holders of shares of Series H
Preferred Stock will not be entitled to any further participation as such in any
distribution of the assets of the Company.
Section 11.2 A consolidation or merger of the Company with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Company, or the effectuation by the Company of a transaction or
series of related transactions in which more than 50% of the voting shares of
the Company is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4. In the event of
the merger or consolidation of the Company with or into another corporation, the
Series H Preferred Stock shall maintain its relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
Section 11.3 Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, stating a
payment date and the place where the distributable amounts shall be payable,
shall be given by mail, postage prepaid, no less than forty-five (45) days prior
to the payment date stated therein, to the holders of record of the Series H
Preferred Stock at their respective addresses as the same shall appear on the
books of the Company.
ARTICLE XII CONVERSION. THE HOLDER OF SERIES H PREFERRED STOCK SHALL
HAVE THE FOLLOWING CONVERSION RIGHTS (THE "CONVERSION RIGHTS"):
Section 12.1 Right to Convert. At any time on or after the Issuance
Date, the holder of any such shares of Series H Preferred Stock may, at such
holder's option, subject to the limitations set forth in Section 7 herein, elect
to convert (a "Conversion") all or any portion of the shares of Series H
Preferred Stock held by such person into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the
Liquidation Preference Amount of the shares of Series H Preferred Stock plus any
accrued and unpaid dividends being converted, if any, divided by (ii) the
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Conversion Price (as defined in Section 5(d) below) then in effect as of the
date of the delivery by such holder of its notice of election to convert. In the
event of a notice of redemption of any shares of Series H Preferred Stock
pursuant to Section 8 hereof, the Conversion Rights of the shares designated for
redemption shall terminate at the close of business on the last full day
preceding the date fixed for redemption, unless the redemption price is not paid
on such redemption date, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Company, the Conversion Rights shall terminate
at the close of business on the last full day preceding the date fixed for the
payment of any such amounts distributable on such event to the holders of Series
H Preferred Stock. In the event of such a redemption or liquidation, dissolution
or winding up, the Company shall provide to each holder of shares of Series H
Preferred Stock notice of such redemption or liquidation, dissolution or winding
up, which notice shall (i) be sent at least thirty (30) days prior to the
termination of the Conversion Rights and (ii) state the amount per share of
Series H Preferred Stock that will be paid or distributed on such redemption or
liquidation, dissolution or winding up, as the case may be.
Section 12.2 Mechanics of Conversion. The Conversion of Series H
Preferred Stock shall be conducted in the following manner:
(a) Holder's Delivery Requirements. To convert Series H
Preferred Stock into full shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 6:00 p.m., New York time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice"), to the Company, and (B) surrender to a
common carrier for delivery to the Company as soon as practicable following such
Conversion Date but in no event later than three (3) business days after such
date the original certificates representing the shares of Series H Preferred
Stock being converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates") and the originally executed Conversion Notice.
(b) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by the Company of a copy of the fully executed Conversion Notice,
the Company or its designated transfer agent (the "Transfer Agent"), as
applicable, shall, within three (3) business days following the date of receipt
by the Company of the fully executed Conversion Notice (so long as the
applicable Preferred Stock Certificates and original Conversion Notice are
received by the Company on or before such third business day), issue and deliver
to the Depository Trust Company ("DTC") account on the Holder's behalf via the
Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled.
Notwithstanding the foregoing to the contrary, the Company or its Transfer Agent
shall only be obligated to issue and deliver the shares to the DTC on a holder's
behalf via DWAC if (A) a registration statement providing for the resale of
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Common Stock issuable upon conversion of the Series H Preferred Stock has been
declared effective by the Securities and Exchange Commission (the "Registration
Statement"), (B) such conversion is in connection with a sale and (C) such
holder has complied with the applicable prospectus delivery requirements. If the
number of shares of Preferred Stock represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of shares of
Series H Preferred Stock being converted, then the Company shall, as soon as
practicable and in no event later than three (3) business days after receipt of
the Preferred Stock Certificate(s) and at the Company's expense, issue and
deliver to the holder a new Preferred Stock Certificate representing the number
of shares of Series H Preferred Stock not converted.
(c) Dispute Resolution. In the case of a dispute as to the
arithmetic calculation of the number of shares of Common Stock to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such
holder's Conversion Notice. If such holder and the Company are unable to agree
upon the arithmetic calculation of the number of shares of Common Stock to be
issued upon such conversion within one (1) business day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) business day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company's independent, outside accountant. The Company shall
cause the accountant to perform the calculations and notify the Company and the
holder of the results no later than seventy-two (72) hours from the time it
receives the disputed calculations. Such accountant's calculation shall be
binding upon all parties absent manifest error. The reasonable expenses of such
accountant in making such determination shall be paid by the Company, in the
event the holder's calculation was correct, or by the holder, in the event the
Company's calculation was correct, or equally by the Company and the holder in
the event that neither the Company's or the holder's calculation was correct.
The period of time in which the Company is required to effect conversions or
redemptions under this Certificate of Designation shall be tolled with respect
to the subject conversion or redemption pending resolution of any dispute by the
Company made in good faith and in accordance with this Section 5(b)(iii).
(d) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of the Series H Preferred
Stock shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(e) Company's Failure to Timely Convert. If within three (3)
business days of the Company's receipt of an executed copy of the Conversion
Notice (so long as the applicable Preferred Stock Certificates and original
Conversion Notice are received by the Company on or before such third business
day) (the "Share Delivery Period") the Transfer Agent shall fail to issue and
deliver to a holder the number of shares of Common Stock to which such holder is
17
entitled upon such holder's conversion of the Series H Preferred Stock or to
issue a new Preferred Stock Certificate representing the number of shares of
Series H Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a "Conversion Failure"), in addition to all other available remedies
which such holder may pursue hereunder and under the Series H Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement") among the Company
and the initial holders of the Series H Preferred Stock (including
indemnification pursuant to Section 6 thereof), the Company shall pay additional
damages to such holder for each business day after such third (3rd) business day
that such conversion is not timely effected in an amount equal to 0.005
multiplied by the product of (A) the sum of the number of shares of Common Stock
not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to
which such holder is entitled and, in the event the Company has failed to
deliver a Preferred Stock Certificate to the holder on a timely basis pursuant
to Section 5(b)(ii), the number of shares of Common Stock issuable upon
conversion of the shares of Series H Preferred Stock represented by such
Preferred Stock Certificate, as of the last possible date which the Company
could have issued such Preferred Stock Certificate to such holder without
violating Section 5(b)(ii) and (B) the Closing Bid Price (as defined below) of
the Common Stock on the last possible date which the Company could have issued
such Common Stock and such Preferred Stock Certificate, as the case may be, to
such holder without violating Section 5(b)(ii). If the Company fails to pay the
additional damages set forth in this Section 5(b)(v) within five (5) business
days of the date incurred, then such payment shall bear interest at the rate of
1.5% per month (pro rated for partial months) until such payments are made. The
term "Closing Bid Price" shall mean, for any security as of any date, the last
closing bid price of such security on the Nasdaq SmallCap Market for such
security as reported by Bloomberg, or, if no closing bid price is reported for
such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of a majority of the outstanding shares of Series
H Preferred Stock.
Section 12.3 Intentionally Omitted.
Section 12.4 Conversion Price.
(i) The term "Conversion Price" shall mean $1.00 per
share, subject to adjustment under Section 5(e) hereof. Notwithstanding any
adjustment hereunder, at no time shall the Conversion Price be greater than
$1.00 per share except if it is adjusted pursuant to Section 5(e)(i) hereof.
(ii) Notwithstanding the foregoing to the contrary,
if during any period (a "Black-out Period"), a holder of Series H Preferred
Stock is unable to trade any Common Stock issued or issuable upon conversion of
the Series H Preferred Stock immediately due to the postponement of filing or
delay or suspension of effectiveness of a registration statement or because the
18
Company has otherwise informed such holder of Series H Preferred Stock that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the holder of Series H Preferred Stock or due to the Company exercising its
rights under Section 3(n) of the Registration Rights Agreement (as defined in
the Purchase Agreement)), such holder of Series H Preferred Stock shall have the
option but not the obligation on any Conversion Date occurring within ten (10)
trading days following the expiration of the Black-out Period of using the
Conversion Price applicable on such Conversion Date or any Conversion Price
selected by such holder of Series H Preferred Stock that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten (10) trading days thereafter.
Section 12.5 Adjustments of Conversion Price.
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common Stock, the
Conversion Price shall be proportionately increased. Any adjustments under this
Section 5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.
(b) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the Conversion Price shall be decreased as of
the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.
(c) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
19
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of Series H Preferred Stock shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would have received had their
Series H Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 5(e)(iii) with
respect to the rights of the holders of the Series H Preferred Stock; provided,
however, that if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be adjusted pursuant to this paragraph as of the time
of actual payment of such dividends or distributions; and provided further,
however, that no such adjustment shall be made if the holders of Series H
Preferred Stock simultaneously receive (i) a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common Stock
as they would have received if all outstanding shares of Series H Preferred
Stock had been converted into Common Stock on the date of such event or (ii) a
dividend or other distribution of shares of Series H Preferred Stock which are
convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.
(d) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of the Series H
Preferred Stock at any time or from time to time after the Issuance Date shall
be changed to the same or different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other
than by way of a stock split or combination of shares or stock dividends
provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in
each event, an appropriate revision to the Conversion Price shall be made and
provisions shall be made (by adjustments of the Conversion Price or otherwise)
so that the holder of each share of Series H Preferred Stock shall have the
right thereafter to convert such share of Series H Preferred Stock into the kind
and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such share of Series H Preferred
Stock might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.
(e) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Company (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange
or substitution of shares provided for in Section 5(e)(iv)), or a merger or
consolidation of the Company with or into another corporation where the holders
of outstanding voting securities prior to such merger or consolidation do not
own over 50% of the outstanding voting securities of the merged or consolidated
entity, immediately after such merger or consolidation, or the sale of all or
20
substantially all of the Company's properties or assets to any other person (an
"Organic Change"), then as a part of such Organic Change an appropriate revision
to the Conversion Price shall be made if necessary and provision shall be made
if necessary (by adjustments of the Conversion Price or otherwise) so that the
holder of each share of Series H Preferred Stock shall have the right thereafter
to convert such share of Series H Preferred Stock into the kind and amount of
shares of stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
5(e)(v) with respect to the rights of the holders of the Series H Preferred
Stock after the Organic Change to the end that the provisions of this Section
5(e)(v) (including any adjustment in the Conversion Price then in effect and the
number of shares of stock or other securities deliverable upon conversion of the
Series H Preferred Stock) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
(f) Survival. Upon the full conversion of the Series H
Preferred Stock, the provisions of this Section 5(e) shall no longer apply.
Section 12.6 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series H Preferred Stock against impairment. In the event a holder shall elect
to convert any shares of Series H Preferred Stock as provided herein, the
Company cannot refuse conversion based on any claim that such holder or any one
associated or affiliated with such holder has been engaged in any violation of
law, unless, an injunction from a court, on notice, restraining and/or enjoining
conversion of all or of said shares of Series H Preferred Stock shall have been
issued and the Company posts a surety bond for the benefit of such holder in an
amount equal to 100% of the Liquidation Preference Amount plus any accrued and
unpaid dividends of the Series H Preferred Stock such holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such holder in the event it obtains judgment.
Section 12.7 Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of the Series H Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series H Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
such affected Series H Preferred Stock, at any time, furnish or cause to be
21
furnished to such holder a like certificate setting forth such adjustments and
readjustments, the Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series H Preferred Stock. Notwithstanding the foregoing, the Company shall not
be obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount; provided,
however, that any adjustments that by reason of this subsection (g) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
Section 12.8 Issue Taxes. The Company shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series H Preferred Stock pursuant thereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
Section 12.9 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
facsimile or three (3) business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company. The
Company will give written notice to each holder of Series H Preferred Stock at
least twenty (20) days prior to the date on which the Company closes its books
or takes a record (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to holders of
Common Stock or (III) for determining rights to vote with respect to any Organic
Change, dissolution, liquidation or winding-up and in no event shall such notice
be provided to such holder prior to such information being made known to the
public. The Company will also give written notice to each holder of Series H
Preferred Stock at least twenty (20) days prior to the date on which any Organic
Change, dissolution, liquidation or winding-up will take place and in no event
shall such notice be provided to such holder prior to such information being
made known to the public.
Section 12.10 Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series H Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
trading days immediately preceding the applicable Conversion Date.
Section 12.11 Reservation of Common Stock. The Company shall, so long
as any shares of Series H Preferred Stock are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series H Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
22
conversion of all of the Series H Preferred Stock then outstanding provided,
that the number of shares of Common Stock so reserved shall at no time be less
than 110% of the number of shares of Common Stock for which such shares of
Series H Preferred Stock and all dividends accrued thereon are at any time
convertible. The initial number of shares of Common Stock reserved for
conversions of the Series H Preferred Stock and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Series H
Preferred Stock based on the number of shares of Series H Preferred Stock held
by each holder of record at the time of issuance of the Series H Preferred Stock
or increase in the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's shares of Series H
Preferred Stock, each transferee shall be allocated a pro rata portion of the
number of reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and which remain allocated to any person or
entity which does not hold any shares of Series H Preferred Stock shall be
allocated to the remaining holders of Series H Preferred Stock, pro rata based
on the number of shares of Series H Preferred Stock then held by such holder.
Section 12.12 Retirement of Series H Preferred Stock. Conversion of
Series H Preferred Stock shall be deemed to have been effected on the applicable
Conversion Date. Upon conversion of only a portion of the number of shares of
Series H Preferred Stock represented by a certificate surrendered for
conversion, the Company shall issue and deliver to such holder at the expense of
the Company, a new certificate covering the number of shares of Series H
Preferred Stock representing the unconverted portion of the certificate so
surrendered as required by Section 5(b)(ii).
Section 12.13 Regulatory Compliance. If any shares of Common Stock to
be reserved for the purpose of conversion of Series H Preferred Stock require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
ARTICLE XIII NO PREEMPTIVE RIGHTS. EXCEPT AS PROVIDED IN SECTION 5
HEREOF AND IN THE PURCHASE AGREEMENT, NO HOLDER OF THE SERIES H PREFERRED STOCK
SHALL BE ENTITLED TO RIGHTS TO SUBSCRIBE FOR, PURCHASE OR RECEIVE ANY PART OF
ANY NEW OR ADDITIONAL SHARES OF ANY CLASS, WHETHER NOW OR HEREINAFTER
AUTHORIZED, OR OF BONDS OR DEBENTURES, OR OTHER EVIDENCES OF INDEBTEDNESS
CONVERTIBLE INTO OR EXCHANGEABLE FOR SHARES OF ANY CLASS, BUT ALL SUCH NEW OR
ADDITIONAL SHARES OF ANY CLASS, OR ANY BOND, DEBENTURES OR OTHER EVIDENCES OF
INDEBTEDNESS CONVERTIBLE INTO OR EXCHANGEABLE FOR SHARES, MAY BE ISSUED AND
DISPOSED OF BY THE BOARD OF DIRECTORS ON SUCH TERMS AND FOR SUCH CONSIDERATION
(TO THE EXTENT PERMITTED BY LAW), AND TO SUCH PERSON OR PERSONS AS THE BOARD OF
DIRECTORS IN THEIR ABSOLUTE DISCRETION MAY DEEM ADVISABLE.
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ARTICLE XIV CONVERSION RESTRICTIONS.
Section 14.1 Notwithstanding anything to the contrary set forth in
Section 5 of this Certificate of Designation, at no time may a holder of shares
of Series H Preferred Stock convert shares of the Series H Preferred Stock if
the number of shares of Common Stock to be issued pursuant to such conversion,
when aggregated with all other shares of Common Stock owned by such holder at
such time, would result in such holder beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 4.9% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however,
that upon a holder of Series H Preferred Stock providing the Company with
sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver
Notice") that such holder would like to waive this Section 7(a) with regard to
any or all shares of Common Stock issuable upon conversion of Series H Preferred
Stock, this Section 7(a) shall be of no force or effect with regard to those
shares of Series H Preferred Stock referenced in the Waiver Notice. Any holder
of Series H Preferred Stock may waive this Section 7(a) by so indicating on the
signature page to the Purchase Agreement, any such waiver to be effective on and
as of the Issuance Date.
Section 14.2 Notwithstanding anything to the contrary set forth in
Section 5 of this Certificate of Designation, at no time may a holder of shares
of Series H Preferred Stock convert shares of the Series H Preferred Stock if
the number of shares of Common Stock to be issued pursuant to such conversion,
when aggregated with all other shares of Common Stock owned by such holder at
such time, would result in such holder beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 9.9% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however,
that upon a holder of Series H Preferred Stock providing the Company with a
Waiver Notice that such holder would like to waive Section 7(b) of this
Certificate of Designation with regard to any or all shares of Common Stock
issuable upon conversion of Series H Preferred Stock, this Section 7(b) shall be
of no force or effect with regard to those shares of Series H Preferred Stock
referenced in the Waiver Notice. Any holder of Series H Preferred Stock may
waive this Section 7(b) by so indicating on the signature page to the Purchase
Agreement, any such waiver to be effective on and as of the Issuance Date.
ARTICLE XV REDEMPTION.
Section 15.1 Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Series H Preferred Stock contained herein,
simultaneous with the occurrence of a Major Transaction (as defined below), each
holder of Series H Preferred Stock shall have the right, at such holder's
24
option, to require the Company to redeem all or a portion of such holder's
shares of Series H Preferred Stock at a price per share of Series H Preferred
Stock equal to 100% of the Liquidation Preference Amount plus any accrued and
unpaid dividends (the "Major Transaction Redemption Price"); provided that the
Company shall have the sole option to pay the Major Transaction Redemption Price
in cash or shares of Common Stock. If the Company elects to pay the Major
Transaction Redemption Price in shares of Common Stock, the price per share
shall be based upon the Conversion Price then in effect on the day preceding the
date of delivery of the Notice of Redemption at Option of Buyer Upon Major
Transaction (as hereafter defined) and the holder of such shares of Common Stock
shall have demand registration rights with respect to such shares.
Section 15.2 Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Series H Preferred Stock contained herein,
after a Triggering Event (as defined below), each holder of Series H Preferred
Stock shall have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's shares of Series H Preferred Stock at a
price per share of Series H Preferred Stock equal to 120% of the Liquidation
Preference Amount plus any accrued and unpaid dividends (the "Triggering Event
Redemption Price" and, collectively with the "Major Transaction Redemption
Price," the "Redemption Price"); provided that with respect to the Triggering
Events described in clauses (i), (ii), (iii) and (v) of Section 8(d), the
Company shall have the sole option to pay the Triggering Event Redemption Price
in cash or shares of Common Stock; and provided, further, that with respect to
the Triggering Event described in clause (iv) of Section 8(d), the Company shall
pay the Triggering Event Redemption Price in cash. If the Company elects to pay
the Triggering Event Redemption Price in shares of Common Stock in accordance
with this Section 8(b), the price per share shall be based upon the Conversion
Price then in effect on the day preceding the date of delivery of the Notice of
Redemption at Option of Buyer Upon Triggering Event (as hereafter defined) and
the holder of such shares of Common Stock shall have demand registration rights
with respect to such shares.
Section 15.3 "Major Transaction". A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(a) the consolidation, merger or other business combination of the
Company with or into another person or entity (other than (A) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (B) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities).
25
(b) the sale or transfer of more than 50% of the Company's assets other
than inventory in the ordinary course of business in one or a related series of
transactions; or
(c) closing of a purchase, tender or exchange offer made to the holders
of more than fifty percent (50%) of the outstanding shares of Common Stock in
which more than fifty percent (50%) of the outstanding shares of Common Stock
were tendered and accepted.
Section 15.4 "Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(a) so long as any shares of Series H Preferred Stock are outstanding,
the effectiveness of the Registration Statement, after it becomes effective, (i)
lapses for any reason (including, without limitation, the issuance of a stop
order) or (ii) is unavailable to the holder of the Series H Preferred Stock for
sale of the shares of Common Stock, and such lapse or unavailability continues
for a period of twenty (20) consecutive trading days, and the shares of Common
Stock into which such holder's Series H Preferred Stock can be converted cannot
be sold in the public securities market pursuant to Rule 144(k) under the
Securities Act of 1933, as amended, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such holder of
Series H Preferred Stock;
(b) the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, the Nasdaq National Market, the Nasdaq SmallCap Market, the New
York Stock Exchange, Inc. or the American Stock Exchange, Inc., for a period of
five (5) consecutive trading days;
(c) the Company's notice to any holder of Series H Preferred Stock,
including by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 9) or its intention not
to comply with proper requests for conversion of any Series H Preferred Stock
into shares of Common Stock;
(d) the Company's failure to comply with a Conversion Notice tendered
in accordance with the provisions of this Certificate of Designation within ten
(10) business days after the receipt by the Company of the Conversion Notice and
the Preferred Stock Certificates; or
(e) the Company breaches any representation, warranty, covenant or
other term or condition of the Purchase Agreement, this Certificate of
Designation or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby or hereby,
except to the extent that such breach would not have a Material Adverse Effect
(as defined in the Purchase Agreement) and except, in the case of a breach of a
26
covenant which is curable, only if such breach continues for a period of a least
ten (10) days.
Section 15.5 Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Series H Preferred Stock. At any time after receipt of a Notice
of Major Transaction (or, in the event a Notice of Major Transaction is not
delivered at least ten (10) days prior to a Major Transaction, at any time
within ten (10) days prior to a Major Transaction), any holder of Series H
Preferred Stock then outstanding may require the Company to redeem, effective
immediately prior to the consummation of such Major Transaction, all of the
holder's Series H Preferred Stock then outstanding by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Company, which Notice of Redemption at
Option of Buyer Upon Major Transaction shall indicate (i) the number of shares
of Series H Preferred Stock that such holder is electing to redeem and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to Section
8(a) above.
Section 15.6 Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of Series H Preferred Stock. At
any time after the earlier of a holder's receipt of a Notice of Triggering Event
and such holder becoming aware of a Triggering Event, any holder of Series H
Preferred Stock then outstanding may require the Company to redeem all of the
holder's Series H Preferred Stock then outstanding by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of shares of
Series H Preferred Stock that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to Section
8(b) above.
Section 15.7 Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction from any
holder of Series H Preferred Stock, the Company shall immediately notify each
holder of Series H Preferred Stock by facsimile of the Company's receipt of such
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or Notice(s) of
Redemption at Option of Buyer Upon Major Transaction and each holder which has
sent such a notice shall promptly submit to the Company such holder's Preferred
Stock Certificates which such holder has elected to have redeemed. Other than
with respect to the Triggering Event described in clause (iv) of Section 8(d),
the Company shall have the sole option to pay the Redemption Price in cash or
shares of Common Stock in accordance with Sections 8(a) and (b) and Section 9 of
27
this Certificate of Designation. The Company shall deliver the applicable
Redemption Price immediately prior to the consummation of the Major Transaction
or the Triggering Event, as the case may be; provided that a holder's Preferred
Stock Certificates shall have been so delivered to the Company; provided further
that if the Company is unable to redeem all of the Series H Preferred Stock to
be redeemed, the Company shall redeem an amount from each holder of Series H
Preferred Stock being redeemed equal to such holder's pro-rata amount (based on
the number of shares of Series H Preferred Stock held by such holder relative to
the number of shares of Series H Preferred Stock outstanding) of all Series H
Preferred Stock being redeemed. If the Company shall fail to redeem all of the
Series H Preferred Stock submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Redemption Price), in addition
to any remedy such holder of Series H Preferred Stock may have under this
Certificate of Designation, the Purchase Agreement or applicable law, the
applicable Redemption Price payable in respect of such unredeemed Series H
Preferred Stock shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full. Until the Company pays such unpaid
applicable Redemption Price in full to a holder of shares of Series H Preferred
Stock submitted for redemption, such holder shall have the option (the "Void
Optional Redemption Option") to, in lieu of redemption, require the Company to
promptly return to such holder(s) all of the shares of Series H Preferred Stock
that were submitted for redemption by such holder(s) under this Section 8 and
for which the applicable Redemption Price has not been paid, by sending written
notice thereof to the Company via facsimile (the "Void Optional Redemption
Notice"). Upon the Company's receipt of such Void Optional Redemption Notice(s)
and prior to payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Buyer Upon Major Transaction shall be
null and void with respect to those shares of Series H Preferred Stock submitted
for redemption and for which the applicable Redemption Price has not been paid
and (ii) the Company shall immediately return any Series H Preferred Stock
submitted to the Company by each holder for redemption under this Section 8(d)
and for which the applicable Redemption Price has not been paid and (iii) the
Conversion Price of such returned shares of Series H Preferred Stock shall be
adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing
Bid Price during the period beginning on the date on which the Notice(s) of
Redemption of Option of Buyer Upon Major Transaction is delivered to the Company
and ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect. A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice other than
interest payments. Payments provided for in this Section 8 shall have priority
to payments to other stockholders in connection with a Major Transaction.
28
Section 15.8 Company's Redemption Option.
(A) Commencing one (1) year from the Effectiveness
Date (as defined in the Registration Rights Agreement, dated November 16, 2004,
between the Company and the purchasers listed on Schedule I thereto), so long as
(i) the Closing Bid Price of the Common Stock equals or exceeds $2.00 for a
period of any ten (10) trading days out of fifteen (15) consecutive trading days
so long as the first trading day of such fifteen (15) trading day period is
following the date that is one (1) year from the Effectiveness Date, (ii) the
Registration Statement is effective and has been effective, without lapse or
suspension of any kind, for a period sixty (60) consecutive calendar days, or
the shares of Common Stock into which the Series H Preferred Stock can be
converted may be offered for sale to the public pursuant to Rule 144(k) under
the Securities Act of 1933, as amended, (iii) trading in the Common Stock shall
not have been suspended by the Securities and Exchange Commission or the Nasdaq
SmallCap Market and (iv) the Company is in material compliance with the terms
and conditions of the Transaction Documents (as defined in the Purchase
Agreement), the Company may redeem all or any portion of such holder's shares of
Series H Preferred Stock, plus any accrued but unpaid dividends, upon ten (10)
business days prior written notice to the holder (the "Company Redemption
Notice") at a redemption price equal to a number of shares of Common Stock equal
to the quotient of (a) the Liquidation Preference Amount of the shares of Series
H Preferred Stock plus any accrued and unpaid dividends outstanding on the
Company Redemption Date (as defined below) divided by (b) the Conversion Price
then in effect.
(B) Commencing one (1) year from the Effectiveness
Date, so long as (i) the Registration Statement is effective and has been
effective, without lapse or suspension of any kind, for a period sixty (60)
consecutive calendar days, or the shares of Common Stock into which the Series H
Preferred Stock can be converted may be offered for sale to the public pursuant
to Rule 144(k) under the Securities Act of 1933, as amended, (ii) trading in the
Common Stock shall not have been suspended by the Securities and Exchange
Commission or the Nasdaq SmallCap Market and (iii) the Company is in material
compliance with the terms and conditions of the Transaction Documents (as
defined in the Purchase Agreement), the Company may redeem all or any portion of
such holder's shares of Series H Preferred Stock, plus any accrued but unpaid
dividends, by providing a Company Redemption Notice to the holder at a cash
redemption price equal to (a) in the event the Market Price (as defined below)
of the Company's Common Stock is below $1.00 per share at the time the Company
Redemption Notice is sent by the Company via facsimile to the holder, one
hundred percent (100%) of the Liquidation Preference Amount plus any accrued and
unpaid dividends, or (b) in the event the Market Price of the Company's Common
Stock is above $1.00 per share at the time the Company Redemption Notice is sent
by the Company via facsimile to the holder, (1) one hundred twenty percent
(120%) of the Liquidation Preference Amount plus any accrued and unpaid
dividends if the Company Redemption Notice is given during the period from the
Issuance Date through the one (1) year anniversary of the Issuance Date, (2) one
hundred twenty five percent (125%) of the Liquidation Preference Amount plus any
accrued and unpaid dividends if the Company Redemption Notice is given during
the period from the one (1) year anniversary of the Issuance Date through the
29
two (2) year anniversary, or (3) one hundred thirty percent (130%) of the
Liquidation Preference Amount plus any accrued and unpaid dividends if the
Company Redemption Notice is given after the two (2) year anniversary of the
Issuance Date (the "Company Redemption Price"). "Market Price" shall mean one
hundred percent (100%) of the average Closing Bid Price, as defined herein, for
the Company's Common Stock for the five (5) trading days prior to the date the
Company Redemption Notice is sent by the Company via facsimile to the holder.
(c) Notwithstanding anything contained in this
Section 8(h) to the contrary, if the holder has delivered a Conversion Notice to
the Company or delivers a Conversion Notice after receipt of the Company's
Redemption Notice, the portion of the shares of Series H Preferred Stock
designated to be converted may not be redeemed by the Company. The Company may
not deliver a Company Redemption Notice to the holder unless the Company has
clear and good funds for a minimum of the amount it intends to redeem in a bank
account controlled by the Company. The Company Redemption Notice shall state the
date of redemption (the "Company Redemption Date"), the Company Redemption
Price, the number of shares of the Series H Preferred Stock of such holder to be
redeemed and shall call upon the holder to surrender to the Company on the
Company Redemption Date at the place designated in the Company Redemption Notice
such holder's Series H Preferred Stock. The Company Redemption Date shall be no
more than ten (10) trading days after the date on which the holder is notified
of the Company's intent to redeem the shares of Series H Preferred Stock (the
"Company Redemption Notice Date"). If the Company fails to pay the Company
Redemption Price by the eleventh (11th) trading day following the Company
Redemption Notice Date, the redemption will be declared null and void and the
Company shall lose its right to deliver a Company Redemption Notice to the
holder in the future. On or after the Company Redemption Date, the holder shall
surrender the Series H Preferred Stock called for redemption to the Company at
the place designated in the Company Redemption Notice and shall thereupon be
entitled to receive payment of the Company Redemption Price.
Section 15.9 Demand Registration Rights. If the Redemption Price upon
the occurrence of a Major Transaction or Triggering Event is paid in shares of
Common Stock or shares of Common Stock have been issued on any Conversion Date
and such shares have not been previously registered on a registration statement
under the Securities Act, a holder of Series H Preferred Stock may make a
written request for registration under the Securities Act pursuant to this
Section 8(i) of all of its shares of Common Stock issued upon such Major
Transaction, Triggering Event or Conversion Date. The Company shall use its
reasonable best efforts to cause to be filed and declared effective as soon as
reasonably practicable (but in no event later than the ninetieth (90th) day
after such holder's request is made) a registration statement under the
Securities Act, providing for the sale of all of the shares of Common Stock
issued upon such Major Transaction or Triggering Event or on any Conversion Date
by such holder. The Company agrees to use its reasonable best efforts to keep
any such registration statement continuously effective for resale of the Common
Stock for so long as such holder shall request, but in no event later than the
30
date that the shares of Common Stock issued upon such Major Transaction or
Triggering Event or Conversion Date may be offered for resale to the public
pursuant to Rule 144(k).
ARTICLE XVI INABILITY TO FULLY CONVERT.
Section 16.1 Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (w) does not have a
sufficient number of shares of Common Stock authorized and available, (x) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common Stock which is to be issued to a holder of Series H Preferred
Stock pursuant to a Conversion Notice or (y) fails to have a sufficient number
of shares of Common Stock registered for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock as it is
able to issue in accordance with such holder's Conversion Notice and pursuant to
Section 5(b)(ii) above and, with respect to the unconverted Series H Preferred
Stock, the holder, solely at such holder's option, can elect, within five (5)
business days after receipt of notice from the Company thereof to:
(a) require the Company to redeem from such holder for those
shares of Series H Preferred Stock for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per share equal to the Triggering Event Redemption Price
as of such Conversion Date (the "Mandatory Redemption Price"); provided that the
Company shall have the sole option to pay the Mandatory Redemption Price in cash
or shares of Common Stock;
(b) if the Company's inability to fully convert Series H
Preferred Stock is pursuant to Section 9(a)(y) above, require the Company to
issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 5(b)(ii) above; or
(c) void its Conversion Notice and retain or have returned, as
the case may be, the shares of Series H Preferred Stock that were to be
converted pursuant to such holder's Conversion Notice (provided that a holder's
voiding its Conversion Notice shall not affect the Company's obligations to make
any payments which have accrued prior to the date of such notice).
Section 16.2 Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile or express courier service to a holder of
Series H Preferred Stock, upon receipt of a facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as described in Section
9(a) above, a notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to
31
Fully Convert Notice shall indicate (i) the reason why the Company is unable to
fully satisfy such holder's Conversion Notice, (ii) the number of Series H
Preferred Stock which cannot be converted and (iii) the applicable Mandatory
Redemption Price. Such holder shall notify the Company of its election pursuant
to Section 9(a) above by delivering written notice via facsimile to the Company
("Notice in Response to Inability to Convert").
Section 16.3 Payment of Mandatory Redemption Price. If such holder
shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the
Company shall pay the Mandatory Redemption Price to such holder within ten (10)
days of the Company's receipt of the holder's Notice in Response to Inability to
Convert; provided that prior to the Company's receipt of the holder's Notice in
Response to Inability to Convert the Company has not delivered a notice to such
holder stating, to the satisfaction of the holder, that the event or condition
resulting in the Mandatory Redemption has been cured and all shares of Common
Stock issuable to such holder can and will be delivered to the holder in
accordance with the terms of Section 5(b). If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis as
described in this Section 9(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Mandatory Redemption Price),
in addition to any remedy such holder of Series H Preferred Stock may have under
this Certificate of Designation, the Purchase Agreement or applicable law, such
unpaid amount shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full. Until the full Mandatory Redemption Price is
paid in full to such holder, such holder may (i) void the Mandatory Redemption
with respect to those Series H Preferred Stock for which the full Mandatory
Redemption Price has not been paid, (ii) receive back such Series H Preferred
Stock, and (iii) require that the Conversion Price of such returned Series H
Preferred Stock be adjusted to the lesser of (A) the Conversion Price then in
effect and (B) the lowest Closing Bid Price during the period beginning on the
Conversion Date and ending on the date the holder voided the Mandatory
Redemption.
Section 16.4 Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of Series H
Preferred Stock on the same day and the Company can convert and redeem some, but
not all, of the Series H Preferred Stock pursuant to this Section 9, the Company
shall convert and redeem from each holder of Series H Preferred Stock electing
to have Series H Preferred Stock converted and redeemed at such time an amount
equal to such holder's pro-rata amount (based on the number shares of Series H
Preferred Stock held by such holder relative to the number shares of Series H
Preferred Stock outstanding) of all shares of Series H Preferred Stock being
converted and redeemed at such time.
ARTICLE XVII VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED STOCK. THE
AFFIRMATIVE VOTE AT A MEETING DULY CALLED FOR SUCH PURPOSE OR THE WRITTEN
CONSENT WITHOUT A MEETING, OF THE HOLDERS OF NOT LESS THAN THREE-FOURTHS (3/4)
OF THE THEN OUTSTANDING SHARES OF SERIES H PREFERRED STOCK, SHALL BE REQUIRED
(A) FOR ANY CHANGE TO THIS CERTIFICATE OF DESIGNATION OR THE COMPANY'S ARTICLES
OF INCORPORATION WHICH WOULD AMEND, ALTER, CHANGE OR REPEAL ANY OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RIGHTS OF THE SERIES H PREFERRED STOCK OR (B) FOR
32
THE ISSUANCE OF SHARES OF SERIES H PREFERRED STOCK OTHER THAN PURSUANT TO THE
PURCHASE AGREEMENT AND/OR AS DIVIDENDS PAID IN SHARES OF SERIES H PREFERRED
STOCK.
ARTICLE XVIII LOST OR STOLEN CERTIFICATES. UPON RECEIPT BY THE COMPANY
OF EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY OF THE LOSS, THEFT,
DESTRUCTION OR MUTILATION OF ANY PREFERRED STOCK CERTIFICATES REPRESENTING THE
SHARES OF SERIES H PREFERRED STOCK, AND, IN THE CASE OF LOSS, THEFT OR
DESTRUCTION, OF ANY INDEMNIFICATION UNDERTAKING BY THE HOLDER TO THE COMPANY
AND, IN THE CASE OF MUTILATION, UPON SURRENDER AND CANCELLATION OF THE PREFERRED
STOCK CERTIFICATE(S), THE COMPANY SHALL EXECUTE AND DELIVER NEW PREFERRED STOCK
CERTIFICATE(S) OF LIKE TENOR AND DATE; PROVIDED, HOWEVER, THE COMPANY SHALL NOT
BE OBLIGATED TO RE-ISSUE PREFERRED STOCK CERTIFICATES IF THE HOLDER
CONTEMPORANEOUSLY REQUESTS THE COMPANY TO CONVERT SUCH SHARES OF SERIES H
PREFERRED STOCK INTO COMMON STOCK.
ARTICLE XIX REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. THE REMEDIES PROVIDED IN THIS CERTIFICATE OF DESIGNATION
SHALL BE CUMULATIVE AND IN ADDITION TO ALL OTHER REMEDIES AVAILABLE UNDER THIS
CERTIFICATE OF DESIGNATION, AT LAW OR IN EQUITY (INCLUDING A DECREE OF SPECIFIC
PERFORMANCE AND/OR OTHER INJUNCTIVE RELIEF), NO REMEDY CONTAINED HEREIN SHALL BE
DEEMED A WAIVER OF COMPLIANCE WITH THE PROVISIONS GIVING RISE TO SUCH REMEDY AND
NOTHING HEREIN SHALL LIMIT A HOLDER'S RIGHT TO PURSUE ACTUAL DAMAGES FOR ANY
FAILURE BY THE COMPANY TO COMPLY WITH THE TERMS OF THIS CERTIFICATE OF
DESIGNATION. AMOUNTS SET FORTH OR PROVIDED FOR HEREIN WITH RESPECT TO PAYMENTS,
CONVERSION AND THE LIKE (AND THE COMPUTATION THEREOF) SHALL BE THE AMOUNTS TO BE
RECEIVED BY THE HOLDER THEREOF AND SHALL NOT, EXCEPT AS EXPRESSLY PROVIDED
HEREIN, BE SUBJECT TO ANY OTHER OBLIGATION OF THE COMPANY (OR THE PERFORMANCE
THEREOF). THE COMPANY ACKNOWLEDGES THAT A BREACH BY IT OF ITS OBLIGATIONS
HEREUNDER WILL CAUSE IRREPARABLE HARM TO THE HOLDERS OF THE SERIES H PREFERRED
STOCK AND THAT THE REMEDY AT LAW FOR ANY SUCH BREACH MAY BE INADEQUATE. THE
COMPANY THEREFORE AGREES THAT, IN THE EVENT OF ANY SUCH BREACH OR THREATENED
BREACH, THE HOLDERS OF THE SERIES H PREFERRED STOCK SHALL BE ENTITLED, IN
ADDITION TO ALL OTHER AVAILABLE REMEDIES, TO AN INJUNCTION RESTRAINING ANY
BREACH, WITHOUT THE NECESSITY OF SHOWING ECONOMIC LOSS AND WITHOUT ANY BOND OR
OTHER SECURITY BEING REQUIRED.
ARTICLE XX SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. NO SPECIFIC
PROVISION CONTAINED IN THIS CERTIFICATE OF DESIGNATION SHALL LIMIT OR MODIFY ANY
MORE GENERAL PROVISION CONTAINED HEREIN. THIS CERTIFICATE OF DESIGNATION SHALL
BE DEEMED TO BE JOINTLY DRAFTED BY THE COMPANY AND ALL INITIAL PURCHASERS OF THE
SERIES H PREFERRED STOCK AND SHALL NOT BE CONSTRUED AGAINST ANY PERSON AS THE
DRAFTER HEREOF.
ARTICLE XXI FAILURE OR INDULGENCE NOT WAIVER. NO FAILURE OR DELAY ON
THE PART OF A HOLDER OF SERIES H PREFERRED STOCK IN THE EXERCISE OF ANY POWER,
RIGHT OR PRIVILEGE HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY
SINGLE OR PARTIAL EXERCISE OF ANY SUCH POWER, RIGHT OR PRIVILEGE PRECLUDE OTHER
OR FURTHER EXERCISE THEREOF OR OF ANY OTHER RIGHT, POWER OR PRIVILEGE.
33
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 15th day of November,
2004.
MULTIBAND CORPORATION
By:
--------------------------
Name:
Title:
34
EXHIBIT I
MULTIBAND CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series H Preferred Stock of Multiband Corporation (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series H Preferred Stock, no par value per share (the "Preferred
Shares"), of Multiband Corporation, a Minnesota corporation (the "Company"),
indicated below into shares of Common Stock, no par value per share (the "Common
Stock"), of the Company, by tendering the stock certificate(s) representing the
share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
------------------------------------
Number of Preferred Shares to be converted:
---------------------------
Stock certificate no(s). of Preferred Shares to be converted:
---------
The shares of Common Stock have been sold pursuant to the Registration
Statement (as defined in the Purchase Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
------------------------------------
Number of shares of Common Stock
to be issued:
------------------------------------
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
------------------------------------
------------------------------------
Facsimile Number:
------------------------------------
Authorization:
------------------------------------
By:
-------------------------------
Title:
----------------------------
Dated:
35
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of November 16, 2004, by and among Multiband Corporation, a
Minnesota corporation (the "Company"), and the purchasers listed on Schedule I
hereto (the "Purchasers").
This Agreement is being entered into pursuant to the Series H
Convertible Preferred Stock Purchase Agreement dated as of the date hereof among
the Company and the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" means the date of the closing of the purchase
and sale of the Preferred Shares and Warrants pursuant to the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value
per share.
"Effectiveness Date" means with respect to the Registration
Statement the earlier of the one hundred twentieth (120th) day following the
Closing Date or the date which is within three (3) business days of the date the
Commission informs the Company that the Commission (i) will not review the
Registration Statement or (ii) that the Company may request the acceleration of
the effectiveness of the Registration Statement and the Company makes such
request.
"Effectiveness Period" shall have the meaning set forth in
Section 2.
36
"Event" shall have the meaning set forth in Section 7(d).
"Event Date" shall have the meaning set forth in Section 7(d).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means with respect to the Registration Statement
no later than forty-five (45) days following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock
issuable upon conversion of the Preferred Shares and (ii) the shares of Common
Stock issuable upon exercise of the Warrants.
"Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
37
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
2. Resale Registration.
On or prior to the Filing Date the Company shall prepare and
file with the Commission a "resale" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-1 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-1, in which case such registration shall be on another appropriate
form in accordance herewith). The Company shall (i) not permit any securities
other than the Registrable Securities and the securities listed on Schedule II
attached hereto to be included in the Registration Statement and (ii) use its
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until
such date as is the earlier of (x) the date when all Registrable Securities
covered by such Registration Statement have been sold or (y) the date on which
the Registrable Securities may be sold without any restriction pursuant to Rule
144 as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period").
3. Registration Procedures.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-1 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-1, in which
case such registration shall be on another appropriate form in accordance
herewith) in accordance with the method or methods of distribution thereof as
specified by the Holders (except if otherwise directed by the Holders), and use
its reasonable best efforts to cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
less than three (3) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated therein by reference), the
Company shall (i) furnish to the Special Counsel, copies of all such documents
proposed to be filed, which documents (other than those incorporated by
reference) will be subject to the review of such Special Counsel, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
Special Counsel, to conduct a reasonable investigation within the meaning of the
38
Securities Act. Unless otherwise advised by outside counsel to the Company in
its reasonable judgment, the Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Special Counsel shall reasonably object in writing within two (2) Business Days
of its receipt thereof; provided, however, that Special Counsel may only object
to the filing of the Registration Statement if such objection relates
specifically to the Holders or may affect the timely effectiveness of the
Registration Statement.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible, but in no event later
than ten (10) Business Days, to any comments or inquiries received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement, such correspondence from the Company showing the Company date stamp
evidencing the date of receipt; and (iv) comply in all material respects with
the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify any Special Counsel as promptly as possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing)
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
39
(d) Use its reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of, (i) any order suspending the
effectiveness of the Registration Statement or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(f) Furnish to each Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Holder or
Special Counsel may reasonably request. The Company hereby consents to the use
of any Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or cooperate with the
selling Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free
of all restrictive legends so long as the Holder has complied with all
applicable securities laws in connection with such sale, including the
prospectus delivery requirements, and to enable such Registrable Securities to
be in such denominations and registered in such names as any Holder may request
in writing at least two (2) Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
40
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its reasonable best efforts to cause all Registrable
Securities relating to the Registration Statement to be listed on the Nasdaq
SmallCap Market or any other securities exchange, quotation system or market, if
any, on which similar securities issued by the Company are then listed as and
when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than forty-five (45) days after the end of
any 12-month period (or ninety (90) days after the end of any 12-month period if
such period is a fiscal year) commencing on the first day of the first fiscal
quarter of the Company after the Effectiveness Date, which statement shall
conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to
the Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v), 3(c)(vi) or 3(n), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
41
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may (x) postpone or suspend filing
of a registration statement for a period not to exceed thirty (30) consecutive
days or (y) postpone or suspend effectiveness of a registration statement for a
period not to exceed twenty (20) consecutive days; provided that the Company may
not postpone or suspend effectiveness of a registration statement under this
Section 3(n) for more than forty-five (45) days in the aggregate during any
12-month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive twenty (20) day periods arising out of the
same set of facts, circumstances or transactions.
4. Registration Expenses.
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in this Section 4, shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
Nasdaq SmallCap Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filing fees required to be paid to the National Association of Securities
Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the Holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, in the case of the Special Counsel,
to a maximum amount of $5,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
Company's independent public accountants (including the expenses of any comfort
letters or costs associated with the delivery by independent public accountants
of a comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, as well
as the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
42
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder or such other Indemnified Party
furnished in writing to the Company by such Holder expressly for use therein and
(ii) that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, allegedly untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of any
Holder, underwriter, broker or other Person acting on behalf of holders of the
Registrable Securities, from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Securities which are the subject
thereof, if a copy of such final prospectus had been made available to such
Person and such Holder, underwriter, broker or other Person acting on behalf of
Holders of the Registrable Securities and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Securities to such Person. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents and employees of such controlling Persons,
to the fullest extent permitted by applicable law, from and against all Losses
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review), as incurred, arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder or other Indemnifying Party
to the Company specifically for inclusion in the Registration Statement or such
Prospectus. Notwithstanding anything to the contrary contained herein, each
Holder shall be liable under this Section 5(b) for only that amount as does not
exceed the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party) in writing, and
43
the Indemnifying Party shall 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 proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel (which shall be reasonably
acceptable to the Indemnifying Party) that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Party on the other from the offering of the Preferred Shares and Warrants. If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault, as applicable, of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
44
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 Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties. Notwithstanding anything to the contrary contained
herein, the Holders shall be liable under this Section 5(d) for only that amount
as does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
6. Rule 144.
As long as any Holder owns any Shares or Warrants, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. As long as any Holder owns any Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any Holder
may reasonably request in writing, all to the extent required from time to time
to enable such Person to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
relating to such sale pursuant to Rule 144.
45
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its Subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its Subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(c) of the Purchase Agreement, neither the Company nor any of its
Subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company, under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant hereto
or as disclosed on Schedule 2.1(c) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its security holders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Failure to File Registration Statement and Other Events.
The Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement has not been declared effective
on or prior to the Effectiveness Date, or (B) the Registration Statement is not
filed on or prior to the Filing Date, or (C) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act within three (3) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (D) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period, without being succeeded promptly by a subsequent Registration Statement
filed with and declared effective by the Commission, or (E) the Company has
breached Section 3(n) of this Agreement, or (F) trading in the Common Stock
46
shall be suspended or if the Common Stock is delisted from the Nasdaq SmallCap
Market for any reason for more than three (3) Business Days in the aggregate
(any such failure or breach being referred to as an "Event," and for purposes of
clauses (A) and (B) the date on which such Event occurs, or for purposes of
clause (C) the date on which such three (3) Business Day period is exceeded, or
for purposes of clause (D) after more than fifteen (15) Business Days, or for
purposes of clause (F) the date on which such three (3) Business Day period is
exceeded, being referred to as "Event Date"), the Company shall pay an amount as
liquidated damages to each Holder, payable in cash, equal to two percent (2%)
for the first calendar month or portion thereof of the Holder's initial
investment in the Preferred Shares from the Event Date and one and one quarter
percent (1.25%) for each calendar month thereafter or portion thereof from the
applicable Event Date until the Event is cured. Notwithstanding anything to the
contrary in this Section 7(d), if (I) any of the Events described in clauses
(A), (B) or (C) shall have occurred, (II) on or prior to the applicable Event
Date, the Company shall have exercised its rights under Section 3(n) hereof and
(III) the postponement or suspension permitted pursuant to such Section 3(n)
shall remain effective as of such applicable Event Date, then the applicable
Event Date shall be deemed instead to occur on the second (2nd) Business Day
following the termination of such postponement or suspension.
(e) Failure to Respond to Commission Inquiries/Comments. The
Company and the Purchasers agree that the Holders will suffer damages if the
Company breaches Section 3(b)(iii) of this Agreement. In the event the Company
breaches Section 3(b)(iii), the Company shall pay an amount as liquidated
damages to each Holder, payable in cash, equal to one percent (1%) for the first
ten (10) day period or portion thereof of the Holder's initial investment in the
Preferred Shares and two percent (2%) for each ten (10) day period thereafter or
portion thereof until such breach is cured.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by the
Company and the Holders of a majority of the Registrable Securities outstanding.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., New York
City time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., New York
City time, on any date and earlier than 11:59 p.m., New York City time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on Schedule I attached hereto, or with respect to the Company,
addressed to:
Multiband Corporation
9449 Science Center Drive
New Hope, MN 55428
Attention:
Tel. No.: (763) 504-3000
Fax No.: (763) 504-3060
47
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Jenkens &
Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New York, New York 10174,
Attention: Christopher S. Auguste, Esq., Tel. No.: (212) 704-6000, Fax No.:
(212) 704-6288.
(h) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the
Registrable Securities if: (i) the Holder agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition of such securities by the transferee or assignees is restricted
under the Securities Act and applicable state securities laws, (iv) at or before
the time the Company receives the written notice contemplated by clause (ii) of
this Section, the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions of this Agreement, and (v) such transfer shall
have been made in compliance with all applicable securities laws and in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(k) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
(l) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
48
(m) Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
49
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
MULTIBAND CORPORATION
By:_________________________________
Name:
Title:
PURCHASER
By:_________________________________
Name:
Title:
50
Schedule I
Section 21.1 List of Purchasers
51
Schedule II
Section 21.2 Other Securities Permitted to be Included on the
Registration Statement
Section 21.3 1. Shares of Common Stock issuable upon conversion of
the secured convertible promissory notes issued pursuant to the Note Purchase
Agreement dated as of November 12, 2004 by and among the Company and the
signatories thereto.
2. Shares of Common Stock issuable upon the exercise of warrants issued
to the placement agent and the sub-placement agent in connection with the Series
H Convertible Preferred Stock Purchase Agreement.
52
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.
MULTIBAND CORPORATION
Secured Convertible Promissory Note
due November __, 2007
No. CN-04-__ $____________
Dated: November __, 2004
For value received, Multiband Corporation, a Minnesota corporation (the
"Maker"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of ________________________ ($______________), together with interest
thereon. Concurrently with the issuance of this Note, the Maker is issuing
separate secured convertible promissory notes (the "Other Notes") to separate
purchasers (the "Other Holders") pursuant to the Purchase Agreement (as defined
in Section 1.1 hereof).
All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on November
__, 2007 (the "Maturity Date") or at such earlier time as provided herein.
ARTICLE XXII
Section 22.1 Purchase Agreement. This Note has been executed and
delivered pursuant to the Note Purchase Agreement dated as of November 12, 2004
(the "Purchase Agreement") by and among the Maker and the purchasers listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
Section 22.2 Interest. Beginning on the issuance date of this Note (the
"Issuance Date"), the outstanding principal balance of this Note shall bear
interest, in arrears, at a rate per annum equal to six percent (6%), payable
semi-annually at the option of the Maker in cash or in shares of the Maker's
common stock, no par value per share (the "Common Stock"), on December 31 and
June 30 of each year, commencing December 31, 2004, except that if such date is
not a business day then the interest shall be payable on the first immediately
succeeding business day. The number of shares of Common Stock to be issued as
53
payment of accrued and unpaid interest shall be determined by dividing (a) the
total amount of accrued and unpaid interest to be converted into Common Stock by
(b) the Conversion Price (as defined in Section 3.2 hereof). Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day months and shall
accrue commencing on the Issuance Date. Furthermore, upon the occurrence of an
Event of Default (as defined in Section 2.1 hereof), then to the extent
permitted by law, the Maker will pay interest to the Holder, payable on demand,
on the outstanding principal balance of the Note from the date of the Event of
Default until such Event of Default is cured at the rate of the lesser of ten
percent (10%) and the maximum applicable legal rate per annum.
Section 22.3 Security Agreement. The obligations of the Maker hereunder
are secured by a continuing security interest in all of the property and assets
of the Maker pursuant to the terms of a security agreement dated as of the date
hereof.
Section 22.4 Senior Securities. So long as this Note or any other Note
is outstanding, the Maker shall not issue any securities that rank pari passu or
senior to this Note without the affirmative vote or consent of the holders of at
least seventy-five percent (75%) of the principal amount of the Notes
outstanding at the time. Notwithstanding anything in the foregoing to the
contrary, the Holder acknowledges that the indebtedness payable to the entities
listed on Schedule I attached hereto shall rank senior to the Maker's
obligations under this Note and the Other Notes. All other indebtedness of the
Company shall rank junior to the Maker's obligations under this Note and the
Other Notes.
Section 22.5 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be due on the next succeeding business
day and such next succeeding day shall be included in the calculation of the
amount of accrued interest payable on such date.
Section 22.6 Transfer. This Note may be transferred or sold, subject to
the provisions of Section 4.8 of this Note, or pledged, hypothecated or
otherwise granted as security by the Holder.
Section 22.7 Replacement. Upon receipt of a duly executed, notarized
and unsecured written statement from the Holder with respect to the loss, theft
or destruction of this Note (or any replacement hereof), and without requiring
an indemnity bond or other security, or, in the case of a mutilation of this
Note, upon surrender and cancellation of such Note, the Maker shall issue a new
Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.
ARTICLE XXIII
EVENTS OF DEFAULT; REMEDIES
Section 23.1 Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the payment of any amount of principal
outstanding on the date such payment is due hereunder; or
54
(b) the Maker shall fail to make any payment of interest in cash or
convertible promissory notes for a period of five (5) days after the date such
interest is due; or
(c) the failure of the Registration Statement to be declared effective
by the Securities and Exchange Commission on or prior to the date which is one
hundred twenty (120) days after the Filing Date (as defined in the Registration
Rights Agreement); or
(d) the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
(5) consecutive Trading Days; or
(e) the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or
(f) the Maker shall fail to (i) timely deliver the shares of Common
Stock upon conversion of the Note or any interest accrued and unpaid, (ii)
timely file the Registration Statement or (iii) make the payment of any fees
and/or liquidated damages under this Note, the Purchase Agreement or the
Registration Rights Agreement, which failure in the case of items (i) and (iii)
of this Section 2.1(f) is not remedied within three (3) business days after the
incurrence thereof; or
(g) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the Maker has not exercised its rights
pursuant to Section 3(n) of the Registration Rights Agreement and the cause of
such lapse or unavailability is not due to factors primarily within the control
of Holder; or
(h) default shall be made in the performance or observance of (i) any
material covenant, condition or agreement contained in this Note (other than as
set forth in clause (f) of this Section 2.1) and such default is not fully cured
within five (5) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement, the Other
Notes or the Registration Rights Agreement which is not covered by any other
provisions of this Section 2.1 and such default is not fully cured within five
(5) business days after the occurrence thereof; or
(i) any material representation or warranty made by the Maker herein or
in the Purchase Agreement, the Registration Rights Agreement or the Other Notes
shall prove to have been false or incorrect or breached in a material respect on
the date as of which made; or
(j) the Maker shall (i) default in any payment of any amount or amounts
of principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
55
$100,000 or (ii) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(k) the Maker shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(l) a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of sixty (60) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
sixty (60) days; or
(m) the failure of the Maker to instruct its transfer agent to remove
any legends from shares of Common Stock eligible to be sold under Rule 144 of
the Securities Act and issue such unlegended certificates to the Holder within
three (3) business days of the Holder's request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be resold pursuant to Rule 144; or
(n) the failure of the Maker to pay any amounts due to the Holder
herein or in the Purchase Agreement or the Registration Rights Agreement within
three (3) business days of receipt of notice to the Maker; or
(o) the occurrence of an Event of Default under the Other Notes.
56
Section 23.2 Remedies Upon An Event of Default. If an Event of Default
shall have occurred and shall be continuing, the Holder of this Note may at any
time at its option, (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued hereon, due and payable, and thereupon,
the same shall be accelerated and so due and payable, without presentment,
demand, protest, or notice, all of which are hereby expressly unconditionally
and irrevocably waived by the Maker; provided, however, that upon the occurrence
of an Event of Default described in (i) Sections 2.1 (k) or (l), the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable and (ii) Sections 2.1 (c)-(j), demand the prepayment of this Note
pursuant to Section 3.7 hereof, (b) demand that the principal amount of this
Note then outstanding and all accrued and unpaid interest thereon shall be
converted into shares of Common Stock at a Conversion Price per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default
occurs is the Conversion Date (as defined in Section 3.1 hereof), or (c)
exercise or otherwise enforce any one or more of the Holder's rights, powers,
privileges, remedies and interests under this Note, the Security Agreement, the
Purchase Agreement, the Registration Rights Agreement or applicable law. No
course of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
ARTICLE XXIV
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 24.1 Conversion Option. At any time on or after the Issuance
Date, this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into such number of fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") as is determined
by dividing (x) that portion of the outstanding principal balance plus any
accrued but unpaid interest under this Note as of such date that the Holder
elects to convert by (y) the Conversion Price (as hereinafter defined) then in
effect on the date on which the Holder faxes a notice of conversion (the
"Conversion Notice"), duly executed, to the Maker (facsimile number (763)
504-3060, Attn.: Chief Financial Officer) (the "Conversion Date"), provided,
however, that the Conversion Price shall be subject to adjustment as described
in Section 3.6 below. The Holder shall deliver this Note to the Maker at the
address designated in the Purchase Agreement at such time that this Note is
fully converted. With respect to partial conversions of this Note, the Maker
shall keep written records of the amount of this Note converted as of each
Conversion Date.
Section 24.2 Conversion Price.
(a) The term "Conversion Price" shall mean $1.00 per share, subject to
adjustment under Section 3.6 hereof. Notwithstanding any adjustment hereunder,
at no time shall the Conversion Price be greater than $1.00 per share except if
it is adjusted pursuant to Section 3.6(a)(i) hereof.
(b) Notwithstanding any of the foregoing to the contrary, if during any
period (a "Black-out Period"), a Holder is unable to trade any Common Stock
issued or issuable upon conversion of this Note immediately due to the
postponement of filing or delay or suspension of effectiveness of a registration
57
statement or because the Maker has otherwise informed such Holder that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the Holder of the Notes or due to the Maker exercising its rights under Section
3(n) of the Registration Rights Agreement), such Holder shall have the option
but not the obligation on any Conversion Date within ten (10) Trading Days
following the expiration of the Black-out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected by such
Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten (10) Trading Days
thereafter. In no event shall the Black-out Period have any effect on the
Maturity Date of this Note.
(c) The term "Closing Bid Price" shall mean, for any security as of any
date, the last closing bid price of such security on the Nasdaq SmallCap Market
for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg. If the Closing Bid Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as mutually
determined by the Maker and the holders of a majority of the principal amount of
the Notes outstanding.
Section 24.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion Date,
the Maker or its designated transfer agent, as applicable, shall issue and
deliver to the Depository Trust Company ("DTC") account on the Holder's behalf
via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding the foregoing
to the contrary, the Maker or its transfer agent shall only be obligated to
issue and deliver the shares to the DTC on the Holder's behalf via DWAC (or
certificates free of restrictive legends) if such conversion is in connection
with a sale and the Holder has complied with the applicable prospectus delivery
requirements. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
Delivery Date, the Holder shall be entitled by written notice to the Maker at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.
(b) The Maker understands that a delay in the delivery of the shares of
Common Stock upon conversion of this Note beyond the Delivery Date could result
in economic loss to the Holder. If the Maker fails to deliver to the Holder such
shares via DWAC or a certificate or certificates pursuant to this Section
hereunder by the Delivery Date, the Maker shall pay to such Holder, in cash, an
58
amount per Trading Day for each Trading Day until such shares are delivered via
DWAC, certificates are delivered or the Holder effects a Buy-In pursuant to
Section 3.3(c) hereof (provided that the Buy-In amount is paid by the Maker to
the Holder within three business days of written notice to the Maker), together
with interest on such amount at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full, equal to the greater of
(A) (i) 1% of the aggregate principal amount of the Notes requested to be
converted for the first five (5) Trading Days after the Delivery Date and (ii)
2% of the aggregate principal amount of the Notes requested to be converted for
each Trading Day thereafter and (B) $2,000 per day (which amount shall be paid
as liquidated damages and not as a penalty). Nothing herein shall limit a
Holder's right to pursue actual damages for the Maker's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation, a
decree of specific performance and/or injunctive relief). Notwithstanding
anything to the contrary contained herein, the Holder shall be entitled to
withdraw a Conversion Notice, and upon such withdrawal the Maker shall only be
obligated to pay the liquidated damages accrued in accordance with this Section
3.3(b) through the date the Conversion Notice is withdrawn. The Maker shall not
be liable for any payments under this Section 3.3(b) if the Maker's failure to
deliver the shares on the Delivery Date was the result of events beyond the
Maker's control including events such as fire, flood, strikes, labor troubles or
other industrial disturbances, riots and insurrections, war and acts of
terrorism. The Maker shall immediately notify the Holder of the occurrence of
such an event. Immediately after such event no longer is continuing, the Maker
shall deliver the shares.
(c) In addition to any other rights available to the Holder, if the
Maker fails to deliver to the Holder such certificate or certificates pursuant
to Section 3.3(a) by the Delivery Date and if after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Maker shall pay in cash to the Holder (in addition to any remedies available to
or elected by the Holder) an amount equal to (A) the aggregate amount paid by
such Holder for the shares of Common Stock so purchased minus (B) the aggregate
amount of net proceeds, if any, received by such Holder from the sale of the
shares of Common Stock issued by the Maker pursuant to such conversion, together
with interest thereon at a rate of the lesser of 10% and the maximum applicable
legal rate per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 aggregate principal amount of this Note, the
Maker shall be required to pay the Holder $1,000, plus interest. The Holder
shall provide the Maker written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
Section 24.4 Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section 3 of
this Note, at no time may the Holder convert all or a portion of this Note if
the number of shares of Common Stock to be issued pursuant to such conversion,
when aggregated with all other shares of Common Stock owned by the Holder at
such time, the number of shares of Common Stock which would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) more than 4.9% of all of the Common Stock
59
outstanding at such time; provided, however, that upon the Holder providing the
Maker with sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the
"Waiver Notice") that the Holder would like to waive this Section 3.4(a) with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4(a) will be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice; provided, further, that
this provision shall be of no further force or effect during the sixty-one (61)
days immediately preceding the Maturity Date. The Holder of this Note may waive
this Section 3.4(a) by so indicating on the signature page to the Purchase
Agreement, any such waiver to be effective on and as of the date hereof.
(b) Notwithstanding anything to the contrary set forth in Section 3 of
this Note, at no time may the Holder convert all or a portion of this Note if
the number of shares of Common Stock to be issued pursuant to such conversion,
when aggregated with all other shares of Common Stock owned by the Holder at
such time, would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.9% of the then issued and outstanding shares of Common Stock
outstanding at such time; provided, however, that upon the Holder providing the
Maker with a Waiver Notice that the Holder would like to waive Section 3.4(b) of
this Note with regard to any or all shares of Common Stock issuable upon
conversion of this Note, this Section 3.4(b) shall be of no force or effect with
regard to all or a portion of the Note referenced in the Waiver Notice;
provided, further, that this provision shall be of no further force or effect
during the sixty-one (61) days immediately preceding the Maturity Date. The
Holder of this Note may waive this Section 3.4(b) by so indicating on the
signature page to the Purchase Agreement, any such waiver to be effective on and
as of the date hereof.
Section 24.5 Intentionally Omitted.
Section 24.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Adjustments for Stock Splits and Combinations. If the
Maker shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the applicable Conversion Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Maker shall at any time or from time to time after the Issuance Date,
combine the outstanding shares of Common Stock, the applicable Conversion Price
in effect immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 3.6(a)(i) shall be effective at
the close of business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the Maker shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
60
close of business on such record date, by multiplying, the applicable Conversion
Price then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(1) (2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holders of this
Note shall receive upon conversions thereof, in addition to the number of shares
of Common Stock receivable thereon, the number of securities of the Maker which
they would have received had this Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period), giving application
to all adjustments called for during such period under this Section 3.6(a)(iii)
with respect to the rights of the holders of this Note and the Other Notes;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.
(iv) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert this Note into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Maker (other than by way of a
stock split or combination of shares or stock dividends or distributions
61
provided for in Section 3.6(a)(i), (ii) and (iii), or a reclassification,
exchange or substitution of shares provided for in Section 3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another corporation where the
holders of outstanding voting securities prior to such merger or consolidation
do not own over fifty percent (50%) of the outstanding voting securities of the
merged or consolidated entity, immediately after such merger or consolidation,
or the sale of all or substantially all of the Maker's properties or assets to
any other person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Maker or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.6(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.6(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note and the Other
Notes) shall be applied after that event in as nearly an equivalent manner as
may be practicable.
(b) No Impairment. The Maker shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Maker, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 3.6 and
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the Holder against impairment. In the event a
Holder shall elect to convert any Notes as provided herein, the Maker cannot
refuse conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or enjoining
conversion of all or of said Notes shall have issued and the Maker posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
percent (100%) of the amount of the Notes the Holder has elected to convert,
which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to such Holder in the
event it obtains judgment.
(c) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Maker shall, upon written request of
the Holder, at any time, furnish or cause to be furnished to the Holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price in effect at the time, and the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon the conversion of this Note. Notwithstanding the foregoing, the
Maker shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent (1%) of such
adjusted amount; provided, however, that any adjustments that by reason of this
subsection (c) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
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(d) Issue Taxes. The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Maker shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.
(e) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.
(f) Reservation of Common Stock. The Maker shall at all times when this
Note shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note and all interest
accrued thereon; provided, that the number of shares of Common Stock so reserved
shall at no time be less than 110% of the number of shares of Common Stock for
which this Note and all interest accrued thereon are at any time convertible.
The Maker shall increase the authorized number of shares of Common Stock if at
any time the unissued number of authorized shares shall not be sufficient to
satisfy the Maker's obligations under this Section 3.6(f).
(g) Regulatory Compliance. If any shares of Common Stock to be reserved
for the purpose of conversion of this Note or any interest accrued thereon
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Maker shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything to
the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(c)-(l) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay in cash all or a portion of
this Note at a price equal to the Triggering Event Prepayment Price (as defined
in Section 3.7(c) below) applicable at the time of such request (the "Event of
Default Prepayment Price"). Nothing in this Section 3.7(a) shall limit the
Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all other
rights of the Holder contained herein, simultaneous with the occurrence of a
Major Transaction (as defined below), the Holder shall have the right, at the
Holder's option, to require the Maker to prepay all or a portion of the Holder's
Notes at a price equal to one hundred percent (100%) of the aggregate principal
amount of this Note plus all accrued and unpaid interest (the "Major Transaction
Prepayment Price"); provided that the Maker shall have the sole option to pay
63
the Major Transaction Prepayment Price in cash or shares of Common Stock. If the
Maker elects to pay the Major Transaction Prepayment Price in shares of Common
Stock, the price per share shall be based upon the Conversion Price then in
effect on the day preceding the date of delivery of the Notice of Prepayment at
Option of Holder Upon Major Transaction (as hereafter defined) and the Holder of
such shares of Common Stock shall have demand registration rights with respect
to such shares.
(c) Prepayment Option Upon Triggering Event. In addition to all other
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require the
Maker to prepay all or a portion of the Holder's Notes in cash at a price equal
to one hundred percent (100%) of the aggregate principal amount of this Note
plus all accrued and unpaid interest (the "Triggering Event Prepayment Price,"
and, collectively with the "Major Transaction Prepayment Price," the "Prepayment
Price").
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Maker with or into another Person (as defined in Section 4.13 hereof) (other
than (A) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Maker or (B) a consolidation,
merger or other business combination in which holders of the Maker's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities).
(ii) the sale or transfer of more than fifty percent (50%) of
the Maker's assets (based on the fair market value as determined in good faith
by the Maker's Board of Directors) other than inventory in the ordinary course
of business in one or a related series of transactions; or
(iii) closing of a purchase, tender or exchange offer made to
the holders of more than fifty percent (50%) of the outstanding shares of Common
Stock in which more than fifty percent (50%) of the outstanding shares of Common
Stock were tendered and accepted.
(f) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) so long as any Notes are outstanding, the effectiveness of
the Registration Statement, after it becomes effective, (i) lapses for any
reason (including, without limitation, the issuance of a stop order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock, and such lapse
or unavailability continues for a period of twenty (20) consecutive Trading
Days, and the shares of Common Stock into which the Holder's Notes can be
converted cannot be sold in the public securities market pursuant to Rule
144(k), provided that the cause of such lapse or unavailability is not due to
factors primarily within the control of the Holder of the Notes; and provided
64
further that a Triggering Event shall not have occurred if and to the extent the
Maker exercised its rights set forth in Section 3(n) of the Registration Rights
Agreement;
the suspension from listing, without subsequent
listing on any one of, or the failure of the Common Stock to be listed on at
least one of the OTC Bulletin Board, Nasdaq National Market, Nasdaq SmallCap
Market, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc.,
for a period of five (5) consecutive Trading Days;
the Maker's notice to any holder of the Notes,
including by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any Notes into shares of Common
Stock; or
the Maker's failure to comply with a Conversion
Notice tendered in accordance with the provisions of this Note within ten (10)
business days after the receipt by the Maker of the Conversion Notice.
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Maker shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to the Holder of
this Note. At any time after receipt of a Notice of Major Transaction (or, in
the event a Notice of Major Transaction is not delivered at least ten (10) days
prior to a Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Maker to
prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Major Transaction") to the Maker, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.7(b)
above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering Event.
Within one (1) business day after the occurrence of a Triggering Event, the
Maker shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note and the
Other Notes then outstanding may require the Maker to prepay all of the Notes on
a pro rata basis by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon Triggering
Event") to the Maker, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the amount of the Note that such holder is
electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder shall only be
permitted to require the Maker to prepay the Note pursuant to Section 3.7 hereof
65
for the greater of a period of ten (10) days after receipt by such holder of a
Notice of Triggering Event or for so long as such Triggering Event is
continuing.
(j) Intentionally Omitted.
(k) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the Prepayment Price), in addition
to any remedy such holder of the Notes may have under this Note and the Purchase
Agreement, the applicable Prepayment Price payable in respect of such Notes not
prepaid shall bear interest at the rate of one percent (1%) per month (prorated
for partial months) until paid in full. Until the Maker pays such unpaid
applicable Prepayment Price in full to a holder of the Notes submitted for
prepayment, such holder shall have the option (the "Void Optional Prepayment
Option") to, in lieu of prepayment, require the Maker to promptly return to such
holder(s) all of the Notes that were submitted for prepayment by such holder(s)
under this Section 3.7 and for which the applicable Prepayment Price has not
been paid, by sending written notice thereof to the Maker via facsimile (the
"Void Optional Prepayment Notice"). Upon the Maker's receipt of such Void
Optional Prepayment Notice(s) and prior to payment of the full applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at Option of Holder
Upon Major Transaction, as the case may be, shall be null and void with respect
to those Notes submitted for prepayment and for which the applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return any Notes
submitted to the Maker by each holder for prepayment under this Section 3.7(k)
and for which the applicable Prepayment Price has not been paid and (iii) the
Conversion Price of such returned Notes shall be adjusted to the lesser of (A)
the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect. A holder's delivery of a Void Optional Prepayment Notice
66
and exercise of its rights following such notice shall not effect the Maker's
obligations to make any payments which have accrued prior to the date of such
notice. Payments provided for in this Section 3.7 shall have priority to
payments to other stockholders in connection with a Major Transaction.
(l) Maker's Prepayment Option.
(i) Commencing one (1) year following the Effectiveness Date
(as defined in the Registration Rights Agreement, dated November 12, 2004,
between the Maker and the purchasers listed on Schedule I thereto), so long as
(A) the Closing Bid Price of the Common Stock equals or exceeds $2.00 for a
period of any ten (10) Trading Days out of fifteen (15) consecutive Trading Days
so long as the first Trading Day of such fifteen (15) Trading Day period is
following the date that is one (1) year from the Effectiveness Date, (B) the
Registration Statement is effective and has been effective, without lapse or
suspension of any kind, for a period sixty (60) consecutive calendar days, or
the shares of Common Stock into which this Note and the Other Notes can be
converted may be offered for sale to the public pursuant to Rule 144(k) under
the Securities Act of 1933, as amended, (C) trading in the Common Stock shall
not have been suspended by the Securities and Exchange Commission or the Nasdaq
SmallCap Market and (D) the Maker is in material compliance with the terms and
conditions of the Transaction Documents, the Maker may prepay all or any portion
of this Note, plus any accrued but unpaid interest, upon ten (10) business days
prior written notice to the Holder (the "Maker Prepayment Notice") at a cash
prepayment price equal to one hundred percent (100%) of the outstanding
principal amount of this Note plus any accrued and unpaid interest.
(ii) Commencing one (1) year following the Effectiveness Date,
so long as (A) the Registration Statement is effective and has been effective,
without lapse or suspension of any kind, for a period sixty (60) consecutive
calendar days, or the shares of Common Stock into which this Note can be
converted may be offered for sale to the public pursuant to Rule 144(k) under
the Securities Act of 1933, as amended, (B) trading in the Common Stock shall
not have been suspended by the Securities and Exchange Commission or the Nasdaq
SmallCap Market and (C) the Maker is in material compliance with the terms and
conditions of the Transaction Documents (as defined in the Purchase Agreement),
the Maker may prepay all or any portion of this Note, plus any accrued but
unpaid interest, upon providing to the Holder a Maker Prepayment Notice at a
cash prepayment price equal to (1) in the event the Market Price (as defined
below) of the Maker's Common Stock is below $1.00 per share at the time the
Maker Prepayment Notice is sent by the Maker via facsimile to the Holder, one
hundred percent (100%) of the outstanding principal amount of this Note plus any
accrued and unpaid interest or (2) in the event the Market Price of the Maker's
Common Stock is above $1.00 per share at the time the Maker Prepayment Notice is
sent by the Maker via facsimile to the Holder, (a) one hundred twenty percent
(120%) of the outstanding principal amount of this Note plus any accrued and
unpaid interest if the Maker Prepayment Notice is given during the period from
the date Issuance Date through the one (1) year anniversary of the Issuance
Date, (b) one hundred twenty five percent (125%) of the outstanding principal
amount of this Note plus any accrued and unpaid interest if the Maker Prepayment
Notice is given during the period from the one (1) year anniversary of the
Issuance Date through the two (2) year anniversary, or (c) one hundred thirty
percent (130%) of the outstanding principal amount of this Note plus any accrued
and unpaid interest if the Maker Prepayment Notice is given after the two (2)
year anniversary of the Issuance Date.
(iii) Notwithstanding anything contained in this Section
3.7(l) to the contrary, if the Holder has delivered a Conversion Notice to the
Maker or delivers a Conversion Notice after receipt of the Maker's Prepayment
Notice, the portion of this Note designated to be converted may not be prepaid
67
by the Maker. The Maker may not deliver a Maker Prepayment Notice to the Holder
unless the Maker has clear and good funds for a minimum of the amount it intends
to prepay in a bank account controlled by the Maker. The Maker Prepayment Notice
shall state the date of prepayment (the "Maker Prepayment Date"), the prepayment
price, the principal amount of the Notes of such Holder to be prepaid and shall
call upon the Holder to surrender to the Maker on the Maker Prepayment Date at
the place designated in the Maker Prepayment Notice such Holder's Note. The
Maker Prepayment Date shall be no more than ten (10) Trading Days after the date
on which the Holder is notified of the Maker's intent to prepay this Note (the
"Maker Prepayment Notice Date"). If the Maker fails to pay the prepayment price
by the eleventh (11th) Trading Day following the Maker Prepayment Notice Date,
the prepayment will be declared null and void and the Maker shall lose its right
to deliver a Maker Prepayment Notice to the Holder in the future. On or after
the Maker Prepayment Date, the Holder shall surrender this Note to the Maker at
the place designated in the Maker Prepayment Notice and shall thereupon be
entitled to receive payment of the prepayment price. "Market Price" shall mean
one hundred percent (100%) of the average Closing Bid Price, as defined herein,
for the Maker's Common Stock for the five (5) Trading Days prior to the date the
Maker Prepayment Notice is sent by the Maker via facsimile to the Holder.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the Maker's
receipt of a Conversion Notice, the Maker cannot issue shares of Common Stock
registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder's option, can elect to:
require the Maker to prepay that portion of this Note for
which the Maker is unable to issue Common Stock in accordance with the Holder's
Conversion Notice (the "Mandatory Prepayment") at a price per share equal to the
Triggering Event Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to
Section 3.8(a)(x) above, require the Maker to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have returned,
as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Maker's obligations to make any payments which have accrued
prior to the date of such notice).
In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
68
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have its
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of the Maker's
receipt of the Holder's Notice in Response to Inability to Convert, provided
that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment.
(d) Pro-rata Conversion and Prepayment. In the event the Maker receives
a Conversion Notice from more than one holder of the Notes on the same day and
the Maker can convert and prepay some, but not all, of the Notes pursuant to
this Section 3.8, the Maker shall convert and prepay from each holder of the
Notes electing to have its Notes converted and prepaid at such time an amount
equal to such holder's pro-rata amount (based on the principal amount of the
Notes held by such holder relative to the principal amount of the Notes
outstanding) of all the Notes being converted and prepaid at such time.
69
Section 3.9 No Rights as Shareholder. Nothing contained in this Note
shall be construed as conferring upon the Holder, prior to the conversion of
this Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.
ARTICLE XXV
MISCELLANEOUS
Section 25.1 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker takes a record (x) with respect to any dividend or
distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Maker will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public. The Maker shall promptly notify the Holder of
this Note of any notices sent or received, or any actions taken with respect to
the Other Notes.
Section 25.2 Governing Law. This Note shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Note shall
not be interpreted or construed with any presumption against the party causing
this Note to be drafted.
Section 25.3 Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.
Section 25.4 Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, at law or in
equity (including, without limitation, a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
70
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
Section 25.5 Enforcement Expenses. The Maker agrees to pay all costs
and expenses of enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses.
Section 25.6 Binding Effect. The obligations of the Maker and the
Holder set forth herein shall be binding upon the successors and assigns of each
such party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 25.7 Amendments. This Note may not be modified or amended in
any manner except in writing executed by the Maker and the Holder.
Section 25.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION OF
COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS."
Section 25.9 Consent to Jurisdiction. Each of the Maker and the Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the United
States District Court sitting in the Southern District of New York and the
courts of the State of New York located in New York county for the purposes of
any suit, action or proceeding arising out of or relating to this Note and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Maker and
the Holder consents to process being served in any such suit, action or
71
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under the Purchase Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 4.9 shall affect or limit any right to serve process in any other
manner permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.
Section 25.10 Parties in Interest. This Note shall be binding upon,
inure to the benefit of and be enforceable by the Maker, the Holder and their
respective successors and permitted assigns.
Section 25.11 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
Section 25.12 Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or any other right of the Holder, nor shall any waiver by
the Holder of any such right or rights on any one occasion be deemed a waiver of
the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A
PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
Section 4.13 Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" means (a) a day on which the Common Stock is traded on
Nasdaq, or (b) if the Common Stock is not listed on Nasdaq, a day on which the
Common Stock is traded on any other registered national stock exchange, or (c)
if the Common Stock is not traded on any other registered national stock
exchange, a day on which the Common Stock is traded on the OTC Bulletin Board,
72
or (d) if the Common Stock is not traded on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
or (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
MULTIBAND CORPORATION
By: ______________________________
Name:
Title:
73
EXHIBIT A
WIRE INSTRUCTIONS.
Payee: ________________________________________________________
Bank: ________________________________________________________
Address: ______________________________________________________
______________________________________________________
Bank No.: _____________________________________________________
Account No.: ______________________________________
Account Name: ______________________________________
74
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
Multiband Corporation (the "Maker") according to the conditions hereof, as of
the date written below.
Date of Conversion __________________________________________________________
Applicable Conversion Price _________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Signature___________________________________________________________________
[Name]
Address:____________________________________________________________________
____________________________________________________________________
75
Schedule I
Senior Indebtedness
1. Convergent Capital Partners I, L.P.: Amount of indebtedness
outstanding: $2,500,000
2. Laurus Master Fund, Ltd.: Amount of indebtedness outstanding:
$1,136,363
3. Textron: Amount of indebtedness outstanding: $300,000 maximum; Varies
daily, Floor Planning Facility.
4. Rainbow Satellite Group: Lien in certain select Seller Assets only;
Amount of indebtedness including 20% Buyout Election: $3,181,099.
5. 21st Century: Lien in that certain select Seller Assets Only; Amount of
indebtedness: $416,666.
76
[Multiband logo]
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Multiband Announces Completion of Series H Preferred Stock Financing
MINNEAPOLIS, MINNESOTA, NOVEMBER 16, 2004, MULTIBAND CORPORATION (NASDAQ: MBND)
announced today the completion of a private placement of THE COMPANY'S Series H
Convertible Preferred STOCK.
The Series H Preferred Stock offering was led by H.C. Wainwright & Co., Inc. of
New York and funded by a group of institutional and accredited investors.
Multiband intends on utilizing the proceeds received from the offering to retire
short-term debt and for general working capital purposes.
UNDER THE TERMS OF THE PREFERRED STOCK OFFERING, THE COMPANY WILL ISSUE SHARES
OF ITS SERIES H CONVERTIBLE PREFERRED STOCK IN THE AGGREGATE OFFERING AMOUNT OF
APPROXIMATELY $1,050,000. THE SHARES OF SERIES H CONVERTIBLE PREFERRED STOCK
ACCRUE DIVIDENDS AT THE RATE OF 6% PER ANNUM, ARE PAYABLE SEMI-ANNUALLY AT THE
OPTION OF THE COMPANY IN CASH OR SHARES OF THE COMPANY'S COMMON STOCK, AND ARE
CONVERTIBLE INTO SHARES OF COMMON STOCK AT THE RATE OF $1.00 PER SHARE. IN
ADDITION, The investors will also receive five-year warrants to purchase an
aggregate of approximately 3,150,000 shares of Common Stock at an exercise price
of $1.25 per share. THE COMPANY ALSO IS REQUIRED TO FILE A REGISTRATION
STATEMENT PROVIDING FOR THE RESALE OF THE SHARES ISSUABLE UPON THE CONVERSION OF
THE SERIES H CONVERTIBLE PREFERRED STOCK AND UPON EXERCISE OF THE WARRANTS.
Multiband provides voice, data and video systems and services to multiple
dwelling units (MDUs), including apartment buildings and time-share resorts
throughout the United States. In addition, Multiband is an exclusive DIRECTV
Master System Operator and one of the largest providers of DIRECTV Services to
apartments, lodging, hospitality locations, restaurants and timeshare resorts in
the United States
ABOUT MULTIBAND CORPORATION
Multiband Corporation (NASDAQ: MBND), formerly Vicom, Incorporated, formed in
1975, provides voice, data and video systems and services to business and
government clients, and to multiple dwelling units (MDUs), including apartment
buildings and time share resorts. The Company's products and services are sold
to clients located throughout the United Sates. The Company has two operating
divisions, Multiband Business Solutions and Multiband Subscriber Services, which
encompass the wholly owned subsidiary corporations Multiband USA, Inc. and URON,
Inc.
In July 2004, the Company acquired Rainbow Satellite LLC, a private cable
operator. Rainbow, with locations throughout the United States, has subscriber
concentrations in California, Colorado, Illinois, Texas, Florida and New York.
In August of 2004, Multiband acquired assets from 21st Century Satellite LLC,
adding 23 upscale RV and Mobile Home Parks to its portfolio and raising its
owned and serviced subscriber base to over 70,000. Multiband has offices in
Fargo, Minneapolis, Rochester, Los Angeles, San Francisco, Denver, Chicago and
Tampa with satellite facilities through subcontractors in St. Louis, Dallas and
New York. For additional information, please go to www.multibandusa.com.
Contacts:
Stan Altschuler John Clarke James L. Mandel
Strategic Growth Int'l CEO CEO
New York, New York H.C. Wainwright & Company Multiband Corporation
212-838-1444 New York, New York Minneapolis, Minnesota
212-856-5738 763-504-3000
Statements included in this release may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements involve a number of risks and uncertainties such as competitive
factors, technological development, market demand and the Company's ability to
obtain new contracts and accurately estimate net revenues due to variability in
size, scope and duration of projects, and internal issues in the sponsoring
client. Further information on potential factors that could affect the Company's
financial results, can be found in the Company's Registration Statement and in
its Reports on Forms 8-K filed with the Securities and Exchange Commission
(SEC).
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