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EXHIBIT 4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of October 3,
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2000, by and between One Voice Technologies, Inc., a Nevada corporation (the
"Company"), and Nevelle Investors LLC, a Delaware limited liability company
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(the "Purchaser").
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WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase from the Company an aggregate principal amount of up to ten million
dollars ($10,000,000) of the Company's 5% convertible debentures, which shall be
in the form of Exhibit A, and which are convertible into shares of the Company's
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common stock, $0.001 par value per share (the "Common Stock"), with thirty
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percent (30%) warrant coverage as determined in accordance with Section 3.4 of
the Conditional Warrant (as defined below), which shall be in the form of
warrants to purchase Common Stock in the form of Exhibit B attached hereto.
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NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
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(i) The Initial Closing. Subject to the terms and conditions set forth in
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this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase from the Company (a) for a purchase price of two
million dollars ($2,000,000) (i) the two million dollars ($2,000,000) principal
amount of the Company's 5% convertible debentures (the "Initial Debentures"),
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and (ii) Warrants to purchase two hundred thirty one thousand eight hundred
eighty four (231,884) shares of Common Stock of the Company (the "Initial
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Warrants") and (b) for a purchase price of one hundred dollars ($100) a
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conditional warrant, by and between the Company and the Purchaser, in the form
of Exhibit C attached hereto (the "Conditional Warrant"), to purchase (i)
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additional convertible debentures in four (4) tranches up to an additional
aggregate principal amount of eight million dollars ($8,000,000), which shall be
issued in substantially the form of Exhibit A attached hereto (the "Additional
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Debentures") and (ii) additional warrants to purchase shares of Common Stock,
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which shall be issued in substantially the form of Exhibit B attached hereto
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(the "Additional Warrants") all for an aggregate purchase price of two million
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one hundred dollars ($2,000,100) (the "Initial Purchase Price"). The closing of
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the initial purchase and sale of the Initial Debentures, Initial Warrants and
Conditional Warrant (the "Initial Closing") shall take place at the offices of
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Pryor Cashman Sherman & Flynn LLP ("PCS&F"), 410 Park Avenue, New York, New York
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10022, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Initial Closing is hereinafter referred to
as the "Initial Closing Date." The closing for the purchase and sale of the
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Additional Debentures and Additional Warrants shall occur in four (4) tranches
of two million dollars ($2,000,000) each and the closing date(s) for the
purchase and
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sale of the Additional Debentures and Additional Warrants shall be as set forth
in the Conditional Warrant.
(ii) On the Initial Closing Date, the parties shall deliver or shall cause
to be delivered the following: (A) the Company shall deliver to the Purchaser
(1) Initial Debentures in the aggregate principal amount of two million dollars
($2,000,000), registered in the name of the Purchaser in the form of Exhibit A
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hereto, (2) the Initial Warrant, registered in the name of the Purchaser,
pursuant to which the Purchaser shall have the right to acquire two hundred
thirty one thousand eight hundred eighty four (231,884) shares of Common Stock
in the form of Exhibit B hereto, (3) the Conditional Warrant, (4) the legal
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opinion of Luce, Forward, Hamilton & Scripps LLP outside counsel to the Company,
in the form of Exhibit D, (5) an executed Registration Rights Agreement, dated
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the date hereof, by and between the Company and the Purchaser, in the form of
Exhibit E (the "Registration Rights Agreement"), and (6) the Transfer Agent
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Instructions, in the form of Exhibit F, delivered to and acknowledged by the
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Company's transfer agent (the "Transfer Agent Instructions"); and (B) the
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Purchaser shall deliver to the Company (1) subject to Section 4.1, the Initial
Purchase Price in currently available funds, and (2) the Conditional Warrant and
Registration Rights Agreement executed on behalf of the Purchaser.
1.2 Certain Defined Terms. For purposes of this Agreement, "Conversion Price,"
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"Original Issue Date" and "Trading Day" shall have the meanings set forth in the
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Debentures; "Business Day" shall mean any day except Saturday, Sunday and any
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day which shall be a federal legal holiday or a day on which banking
institutions in the State of California or the State of New York are authorized
or required by law or other governmental action to close; "Debentures" means
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collectively the Initial Debentures and the Additional Debentures; "Person"
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means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind; and "Warrants" means collectively the Initial Warrants and
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Additional Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby makes
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the following representations, warranties and covenants to the Purchaser:
(a) Organization and Qualification. The Company is a corporation duly
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incorporated, validly existing and in good standing under the laws of the State
of Nevada with the requisite corporate power and corporate authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Conditional Warrant, the
Registration Rights Agreement, the Transfer Agent Instructions, the Security
Agreement, the Debentures or the Warrants (collectively, the "Transaction
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Documents"), (y) have or result in a material adverse effect on the results of
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operations, assets or financial
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condition of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Documents (any of (x), (y) or (z), a
"Material Adverse Effect").
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(b) Authorization; Enforcement. The Company has the requisite corporate
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power and corporate authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Company is not in
violation of any of the provisions of its certificate or articles of
incorporation, by-laws or other organizational or charter documents.
(c) Capitalization. On the date hereof, the authorized capital of the
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Company consists of (i) 50,000,000 shares of Common Stock, par value $.001 per
share, of which 12,671,060 are issued and outstanding and (ii) 10,000,000 shares
of preferred stock of the Company, par value $.001 per share, of which no shares
are issued and outstanding. Schedule 2.1(c) sets forth all of the options,
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warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person (as defined below) any right to subscribe
for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock (collectively, the "Derivative
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Securities") which are outstanding on the date hereof, including in each case
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(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities and (vi) any
registration rights associated with such Derivative Securities or outstanding
Common Stock. Except as set forth on Schedule 2.1(c) no shares of Common Stock
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are entitled to preemptive or similar rights, nor is any holder of securities of
the Company entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents.
(d) Issuance of the Debentures, the Warrants and Conditional Warrant.
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Except as contemplated in Section 4(a)(iii)(C) of the Debentures and Section
10(c) of the Warrants, the Warrants and Conditional Warrant are duly authorized
and, when issued and paid for in accordance with the terms hereof, will be duly
and validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively, "Liens").
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The Company has on the date hereof and will, at all times while the Debentures
and the Warrants are outstanding, maintain an adequate reserve of duly
authorized shares of Common Stock, reserved for issuance to the holders of the
Debentures and the Warrants, to enable the Company to perform its conversion,
exercise and other obligations under this Agreement, the Conditional Warrant,
the Debentures and the Warrants. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date, the Debentures
remain outstanding for two years and all interest is paid in shares of Common
Stock and (ii) the number of shares of Common Stock issuable upon exercise in
full of the Warrants on the
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Original Issue Date (the number of shares of Common Stock contemplated in (i)
and (ii), the "Initial Minimum"). All such authorized shares of Common Stock
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shall be duly reserved for issuance to the holders of the Debentures and the
Warrants. The shares of Common Stock issuable upon conversion of the Debentures
and upon exercise of the Warrants are collectively referred to herein as the
"Underlying Shares." The Conditional Warrant, the Debentures, the Warrants and
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the Underlying Shares are collectively referred to herein as, the "Securities."
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When issued in accordance with the Debentures and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's certificate or articles of incorporation,
bylaws or other charter documents (each as amended through the date hereof), or
(ii) subject to obtaining the Required Approvals (as defined below), 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 (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument or other
understanding to which the Company is a party or by which any property or asset
of the Company is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected; except in the case of each of clauses
(ii) and (iii), as could not have or result in a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which could not have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. The Company is not required to obtain
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any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filings required pursuant to Section 3.9, (ii) the filing with the
Securities and Exchange Commission (the "Commission") of a registration
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statement meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Underlying Shares by the Purchaser (the
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"Underlying Shares Registration Statement"), (iii) applicable Blue Sky filings
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and (iv) in all other cases where the failure to obtain such consent, waiver,
authorization or order, or to give such notice or make such filing or
registration could not have or result in a Material Adverse Effect
(collectively, the "Required Approvals").
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(g) Litigation; Proceedings. Except as described in Schedule 2.1(g) there
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is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties before
or by any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an "Action")
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could have or result in a Material Adverse Effect.
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(h) No Default or Violation. The Company is not (i) in default under or in
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violation of (and no event has occurred which has not been waived which, with
notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received notice of a claim that it is in default
under or that it is in violation of, any indenture, mortgage, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) in violation of any judgement or order of any
court, arbitrator or governmental body, or (iii) in violation of any statute,
rule or regulation of any governmental authority, in each case of clauses (i),
(ii) or (iii) above, except as would not have or result in a Material Adverse
Effect.
(i) Private Offering. Assuming the accuracy of the representations and
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issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on its
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behalf has taken or is, to the knowledge of the Company, contemplating taking
any action which could subject the offering, issuance or sale of the Securities
to the registration requirements of the Securities Act including soliciting any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(j) SEC Documents; Financial Statements. The Company has filed all reports
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required to be filed by it under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof, for
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the two years preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with the
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Schedules to this Agreement, the "Disclosure Materials") on a timely basis or
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has received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Material agreements to which the Company is a party or to which the
property or assets of the Company are subject have been filed, to the extent
required, as exhibits to the SEC Documents. The financial statements of the
Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") during the periods
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involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments. Since June 30, 2000, except as specifically disclosed in the SEC
Documents, (a) there has been no event, occurrence or development that has
resulted or that could result in a Material Adverse Effect, (b) the Company has
not incurred any liabilities other
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than (x) liabilities incurred in the ordinary course of business consistent with
past practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock.
(k) Investment Company. The Company is not, and is not an Affiliate (as
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defined in Rule 405 under the Securities Act) of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the Company in the
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amounts and to the persons listed on Schedule 2.1(l), no fees or commissions
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will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless the Purchaser, its employees,
officers, directors, agents, and partners, and their respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Form SB-2 Eligibility. The Company is eligible to register securities
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for resale with the Commission under Form SB-2 promulgated under the Securities
Act. The Company represents and warrants that it meets all of the requirements
for the use of Form SB-2 for the Registration of the sale by the Purchaser and
any transferee who purchases the Registrable Securities (as defined in the
Registration Rights Agreement). The Company covenants that it shall file all
reports required to be filed by the Company with the Commission in a timely
manner, and shall take such other actions as may be necessary to maintain such
eligibility for the use of Form SB-2.
(n) Exclusivity. The Company shall not issue and sell the Debentures to
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any Person other than the Purchaser without the specific prior written consent
of the Purchaser.
(o) Seniority. No indebtedness of the Company is senior to the Debentures
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in right of payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise.
(p) Listing and Maintenance Requirements Compliance. Except as set forth
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in the SEC Documents or Schedule 2.1(p), the Company has not, in the two years
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preceding the date hereof, received notice (written or oral) from the National
Association of Securities Dealers, Inc. (the "NASD") or any other stock
exchange, market or trading facility on which the Common Stock is or has been
listed (or on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange or
market. The
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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.
(q) Patents and Trademarks. The Company has rights to use, all patents,
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patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and rights which are necessary or material for use
in connection with its business, as described in the SEC Documents and which the
failure to so have would have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). The Company has not received a written notice
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that the Intellectual Property Rights used by the Company violates or infringes
upon the rights of any Person. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(r) Registration Rights; Rights of Participation. Except as disclosed in
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Section 6(c) of the Registration Rights Agreement, the Company has not granted
or agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied. No Person, has
any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction
Documents.
(s) Regulatory Permits. The Company possesses all certificates,
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authorizations and permits issued by the appropriate Federal, state or foreign
regulatory authorities necessary to conduct its business as described in the SEC
Documents, except where the failure to possess such permits could not be
expected to, individually or in the aggregate, have or result in a Material
Adverse Effect ("Material Permits"), and the Company has not received any notice
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of proceedings relating to the revocation or modification of any Material
Permit.
(t) Title. The Company has good and marketable title in all personal
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property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company. Any real
property and facilities held under lease by the Company are held by it under
valid, subsisting and enforceable leases with which the Company is in compliance
and do not interfere with the use made and proposed to be made of such property
and buildings by the Company.
(u) Absence of Certain Proceedings. Except as described in the SEC
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Documents or Schedule 2.1(u), (i) there is no Action pending or, to the
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knowledge of the Company, threatened against the Company, in any such case
wherein an unfavorable decision, ruling or finding could have or result in a
Material Adverse Effect; (ii) neither the Company nor any director or officer
thereof, is or has been the subject of any Action involving (A) a claim of
violation of or liability under federal or state securities laws or (B) a claim
of breach of fiduciary duty; (iii) the Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement); and (iv)
there has not been, and to the best of the Company's knowledge there is not
pending or
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contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.
(v) Labor Relations. No material labor problem exists or, to the knowledge
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of the Company, is imminent with respect to any of the employees of the Company.
(w) Environmental Protection. Except as set forth in Schedule 2.1(w), (i)
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the Company is in compliance with all Environmental Laws (as defined below) and
any non-compliance is not expected to result in Environmental Liabilities that
will have a Material Adverse Effect; (ii) the Company has obtained and is in
compliance with all necessary permits or authorizations that are required under
Environmental Laws to operate the facilities, assets and business of the
Company; (iii) there has been no Release (as defined below) at any of the
properties currently or formerly owned or operated by the Company, or a
predecessor in interest, or to the Company's knowledge at any disposal or
treatment facility which received Hazardous Materials (as defined below)
generated by the Company, or any predecessor in interest which is reasonably
likely to result in Environmental Liabilities that will have a Material Adverse
Effect; (iv) no Environmental Claims (as defined below) have been asserted
against the Company, or, to the knowledge of the Company, any predecessor in
interest nor does the Company have knowledge or notice of any threatened or
pending Environmental Claim against the Company or any predecessor in interest
which is reasonably likely to result in Environmental Liabilities (as defined
below) that have a Material Adverse Effect; and (v) to the knowledge of the
Company, no Environmental Claims have been asserted against any facilities that
may have received Hazardous Materials generated by the Company or any
predecessor in interest which is reasonably likely to result in Environmental
Liabilities (as defined below) that have a Material Adverse Effect.
For purposes of this Agreement: "Environmental Claims" refers to any
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complaint, summons, citation, notice, directive, order, claim, litigation,
investigation, judicial or administrative proceeding, judgment, letter or other
communication from any governmental agency, department, bureau, office or other
authority, or any third party involving violations of Environmental Laws or
Releases of Hazardous Materials; "Environmental Laws" includes the Comprehensive
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Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
9601 et seq., as amended; the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. 6901 et seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et
seq., as amended; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as
amended; the Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq.,
and any other federal, state, local or municipal laws, statutes, regulations,
rules or ordinances imposing liability or establishing standards of conduct for
protection of the environment; "Environmental Liabilities" means any monetary
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obligations, losses, liabilities (including strict liability), damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable out-of-pocket fees, disbursements and expenses of counsel,
out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any governmental authority or any third party which
relate to any violations of Environmental Laws, remedial actions, Releases or
threatened Releases of Hazardous Materials from or onto (i) any property
presently or formerly owned by the Company, any of its Subsidiaries or a
predecessor in interest, or (ii) any facility which received Hazardous Materials
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generated by the Company, any of its Subsidiaries or a predecessor in interest;
"Hazardous Materials" shall include (a) any element, compound, or chemical that
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is defined, listed or otherwise classified as a contaminants, pollutant, toxic
pollutant, toxic or hazardous substances, extremely hazardous substance or
chemical, hazardous waste, medical waste, biohazardous or infectious waste,
special waste, or solid waste under Environmental Laws; (b) petroleum,
petroleum-based or petroleum-derived products; (c) polychlorinated biphenyls;
(d) any substance exhibiting a hazardous waste characteristic including but not
limited to corrosivity, ignitibility, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components, including but not limited to asbestos-containing materials and
manufactured products containing Hazardous Materials; "Release" means any
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spilling, leaking, pumping, emitting, emptying, discharging, injecting,
escaping, leaching, migrating, dumping, or disposing of Hazardous Materials
(including the abandonment or discarding of barrels, containers or other closed
receptacles containing Hazardous Materials) into the environment.
(x) Insurance. The Company maintains property and casualty, general
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liability, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company or its subsidiaries, as
applicable) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy covering the Company presently in
force.
(y) Foreign Corrupt Practices Act. Neither the Company nor any of the
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directors, officers or other employees thereof, has (i) used any Company funds
for any unlawful contribution, endorsement, gift, entertainment or other
unlawful expense relating to any political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity GAAP and to maintain accountability for assets; (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 existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(z) Manipulation. Neither the Company, nor any of its affiliates, has
------------
taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the manipulation of the price of the shares of Common Stock.
(aa) Related-Party Transactions. Except as set forth in the Company's SEC
--------------------------
Documents or Schedule 2.1(aa), the Company is not party to any contract,
----------------
agreement, license, lease, or arrangement with, or any other commitment to,
directly or indirectly, (1) any affiliate of the Company; (2) any officer or
salaried employee of the Company; (3) any corporation, trust, or
9
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other entity in which any such officer or salaried employee has a material
equity or participating interest; or (4) any partnership in which any such
officer or salaried employee has a partnership or participating interest, in
each case, relating to the Company or involving the business of the Company,
except, in each instance, for existing compensation arrangements described in
the Company's SEC Documents or listed in Schedule 2.1(bb) entered into in the
-------
ordinary course of business. Each contract, agreement, license, lease,
arrangement, and commitment with annual per employee compensation of less than
seventy-five thousand dollars ($75,000) was entered into by the Company in the
ordinary course of business upon terms that are fair and reasonable to the
Company without regard to the status and relationship of such parties.
(bb) Disclosure. The Company confirms that neither it nor any other Person
----------
acting on its behalf has provided the Purchaser or its agents or counsel with
any information that constitutes or might constitute material non-public
information. The Company understands and confirms that the Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company. All Disclosure Materials provided to the Purchaser regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company are true
and correct and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(cc) The Company acknowledges and agrees that the Purchaser has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in the Transaction Documents.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
-----------------------------------------------
represents, warrants and covenants to the Company as follows:
(a) Organization; Authority. The Purchaser is an entity duly organized,
-----------------------
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase by
the Purchaser of the Securities hereunder has been duly authorized by all
necessary action on the part of the Purchaser. Each of this Agreement, the
Security Agreement and the Registration Rights Agreement has been duly executed
by the Purchaser, and when delivered by the Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. The Purchaser is acquiring the Securities as
-----------------
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to the Purchaser's right, subject to the provisions of this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants,
at all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws. The Purchaser is
10
<PAGE>
acquiring the Securities hereunder in the ordinary course of its business. The
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute the Securities.
(c) Purchaser Status. At the time the Purchaser was offered the Debentures
----------------
and its respective Warrants, it and each of its equity owners was, and at the
date hereof it and each of its equity owners is, and at each exercise date under
its respective Warrants and at each Conversion Date under its respective
Debentures, it will be, an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone or together
---------------------------
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. The Purchaser is
---------------------------------------------------
able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges that it has reviewed
---------------------
the Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; (iii) access to
senior management of the Company for purposes of asking questions regarding the
Company and clarifying information provided by the Company; and (iv) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of the Purchaser or its representatives or counsel shall modify, amend or
affect the Purchaser's right to rely on the truth, accuracy and completeness of
the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. The Purchaser is not purchasing the Securities
--------------------
as a result of or subsequent to any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(h) Reliance. The Purchaser understands and acknowledges that (i) the
--------
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act; and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
11
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(i) The Purchaser acknowledges and agrees that the Company has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in the Transaction Documents.
(j) Certain Fees. Except for certain fees payable by the Company, which
------------
are the responsibility of the Company, the Purchaser has not incurred any
liability for any fees to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. The Purchaser shall indemnify and
hold harmless the Company, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(k) Manipulation. Neither the Purchaser nor any of its affiliates will
------------
take any action directly or indirectly designed to cause, or to result in, or
which has constituted or might reasonably be expected to constitute, the
manipulation of the shares of Common Stock.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
---------------------
(a) The Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from, or in a transaction not subject to the registration
requirements of, the Securities Act, and in compliance with any applicable
federal and state securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
Notwithstanding the foregoing, the Company, without requiring a legal opinion as
described in the immediately preceding sentence, hereby consents to and agrees
to register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of Securities by a Purchaser to an
Affiliate of the Purchaser or to one or more funds or managed accounts under
common management with the Purchaser, and any transfer among any such Affiliates
or one or more funds or managed accounts, provided that the transferee certifies
to the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act and that it is acquiring the Securities solely for
investment purposes (subject to the qualifications hereof). Any such transferee
shall agree in writing to be bound by the terms of this Agreement and shall have
the rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend or a legend of similar effect on the
Securities:
12
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor any other
legend if the conversion of Debentures and exercise of the Warrants or other
issuances of Underlying Shares as contemplated hereby, by the Debentures or the
Warrants occurs at any time while an Underlying Shares Registration Statement is
effective under the Securities Act or the holder is relying on Rule 144
promulgated under the Securities Act ("Rule 144") in connection with the resale
--------
of such Underlying Shares or, in the event there is not an effective Underlying
Shares Registration Statement, at such time and Rule 144 is not then available
if, in the opinion of counsel to the Company, such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If
holder is relying on Rule 144, holder (and any broker retained by holder) shall
provide customary representations and warranties (relating exclusively to the
applicable aspects of Rule 144, i.e., affiliate status, brokers transaction or
----
volume restrictions) that sales will be made in compliance with Rule 144. The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the day that the
initial Underlying Shares Registration Statement is declared effective by the
Commission (the "Effective Date"). The Company agrees that, in the event any
--------------
Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days after request therefor by the
Purchaser, provide the Purchaser with a certificate or certificates representing
such Underlying Shares, free from such legend at such time as such legend would
not have been required under this Section 3.1(b) had such issuance occurred on
the date of such request. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company which enlarge the
restrictions upon transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of
--------------------------
the Underlying Shares upon (a) (i) conversion of the Debentures in accordance
with the terms of the Debentures, and (ii) exercise of the Warrants in
accordance with their terms and (b) conversion of the Additional Debentures and
exercise of the Additional Warrants purchasable by the Purchaser pursuant to the
Conditional Warrant, will result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue Underlying Shares upon
(x) conversion of the Debentures in accordance with the terms of the Debentures,
and (y) exercise of the Warrants in accordance with their terms, is
unconditional and absolute, subject to the
13
<PAGE>
limitations set forth herein, in the Debentures or pursuant to the Warrants,
regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities, the
-------------------------
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. As long as the Purchaser own Securities, if the Company is not required
to file reports pursuant to such sections, it will prepare and furnish to the
Purchaser and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act such information as is required for the Purchaser to
sell the Securities under Rule 144 promulgated under the Securities Act. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including causing its attorneys to render
and deliver any legal opinion required in order to permit a Purchaser to receive
Underlying Shares free of all restrictive legends and to subsequently sell
Underlying Shares under Rule 144 upon receipt of a notice of an intention to
sell or other form of notice having a similar effect and customary and
appropriate representations and warranties from Purchaser and its broker
(relating exclusively to the applicable aspects of Rule 144, i.e., affiliate
----
status, brokers transaction or volume restrictions). Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts to
-----------
ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchaser or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of the NASD.
3.5 Increase in Authorized Shares. If on any date the Company would be, if a
-----------------------------
notice of conversion or exercise (as the case may be) were to be delivered on
such date, precluded from issuing 200% of the number of Underlying Shares as
would then be issuable upon a conversion in full of the Debentures and exercise
of the Warrants (the "Current Required Minimum"), in either case, due to the
------------------------
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly prepare and mail to the stockholders of the Company proxy materials
requesting authorization to amend the Company's certificate or articles of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least such number of shares as would meet the
Current Required Minimum. In connection therewith, the Board of Directors shall
(a) adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder approval
to carry out such resolutions (and hold a special meeting of the stockholders no
later than the earlier to occur of the 60th day after delivery of the proxy
materials relating to such meeting and the 90th day after request by a holder of
Securities to issue the number of Underlying Shares in accordance with the terms
hereof) and (c) within five Business Days of obtaining such stockholder
authorization, file an
14
<PAGE>
appropriate amendment to the Company's certificate or articles of incorporation
to evidence such increase. The Company shall and shall also use its best effort
to cause management of the Company to vote all shares of Common Stock held by
the Company and management of the Company in favor of all resolutions to
increase the authorized stock of the Company required hereunder.
3.6 Reservation and Listing of Underlying Shares.
--------------------------------------------
(a) The Company shall (i) in the time and manner required by the NASD and
such other exchange, market or quotation system on which the Common Stock is
quoted or traded, prepare and file with the NASD (and such other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then quoted or listed for trading) an additional shares listing
application covering a number of shares of Common Stock which is not less than
the Initial Minimum, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for quotation on the OTC Bulletin Board (as well as
on any such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchaser evidence of such quotation, and
the Company shall maintain the quotation of its Common Stock thereon. If the
number of Underlying Shares issuable upon conversion in full of the then
outstanding Debentures and upon exercise of the then unexercised portion of the
Warrants exceeds 85% of the number of Underlying Shares previously listed on
account thereof with OTC Bulletin Board (as well as on any such other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed), then the Company shall take the necessary actions
to immediately list a number of Underlying Shares as equals no less than the
then Current Required Minimum.
(b) The Company shall maintain a reserve of shares of Common Stock for
issuance upon conversion of the Debentures in full and upon exercise in full of
the Warrants in accordance with this Agreement, the Debentures and the Warrants,
respectively, in such amount as may be required to fulfill its obligations in
full under the Transaction Documents, which reserve shall equal no less than the
then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent Instructions,
----------------------------------
Conversion Notice (as defined in the Debentures) and Notice of Exercise under
the Warrants set forth the totality of the procedures with respect to the
conversion of the Debentures and exercise of the Warrants, including the form of
legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably necessary
to enable the Purchaser to convert the Debentures and exercise the Warrants as
contemplated in the Debentures and the Warrants (as applicable).
3.8 Limitation on Registration. Except for (x) Underlying Shares and (y)
--------------------------
other "Registrable Securities" (as defined in the Registration Rights Agreement)
to be registered, and securities of the Company permitted pursuant to Section
6(c) of the Registration Rights Agreement to be registered, in the Underlying
Shares Registration Statement in accordance with the Registration Rights
Agreement, the Company shall not, for a period beginning on the date hereof and
ending not less than one hundred eighty (180) days after the latter of the (a)
Effective
15
<PAGE>
Date or (b) if Purchaser purchases Additional Debentures in Tranche II, III or
IV (as defined in the Registration Rights Agreement) one hundred eighty (180)
days after any Subsequent Registration Statement (as defined in the Registration
Rights Agreement) in connection with Securities sold in Tranche II, III or IV is
declared effective by the Commission, without the prior written consent of the
Purchaser: (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register any securities of the Company. Such one hundred
eighty (180) day period shall be extended for the number of days during such
period (A) in which trading in the Common Stock is suspended by the NASD or such
market or quotation system on which the Common Stock is then listed, or (B)
during which the Underlying Shares Registration Statement is not effective, or
(C) during which the prospectus included in the Underlying Shares Registration
Statement may not be used by the holders thereof for the resale of Underlying
Shares.
3.9 Certain Securities Laws Disclosures; Publicity. The Company shall: (i) on
----------------------------------------------
the Closing Date issue a press release acceptable to the Purchaser disclosing
the transactions contemplated hereby, (ii) file with the Commission a Report on
Form 8-K disclosing the transactions contemplated hereby within ten Business
Days after the Closing Date, and (iii) timely file with the Commission a Form D
promulgated under the Securities Act as required under Regulation D promulgated
under the Securities Act and provide a copy thereof to the Purchaser promptly
after the filing thereof. No such filing or disclosure may be made that
mentions the Purchaser by name without the prior consent of the Purchaser. The
Company and the Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or stock market or
trading facility with respect to the transactions contemplated hereby and
neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser, or include the name of the Purchaser in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchaser, except to the extent such disclosure
is required by law, in which case the Company shall provide the Purchaser with
prior notice of such disclosure. Notwithstanding the foregoing, the Purchaser
shall not publicly disclose the name of the Company, or include the name of the
Company in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of the Company,
except to the extent such disclosure is required by law, in which case the
Purchaser shall provide the Company with prior notice of such disclosure.
3.10 Use of Proceeds. The Company shall use the net proceeds from the sale of
---------------
the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
16
<PAGE>
3.11 Reimbursement. If the Purchaser, other than by reason of its gross
-------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by, or on behalf of, or against any
Person, including stockholders of the Company, in connection with or as a result
of the consummation of the transactions contemplated by the Transaction
Documents, the Company will reimburse the Purchaser for its reasonable legal and
other expenses (including the cost of any investigation and preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which a Purchaser is a named party, the Company will pay the Purchaser the
charges, as reasonably determined by the Purchaser, for the time of any officers
or employees of the Purchaser devoted to appearing and preparing to appear as
witnesses, assisting in preparation for hearings, trials or pretrial matters, or
otherwise with respect to inquiries, hearings, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchaser and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchaser and
any such Affiliate and any such Person. The Company also agrees that neither
the Purchaser nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf, of or in right of, the Company in connection with,
or as a result of, the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from materially misleading information or failure to state a
material fact regarding information supplied by the Purchaser for any use, the
gross negligence or willful misconduct of the Purchaser in connection with the
transactions contemplated by this Agreement.
3.12 Sales of Additional Shares. The Company shall not, directly or indirectly,
--------------------------
without the prior written consent of the Purchaser, offer, sell, offer to sell,
contract to sell or otherwise dispose of any of its securities or any security
or other instrument convertible into or exchangeable for shares of its capital
stock, in each case, for a period beginning on the date hereof and ending two
hundred seventy (270) days after the initial Registration Statement (as defined
in the Registration Rights Agreement) filed pursuant to the Registration Rights
Agreement is declared effective by the Commission (the "Lock-Up Period"), except
--------------
that the Company may (i) issue securities for the aggregate consideration of at
least fifteen million dollars ($15,000,000) in connection with a bona fide, firm
commitment, underwritten public offering under the Securities Act; (ii) may
issue shares of Common Stock which are issued in connection with a bona fide
transaction involving the acquisition of another business entity or segment of
any such entity by the Company by merger, asset, purchase, stock purchase or
otherwise or in connection with a transaction involving a strategic partner
provided that the related issuance of Common Stock is at a price which is not
less than ten percent (10%) of the Per Share Market Value (as defined in the
Initial Debenture) at the time of closing of such transaction; (iii) may issue
shares of Common Stock at a price which is not less than eighty percent (80%) of
the Per Share Market Value at the time of closing of such issuance, provided
that such issuance is at a price of not less than six dollars ($6.00) per share,
and provided, further, that the Company may not grant any registration rights in
connection with such shares
17
<PAGE>
issued in such issuance unless the Registration Statement (as defined in the
Registration Rights Agreement) filed by the Company covering the Underlying
Shares for the Initial Debentures, Initial Warrants and the Debentures and
Warrants purchasable in Tranche I (as defined in the Registration Rights
Agreement) pursuant to the Conditional Warrant has been effective for a period
of not less than thirty (30) days; (iv) may issue shares of common stock to
directors, officers, employees or consultants of the Company for the primary
purpose of soliciting or retaining their services in an aggregate amount,
together with any New Options (as defined below) vesting or becoming exercisable
during the Lock Up Period; not to exceed one hundred ninety thousand nine
hundred seventy five (190,975) shares; (v) may issue shares of Common Stock upon
the exercise or conversion of currently outstanding options, warrants and other
convertible securities and up to one hundred ninety thousand nine hundred
seventy five (190,975) shares of Common Stock underlying New Options as provided
in clause (vi) below; (vi) may issue options to purchase shares of its Common
Stock to its directors, officers, employees and consultants in connection with
its existing stock option plans ("New Options"); provided, that one hundred
ninety thousand nine hundred seventy five (190,975) shares of Common Stock shall
vest or become exercisable; and (vii) may issue Common Stock in connection with
a stock split, stock dividend or similar recapitalization of the Company which
affects all holders of the Company's Common Stock on an equivalent basis, in
each case, without the prior written consent of the Purchaser. In addition, the
Company agrees that it will not cause any shares of its capital stock that are
issued in connection with a transaction of the type contemplated by clause (ii)
(or upon the conversion or exercise of other securities that are issued in
connection with such transaction) or that were issued in connection with
financing, acquisition or other transaction that occurred prior or subsequent to
the date of this Agreement to be covered by a Registration Statement that is
filed with the Commission or declared effective by the Commission prior to the
time that the Debentures and the Warrants and Common Stock issuable upon
conversion or exercise thereof are covered by a Registration Statement filed by
the Company pursuant to its obligations under the Registration Rights Agreement
has been effective under the Securities Act for a period of at least one hundred
eighty (180) day period during which the Company has not notified the Purchaser
that such Registration Statement or the prospectus included in such Registration
Statement includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.13 Proxy. The Company hereby agrees to describe the transaction described in
-----
this Agreement and the Conditional Warrant in the next proxy (as defined in the
Exchange Act) of the Company and to seek and obtain approval from its
shareholders to the issuance of Securities pursuant to the transactions
described in this Agreement and in the Conditional Warrant, if required under
applicable law or by the rules of a securities exchange or market on which the
Company's shares of Common Stock are trading or listed for trading.
3.14 Limitations on Short Sales. The Purchaser agrees that it will not enter
--------------------------
into any Short Sales (as defined below) from the period commencing on the
Closing Date and ending on the second year anniversary of the Closing Date to
the extent that a Short Sale on a Trading Day would exceed the greater of
fifteen percent (15%) of (i) the trading volume of the Common Stock on such
Trading Day and (ii) the average of the trading volume of the Common Stock for
the five (5) Trading Days immediately preceding such Trading Day. For purposes
of this Section
18
<PAGE>
3.14, a "Short Sale" by the Purchaser shall mean a sale of Common Stock by the
----------
Purchaser that is marked as a short sale and that is made at a time when there
is no equivalent offsetting long position in Common Stock held by the Purchaser.
For purposes of determining whether there is an equivalent offsetting long
position in Common Stock held by the Purchaser, Underlying Shares that are
issuable upon conversion of Debentures or exercise of the Warrants held by the
Purchaser shall be deemed to be held long by the Purchaser.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Initial Closing, the Company shall reimburse the
-----------------
Purchaser for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to PCS&F the
aggregate amount of thirty thousand dollars ($30,000) for the preparation and
negotiation of the Transaction Documents. The amount contemplated by the
immediately preceding sentence shall be paid by the Company at the Initial
Closing minus the five thousand dollars ($5,000) previously paid by the Company
to PCS&F. Other than the amount contemplated herein, and except as otherwise set
forth in the Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents, together with the
----------------------------
Exhibits and Schedules thereto and the Transfer Agent Instructions contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 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 in this Agreement later than 6:30 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 postage prepaid
for next Business Day delivery by nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: One Voice Technologies, Inc.
6333 Greenwich Drive, Suite #240
San Diego, California 92122
Attention: Dean Weber
Fax: (858) 552-4474
19
<PAGE>
With copies to: Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite #2600
San Diego, California 92101
Attention: Dennis J. Doucette, Esq.
Fax: (619) 232-8311
If to the Purchaser: Nevelle Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Ethan Benovitz
Fax: (914) 271-0889
With copies to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Fax: (212) 326-0806
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be waived or
-------------------
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not constitute
--------
a part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder without the consent of the Company. This provision
shall not limit any Purchaser's right to transfer securities or transfer or
assign rights under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit
----------------------------
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.
20
<PAGE>
4.8 Governing Law. The corporate laws of the State of Nevada shall govern all
-------------
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and covenants
--------
contained herein shall survive the Closing for eighteen (18) months following
the later of the delivery and conversion or exercise (as the case may be) of the
Debentures and the Warrants.
4.10 Execution. This Agreement may be executed in two or more counterparts, all
---------
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and 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
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this Agreement
------------
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise all rights provided
--------
herein or granted by law, including recovery of damages, each party will be
entitled to specific performance of the obligations of the other party hereto
under the Transaction Documents. The Company and the
21
<PAGE>
Purchaser agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
4.13 Indemnification.
---------------
(a) The Company agrees to indemnify the Purchaser and each officer,
director, manager, employee, agent, partner, stockholder, member and affiliate
of the Purchaser (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all reasonable
out-of-pocket costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such Indemnified
Parties (all of which expenses periodically shall be reimbursed as incurred), in
each case, arising out of or suffered or incurred in connection with any of the
following: (a) any misrepresentation or any breach of any warranty made by the
Company herein or in any of the other Transaction Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Company herein or in
any of the other Transaction Documents and (c) any claim relating to or arising
out of a violation of applicable federal or state securities laws by the Company
in connection with the sale or issuance of the Initial Debentures, Additional
Debentures, Initial Warrants, Additional Warrants or Conditional Warrant by the
Company to the Purchaser (collectively, the "Indemnified Liabilities"). To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(b) The Company shall not be obligated to pay any amounts for
indemnification under this Section 4.13 for Indemnified Liabilities until the
aggregate amount of all Indemnified Liabilities for which indemnification is
being or has been sought from an indemnifying party exceeds twenty-five thousand
dollars ($25,000) (the "Basket"), in which case all Indemnified Liabilities,
including the Basket amount, shall be payable in accordance with the provisions
of this Section 4.13; provided, however, that in no event shall the Company have
-------- -------
liability for Indemnified Liabilities to the Purchaser under this Section 4.13
in excess of the aggregate purchase price of the securities of the Company
purchased by the Purchaser; and provided, further, however, that the foregoing
-------- ------- -------
limitations shall not apply to Indemnified Liabilities arising out of a breach
of the representations and warranties relating to Environmental Laws. Nothing
contained herein shall constitute a waiver by the Purchaser or as a limitation
of its rights or remedies against the Company based on fraud or willful
misconduct of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories as of the date first
indicated above.
COMPANY:
ONE VOICE TECHNOLOGIES, INC.
By: /s/ Dean Weber
-------------------------
Name: Dean Weber
Title: Chief Executive Officer
PURCHASER:
NEVELLE INVESTORS LCC
By: WEC Asset Management LLC, Manager
By: /s/ Ethan Benovitz
-------------------------
Name: Ethan Benovitz
Title: Managing Director
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT A FORM OF DEBENTURE
EXHIBIT B FORM OF WARRANT
EXHIBIT C FORM OF CONDITIONAL WARRANT
EXHIBIT D FORM OF OPINIONS OF COUNSEL TO COMPANY
EXHIBIT E FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT F FORM OF TRANSFER AGENT INSTRUCTIONS
SCHEDULE INDEX
--------------
SCHEDULE 2.1(a) ORGANIZATION AND QUALIFICATION
SCHEDULE 2.1(c) CAPITALIZATION
SCHEDULE 2.1(g) LITIGATION; PROCEEDINGS
SCHEDULE 2.1(l) CERTAIN FEES
SCHEDULE 2.1(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE
SCHEDULE 2.1(v) ABSENCE OF CERTAIN PROCEEDINGS
SCHEDULE 2.1(x) ENVIRONMENTAL PROTECTION0.23
SCHEDULE 2.1(bb) RELATED PARTY TRANSACTIONS
<PAGE>
EXHIBIT A
---------
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF, THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. 1 $500,000
ONE VOICE TECHNOLOGIES, INC.
5% CONVERTIBLE DEBENTURE
DUE OCTOBER 3, 2003
THIS DEBENTURE is one of a series of duly authorized and issued debentures
of One Voice Technologies, Inc., a Nevada corporation, having a principal place
of business at 6333 Greenwich Drive, Suite #240, San Diego, California 92122
(the "Company"), designated as its 5% Convertible Debentures, due October 3,
-------
2003, in the aggregate principal amount of Two Million Dollars ($2,000,000) (the
"Debentures"). Certain capitalized terms used in this Debenture have the
----------
respective meaning ascribed to them in Section 5 hereof.
FOR VALUE RECEIVED, the Company promises to pay to Nevelle Investors LLC, a
Delaware limited liability company, or its registered assigns (the "Holder"),
------
the principal sum of Five Hundred Thousand Dollars ($500,000), on October 3,
2003 or such earlier date as the Debentures are required or permitted to be
repaid as provided hereunder (the "Maturity Date") and to pay interest to the
-------------
Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of five percent (5%) per annum, payable on each
Conversion Date (as defined herein) and on the Maturity Date, in cash or shares
of Common Stock (as defined in Section 5). Subject to the terms and conditions
herein, the decision whether to pay interest hereunder in shares of Common Stock
or cash shall be at the discretion of the Company. Not less than three (3)
Trading Days (as defined in Section 5) prior to each Conversion Date, the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock pursuant to the
terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 5) until payment in full of the
principal sum, together with all accrued and
<PAGE>
unpaid interest and other amounts which may become due hereunder, has been made.
Interest hereunder will be paid to the Person (as defined in Section 5) in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register"). All overdue
------------------
accrued and unpaid interest to be paid in cash hereunder shall entail a late fee
at the rate of fourteen percent (14%) per annum (or such lower maximum amount of
interest permitted to be charged under applicable law) (to accrue daily, from
the date such interest is due hereunder through and including the date of
payment), payable in cash.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
----------
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
----------
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 5) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
---------- -----------------
(a) "Event of Default", wherever used herein, means any one of the
----------------
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, any Debentures within five (5)
Business Days of the due date thereof , free of any claim of subordination,
as and when the same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise);
(ii) except as otherwise specified in any other subsection in
this Section 3(a), the Company shall fail to observe or perform any other
material covenant, agreement or warranty contained in, or otherwise commit
any breach of any of the Transaction Documents (as defined in Section 5),
and such failure or breach shall not have been remedied within fifteen (15)
Business Days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor
2
<PAGE>
thereto, or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or any
subsidiary thereof or there is commenced against the Company or any
subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of sixty (60) days; or the Company
or any subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any appointment
of any custodian or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of sixty (60) days;
or the Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or the Company or any subsidiary thereof shall
by any act or failure to act expressly indicate its consent to, approval of
or acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(iv) the Company shall default and such default shall remain
uncured or is not waived for fifteen (15) Business Days, in any of its
obligations under any other debenture or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Company in an amount
exceeding an aggregate of one hundred thousand dollars ($100,000), whether
such indebtedness now exists or shall hereafter be created and such default
results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
(v) the Common Stock is suspended from being quoted on the OTC
Bulletin Board without resuming trading and/or being relisted thereon or
listed on the New York Stock Exchange, American Stock Exchange, Nasdaq
SmallCap Market or Nasdaq National Market (each, a "Subsequent Market") or
-----------------
having such suspension lifted, in either case, for more than the lesser of
ten (10) consecutive Trading Days or an aggregate of fifteen (15) Trading
Days (which need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 5), shall agree to sell or dispose all
or in excess of one-half (1/2) of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase more than a de minimis number
of shares of Common Stock or other equity securities of the Company (other
than redemptions of Underlying Shares (as defined in Section 5));
3
<PAGE>
(vii) an Underlying Shares Registration Statement (as defined in
Section 5) shall not have been declared effective by the Commission (as
defined in Section 5) by the one hundred eightieth (180th) day after the
Original Issue Date;
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 5)), the effectiveness
of the Underlying Shares Registration Statement lapses for any reason or
the Holder shall not be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under the Underlying Shares
Registration Statement, in either case, for more than the lesser of ten
(10) consecutive Trading Days or an aggregate of fifteen (15) Trading Days
(which need not be consecutive Trading Days) provided such occurrence is
not caused by Holder as a result of Section 4(a)(iii) of this Debenture;
(ix) an Event (as defined in the Registration Rights Agreement)
shall not have been cured to the satisfaction of the Holder prior to the
expiration of thirty (30) days from the Event Date (as defined in the
Registration Rights Agreement) relating thereto (other than an Event
resulting from a failure of an Underlying Shares Registration Statement to
be declared effective by the Commission on or prior to the one hundred
eightieth (180th) day after the Original Issue Date, which shall be covered
by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the tenth (10th) day after a Conversion
Date pursuant to and in accordance with Section 4(b) or the Company shall
provide notice to the Holder, including by way of public announcement, at
any time, of its intention not to comply with requests for conversions of
any Debentures in accordance with the terms hereof; or
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within seven (7)
days after notice is delivered hereunder.
(b) During the time that any portion of this Debenture remains
outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, at the
Holder's election immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the sum of (i) the Mandatory
Prepayment Amount (as defined in Section 5) plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions hereunder within
thirty (30) days of the date of a declaration of an Event of Default and then
held by the Holder and (B) the Per Share Market Value (as defined in Section 5)
on the date prepayment is due or the date the full prepayment price is paid,
whichever is greater. Interest shall accrue on the prepayment amount hereunder
from the seventh day after such amount is due (being the date of an Event of
Default) through the date of prepayment in full thereof at the rate of fourteen
percent (14%) per annum (or such lesser maximum amount that is permitted to be
paid by applicable law), accrued daily from the date such payment is due
hereunder through and including the date of payment. All Debentures and
Underlying Shares for which the full prepayment price hereunder shall have been
paid in accordance herewith shall
4
<PAGE>
promptly be surrendered to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 4. Conversion.
---------- ----------
(a) (i) Conversion at Option of Holder. (A) This Debenture shall
------------------------------
be convertible into shares of Common Stock at the option of the Holder, in whole
or in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(iii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
and (y) the Conversion Price (as defined herein), and (ii) the amount equal to
the quotient obtained by dividing (I) the product of (x) the outstanding
principal amount of this Debenture to be converted by (y) the product of (1) the
quotient obtained by dividing .05 by 360 and (2) the number of days for which
such principal amount was outstanding, by (II) the Conversion Price on the
Conversion Date (For example, assuming two million dollars ($2,000,000) of
Debentures are outstanding for seven hundred twenty (720) days and the
conversion price is ten dollars ($10.00) per share that would result in 220,000
shares of Common Stock (2,000,000/10) + ([(2,000,000) (.05/360) (720)]/10)),
provided, that if the Company shall have timely elected to pay the interest due
--------
on a Conversion Date in cash pursuant to the terms hereof, subsection (ii) shall
not be used in the calculation of the number of shares of Common Stock issuable
upon a conversion hereunder.
(B) Notwithstanding anything to the contrary contained herein,
if on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to pay interest hereunder in shares of Common Stock;
(2) after the Interest Effectiveness Date (as defined in
Section 5) the number of shares of Common Stock issuable pursuant to
Section 4(a)(i)(A) above (x) are not registered for resale pursuant to an
effective Underlying Shares Registration Statement and (y) may not be sold
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as defined in Section 5), as determined by counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the applicable
Holder and such transfer agent (if the shares of Common Stock are permitted
by the Holder to be delivered under this clause (2) prior to the
Effectiveness Date (as defined in the Registration Rights Agreement) and
thereafter an Underlying Shares Registration Statement shall be declared
effective by the Commission, the Company shall, within three (3) Trading
Days after the
5
<PAGE>
date of such declaration of effectiveness, exchange such
shares for shares of Common Stock that are free of restrictive legends of
any kind);
(3) the Common Stock is not listed or quoted on the OTC Bulletin
Board or on a Subsequent Market; or
(4) the Company has failed to timely satisfy its conversion
obligations hereunder;
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii), shall
deliver, within three (3) Trading Days of each applicable Conversion Date, an
amount in cash equal to the product of (a) the outstanding principal amount of
the Debentures to be converted on such Conversion Date and (b) the product of
(x) the quotient obtained by dividing .05 by 360 and (y) the number of days for
which such principal amount was outstanding.
(C) The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice") to the
--------- -----------------
Company. Each Conversion Notice shall specify the principal amount of Debentures
to be converted, the applicable Conversion Price as of the Conversion Date and
the date on which such conversion is to be effected, which date may not be prior
to the date such Conversion Notice is deemed to have been delivered hereunder (a
"Conversion Date"). If no Conversion Date is specified in a Conversion Notice,
---------------
the Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) Automatic Conversion to shares of Common Stock. Subject to
----------------------------------------------
the provisions in this paragraph, the principal amount of Debentures for which
conversion notices have not previously been received or for which prepayment has
not been made or required hereunder shall be automatically converted on the
third anniversary of the Original Issue Date (the "Automatic Conversion Date")
-------------------------
pursuant to Section 4(a)(i), at the Conversion Price on such date. The
conversion contemplated by this paragraph shall not occur if (a) (1) an
Underlying Securities Registration Statement is not then effective that names
the Holder as a selling stockholder thereunder and (2) the Holder is not
permitted to resell Underlying Shares pursuant to Rule 144 promulgated under the
Securities Act, without volume restrictions, as evidenced by an opinion letter
of counsel, reasonably acceptable to the Company, and the transfer agent for the
Common Stock; or (b) there are not sufficient shares of Common Stock authorized
and reserved for issuance upon such conversion. Notwithstanding anything herein
to the contrary, the Automatic Conversion Date shall be extended (on a day-for-
day basis) for any Trading Days that the Holder is unable to resell Underlying
Shares due to (a) the Common Stock not being listed or
6
<PAGE>
quoted for trading on the OTC Bulletin Board or any Subsequent Market, (b) the
failure of an Underlying Securities Registration Statement to be declared
effective by the Commission or, if so declared, to remain effective during the
Effectiveness Period as to all Underlying Shares, or (c) the suspension of the
Holder's right to resell Underlying Shares thereunder. Notwithstanding anything
to the contrary contained herein, a conversion pursuant to this Section shall
not be subject to the provisions of Section 4(a)(iii).
(iii) Certain Conversion Restrictions.
--------------------------------
(A) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 5) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interests on, Debentures held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the Debentures are convertible
shall be the responsibility and obligation of the Holder. The provisions of this
Section may be waived by a Holder upon not less than sixty-one (61) days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert Debentures or receive shares
of Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act (as defined in Section 5) and the rules
promulgated thereunder) in excess of 9.999% of the then issued and outstanding
shares of Common Stock, including shares issuable upon conversion of, and
payment of interest on, the Debentures held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be the responsibility and obligation of the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than sixty-one (61) days prior notice to
the Company.
7
<PAGE>
(C) If the Common Stock is then listed for trading on the
Nasdaq SmallCap Stock Market or the Nasdaq National Market, NASD Rules
4310(c)(25)(H)(i) or 4460(i)(l) are applicable and the Company has not obtained
the Shareholder Approval (as defined below), then the Company may not issue in
excess of two million five hundred thirty four thousand eighty five (2,534,085)
shares of Common Stock (which equals 19.999% of the number of shares of Common
Stock outstanding immediately prior to the closing of transactions set forth in
the Purchase Agreement) upon conversions of Debentures or as payment of interest
thereon in shares of Common Stock less the sum of shares of Common Stock issued
upon the exercise of Warrants (as defined in the Purchase Agreement) issued to
the Holders (such number of shares, the "Issuable Maximum"). If on any
----------------
Conversion Date (a) the Common Stock is listed for trading on the Nasdaq
SmallCap Stock Market or the Nasdaq National Market, (b) the Conversion Price
then in effect is such that the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding
Debentures and as payment of interest thereon in shares of Common Stock,
together with any shares of Common Stock previously issued upon conversion of
Debentures and as payment of interest thereon, would exceed the Issuable
Maximum, and (c) the Company shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be required by the
--------------------
applicable rules and regulations of the Nasdaq Stock Market (or any successor
entity) applicable to approve the issuance of shares of Common Stock in excess
of the Issuable Maximum pursuant to the terms hereof, then the Company shall
issue to the Holder requesting a conversion of a number of shares of Common
Stock equal to the Issuable Maximum and, with respect to the remainder of the
principal amount of Debentures then held by such Holder for which a conversion
in accordance with the Conversion Price would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum (the "Excess Principal"), the
----------------
converting Holder shall have the option to require the Company to either (1) use
its best efforts to obtain the Shareholder Approval applicable to such issuance
as soon as is possible, but in any event not later than the sixtieth (60th) day
after such request, or (2) pay cash to the converting Holder in an amount equal
to the Mandatory Prepayment Amount for the Excess Principal. If the converting
Holder shall have elected the first option pursuant to the immediately preceding
sentence and the Company shall have failed to obtain the Shareholder Approval on
or prior to the sixtieth (60th) day after such request, then within three (3)
days of the later to occur of such sixtieth (60th) day or the date of the
request therefor, the Company shall pay cash to the converting Holder an amount
equal to the Mandatory Prepayment Amount for the Excess Principal. If the
Company fails to pay the Mandatory Prepayment Amount in full pursuant to this
Section within seven (7) days of the date payable, the Company will pay interest
thereon at a rate of fourteen percent (14%) per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the converting Holder,
accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. It is understood and agreed that shares of
Common Stock delivered to and held by the Holder or one or more of its
affiliates on account of conversion hereunder may not cast votes on the matter
of Shareholder Approval. Shares delivered on account of conversion hereunder
and not held by the Holder or its affiliates may cast votes on the matter of
Shareholder Approval.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of
8
<PAGE>
restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of Debentures (subject to the
limitations set forth in Section 4(a)(iii) hereof), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted, and
(iii) a bank check in the amount of accrued and unpaid interest (if the Company
has timely elected or is required to pay accrued interest in cash), provided,
--------
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion of the principal amount of
Debentures until Debentures are delivered for conversion to the Company, or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and provides an affidavit relating to such loss in form reasonably
satisfactory to the Company and agrees to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. 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 third (3/rd/) Trading Day after a
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder or its
agent such certificate or certificates pursuant to Section 4(b)(i) by the third
(3/rd/) Trading Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, five thousand
dollars ($5,000) for each one hundred thousand dollars ($100,000) principal
amount of Debentures so delivered for conversion pursuant to the Conversion
Notice for each Trading Day after such third (3/rd/) Trading Day until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages or declare an Event of Default pursuant to Section 3
herein for the Company'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. The exercise of any such rights shall not prohibit the
Holders from seeking to enforce damages pursuant to any other Section hereof or
under applicable law. Further, if the Company shall not have delivered any cash
due in respect of conversions of Debentures or as payment of interest thereon by
the third (3/rd/) Trading Day after the Conversion Date, the Holder may, by
notice to the Company, require the Company to issue shares of Common Stock
pursuant to Section 4(c), except that for such purpose the Conversion Price
applicable thereto shall be the lesser of the Conversion Price on the Conversion
Date and the Conversion Price on the date of such Holder demand. Any such shares
will be subject to the provision of this Section.
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third (3/rd/) Trading Day after
the Conversion Date, and if after such third (3/rd/) Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated
9
<PAGE>
receiving upon such conversion (a "Buy-In"), then the Company shall (A) pay in
------
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements under
Section 4(b)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "Conversion Price") in
----------------
effect on any Conversion Date shall be the lesser of (1) nine dollars seventy
six cents ($9.76) (the "Initial Conversion Price"), and (2) the average of the
------------------------
lowest seven (7) Per Share Market Values (which need not occur on consecutive
Trading Days) during the fifty (50) Trading Days immediately preceding the
applicable Conversion Date (which may include Trading Days prior to the Original
Issue Date), provided, that such fifty (50) Trading Day period shall be extended
--------
for the number of Trading Days during such period in which (A) trading in the
Common Stock is suspended by the OTC Bulletin Board or a Subsequent Market on
which the Common Stock is then listed, or (B) after the Effectiveness Date (as
defined in the Registration Rights Agreement), the Underlying Shares
Registration Statement is either not effective or the Prospectus included in the
Underlying Shares Registration Statement may not be used by the Holder for the
resale of Underlying Shares.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become
10
<PAGE>
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of
any such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options, other than to employees of the Company as previously
approved by the Holder pursuant to Section 3.12 of the Purchase Agreement, or
other securities or debt that are convertible into or exchangeable for shares of
Common Stock ("Common Stock Equivalents") entitling any Person (other than all
------------------------
Holders) to acquire shares of Common Stock at a price per share less than the
Initial Conversion Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Initial Conversion Price, such issuance shall be deemed to have
occurred for less than the Initial Conversion Price), then the Initial
Conversion Price shall be multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to the
issuance of such shares of Common Stock or such Common Stock Equivalents plus
the number of shares of Common Stock which the offering price for such shares of
Common Stock or Common Stock Equivalents would purchase at the Initial
Conversion Price, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock so issued or
11
<PAGE>
issuable, provided, that for purposes hereof, all shares of Common Stock that
--------
are issuable upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents; and provided further that, that the Initial Conversion Price shall
not be so adjusted as a result of the Conversion Price for any Holder being at
any time less than the Initial Conversion Price. Such adjustment shall be made
whenever such shares of Common Stock or Common Stock Equivalents are issued.
However, upon the expiration of any Common Stock Equivalents the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section, if any such Common Stock Equivalents shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Initial Conversion Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon the
exercise of such Common Stock Equivalents actually exercised.
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holders shall have the right
thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and
12
<PAGE>
other amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. No
adjustments in either the Conversion Price or the Initial Conversion Price shall
be required if such adjustment is less than $0.01, provided, however, that any
--------
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(viii) Whenever either the Initial Conversion Price or the
Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v), the
Company shall promptly mail to each Holder a notice setting forth the Initial
Conversion Price or Conversion Price (as applicable) after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(ix) If (A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least twenty (20) calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
--------
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the twenty
(20) day period commencing the date of such notice of the event triggering such
notice.
(x) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of more than
one-half (1/2) of the assets of the Company (on an as valued basis) in one or a
series of related transactions, a Holder shall
13
<PAGE>
have the right to (A) if permitted under Section 3(b) hereof, exercise its
rights of prepayment under Section 3(b) with respect to such event, (B) convert
its aggregate principal amount of Debentures then outstanding into the shares of
stock and other securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such merger, consolidation or sale,
and such Holder shall be entitled upon such event or series of related events to
receive such amount of securities, cash and property as the shares of Common
Stock into which such aggregate principal amount of Debentures could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (C) in the case of a merger or consolidation, (x) require the
surviving entity to issue convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the aggregate
principal amount of Debentures then held by such Holder, plus all accrued and
unpaid interest and other amounts owing thereon, which newly issued debentures
shall have terms identical (including with respect to conversion) to the terms
of this Debenture and shall be entitled to all of the rights and privileges of a
Holder of Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock issuable upon conversion thereof), and (y) simultaneously with the
issuance of such convertible debentures, shall have the right to convert such
instrument only into shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger or consolidation. In the case of clause (C), the conversion price
applicable for the newly issued convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holders the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue in accordance with the terms and conditions of the
Debentures, be duly and validly authorized, issued and fully paid, nonassessable
and, if the Underlying Shares Registration Statement has been declared effective
under the Securities Act, registered for public sale in accordance with such
Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash
14
<PAGE>
payment, the Holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 6333 Greenwich
Drive, Suite #240, San Diego, California 92122, Facsimile No.: (858) 552-4474,
attention Chief Financial Officer, or such other address or facsimile number as
the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time) and
confirmation of delivery has been received, (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) four days after deposit in the United States mail, (iv) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. Definitions. For the purposes hereof, the following terms
---------- -----------
shall have the following meanings:
"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 or the State of California are authorized or required by law or other
government action to close.
"Change of Control Transaction" means the occurrence of any of (i) an
-----------------------------
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or
15
<PAGE>
beneficial ownership of capital stock of the Company, by contract or otherwise)
of in excess of one-half (1/2) of the voting securities of the Company, (ii) a
replacement at one time or over time of more than one-half of the members of the
Company's board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), (iii)
the merger or consolidation of the Company with or into another entity that is
not wholly-owned by the Company pursuant to which the Company is not the
surviving company, (iv) sale of fifty percent (50%) or more of the assets of the
Company in one or a series of related transactions, or (v) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the common stock, $.001 par value per share, of
------------
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Debentures" means any debentures issued by the Company pursuant to or
----------
in connection with the Purchase Agreement and Conditional Warrant (as defined in
the Purchase Agreement).
"Effective Date" shall mean the date that an Underlying Shares
--------------
Registration Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Interest Effectiveness Date" means the earlier to occur of (x) the
---------------------------
Effectiveness Date and (y) the Effective Date.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
---------------------------
of (i) the greater of (A) 120% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance of the
-------------------
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
16
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock on such date on the OTC Bulletin Board, as
reported by the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices) at the close of
business on such date, or on a Subsequent Market on which the shares of Common
Stock are then listed or quoted, or if there is no such price on such date, then
the closing bid price on the OTC Bulletin Board or on such Subsequent Market on
the date nearest preceding such date, or (b) if the shares of Common Stock are
not then listed or quoted on the OTC Bulletin Board or a Subsequent Market, then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the Holder, or (c) if the shares of Common Stock are
not then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
in interest of the principal amount of Debentures then outstanding.
"Person" means a corporation, an association, a partnership,
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
------------------
of the Original Issue Date, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance
with its terms.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Trading Day" means a Business Day on which the shares of Common Stock
-----------
are quoted on the OTC Bulletin Board for trading or on such Subsequent Market on
which the shares of Common Stock are then traded, listed or quoted, or if the
shares of Common Stock are not listed on the OTC Bulletin Board or a Subsequent
Market, then Trading Day shall mean any day which is a Business Day.
"Transaction Documents" shall have the meaning set forth in the
---------------------
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
-----------------
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Shares Registration Statement" means a registration
----------------------------------------
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 6. Except as expressly provided herein, no provision of this
----------
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in United States
Dollars. This Debenture is a direct obligation of the Company. This
17
<PAGE>
Debenture ranks pari passu with all other Debentures now or hereafter issued
---- -----
under the terms set forth herein. As long as there are Debentures outstanding,
the Company shall not and shall cause it subsidiaries not to, without the
consent of the Holders, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the Holders;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents; or
(iii) enter into any agreement with respect to any of the foregoing. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 14 hereof.
Section 7. This Debenture shall not entitle the Holder to any of the
----------
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 8. If this Debenture shall be mutilated, lost, stolen or
----------
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 9. No indebtedness of the Company is senior to this Debenture in
----------
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom.
Section 10. This Debenture shall be governed by and construed in
-----------
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach of any
-----------
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such
18
<PAGE>
provision or of any breach of any other provision of this Debenture. The failure
of the Company or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal or
-----------
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
Section 13. Whenever any payment or other obligation hereunder shall be
-----------
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 14.
----------
(a) In the event that the Per Share Market Value of the Common Stock is
greater than two (2) times the Initial Conversion Price during each of the
fifteen (15) consecutive Trading Days following the effectiveness of the
Registration Statement and such Registration Statement is at all times during
such fifteen (15) day period effective, the Company shall thereafter have the
right, exercisable at any time upon delivery of seven (7) Business Days' prior
written notice (a "Redemption Notice") to the Holder, to redeem all or any
-----------------
portion of the Debentures, at a price equal to the Optional Redemption Price (as
defined below) on the date specified in the Redemption Notice (the "Redemption
----------
Date"). The entire Optional Redemption Price shall be paid in currently
----
available funds. Notwithstanding anything herein contained to the contrary, the
Holder may convert the Debentures, including Debentures subject to a Redemption
Notice given pursuant to this Section 14(a), during the period from the date of
such Redemption Notice through the Redemption Date.
(b) If any portion of the Optional Redemption Price shall not be paid by
the Company within two (2) days after the Redemption Date, interest shall accrue
thereon at the rate of fourteen percent (14%) per annum until the Optional
Redemption Price plus all such interest is paid in full. In addition, if any
portion of the Optional Redemption Price remains unpaid after the date due, the
Holder subject to such redemption may elect, by written notice to the Company
given at any time thereafter, to either (i) demand conversion of all or any
portion of the Debentures for which such Optional Redemption Price, plus
interest thereof, has not been paid in full (the "Unpaid Principal"), in which
----------------
event the applicable Conversion Price for such shares shall be the lower of the
Conversion Price calculated on the date the Optional Redemption Price was
originally due and the Conversion Price as of the Holder's written demand for
conversion which shall be applied to the increased amount of Unpaid Principal
for such conversion, or (ii) invalidate ab initio such redemption,
---------
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, notwithstanding anything herein contained to the contrary, the
Company shall within three (3) Trading Days of its receipt of such election
deliver
19
<PAGE>
to the Holder the shares of Common Stock issuable upon conversion of the Unpaid
Principal subject to such Holder's conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option (ii)
above, the Company shall promptly, and in any event not later than three (3)
days from receipt of Holder's notice of such election, return to the Holder the
original Debenture and the Holder shall return in United States Dollars to the
Company by wire transfer all amounts paid by the Company to the Holder in
connection with such redemption within two (2) days of the notice of such
election which shall be a condition precedent to the Company's obligation to
return the original Debenture to the Holder and the effectiveness of Holder's
election under option (ii) above.
(c) The "Optional Redemption Price" shall equal the sum of (i) the
-------------------------
principal amount of Debentures to be redeemed, and (ii) all interest and other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
ONE VOICE TECHNOLOGIES, INC.
By:____________________________________
Name: Dean Weber
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
---------
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.001 par value per share (the "Common Stock"), of One Voice
Technologies, Inc. (the "Company") according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
In connection with this conversion, Holder hereby represents and warrants that
Holder is not an affiliate of the Company, nor has Holder been an affiliate of
the Company during the ninety (90) days preceding this conversion.
Conversion calculations: _____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Debentures to be Converted
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
_______________________________________________
Address
<PAGE>
EXHIBIT B
---------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
--------------
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OR THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
ONE VOICE TECHNOLOGIES, INC.
WARRANT
Warrant No.1 Dated: October 3, 2000
One Voice Technologies, Inc., a Nevada corporation (the "Company"), hereby
-------
certifies that, for value received, Nevelle Investors LLC, a Delaware limited
liability company, or its registered assigns ("Holder"), is entitled, subject to
------
the terms set forth below, to purchase from the Company up to a total of two
hundred thirty one thousand eight hundred eighty four (231,884) shares of common
stock, $.001 par value per share (the "Common Stock"), of the Company (each such
------------
share, a "Warrant Share" and all such shares, the "Warrant Shares"), at an
--------------
exercise price equal to nine dollars seventy six cents ($9.76) per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
--------------
any time and from time to time from and after the date hereof and through and
including October 3, 2005 (the "Expiration Date"), and subject to the following
---------------
terms and conditions:
1. Registration of Warrant. The Company shall register this warrant
-----------------------
(the "Warrant"), upon records to be maintained by the Company for that purpose
-------
(the "Warrant Register"), in the name of the record Holder hereof from time to
----------------
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at its
<PAGE>
address for notice set forth in Section 12. Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
-----------
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company at its address for notice set forth in
Section 12 for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on any
Business Day (as defined below) before 6:30 P.M., Eastern Time, at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., Eastern Time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder. For purposes of this
Warrant, "Business 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 or the State of California are authorized or required by law
or other government action to close
(b) Upon delivery of a duly completed and signed Form of Election to
Purchase attached hereto to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than three (3)
Business Days after the Date of Exercise (as defined below)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends except
(i) either in the event that a registration statement covering the resale of the
Warrant Shares and naming the Holder as a selling stockholder thereunder is not
then effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
--------------
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant. The Company
shall, upon request of the Holder, if available, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
2
<PAGE>
A "Date of Exercise" means the date on which the Company shall
----------------
have received (i) the Form of Election to Purchase attached hereto (or attached
to received (i) the Form of Election to Purchase attached hereto (or attached to
such New Warrant) appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less than
all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue, or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the Effectiveness Period
-----------------------------
(as defined in the Registration Rights Agreement, of even date herewith, between
the Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than twenty (20) days
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have been
sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in connection
therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common
3
<PAGE>
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which
are then issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the Holder (taking into account the adjustments and restrictions of
Section 8). The Company covenants that all Warrant Shares that shall be so
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 8(b)
upon any exercise following any such reclassification or share exchange.
4
<PAGE>
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
---------
(d) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while this
Warrant is outstanding, shall issue shares of Common Stock or rights, warrants,
options or other securities or debt that is convertible into or exchangeable for
shares of Common Stock ("Common Stock Equivalents"), entitling any person or
------------------------
entity (other than all Holders) to acquire shares of Common Stock at a price per
share less than the Exercise Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price
less than the Exercise Price, such issuance shall be deemed to have occurred
for less than the Exercise Price), then the Exercise Price in effect immediately
prior to such issuance shall be multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such Common Stock or such Common Stock Equivalents plus the
number of shares of Common Stock which the offering price for such shares of
Common Stock or Common Stock Equivalents would purchase at the Exercise Price in
effect immediately prior to such issuance, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Common Stock so issued or issuable,
provided, that for purposes hereof, all shares of Common Stock that are issuable
--------
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents; and provided further, that the Exercise Price shall not be so
-------- -------
adjusted as a result of the Exercise Price for any Holder being at any time less
than the Exercise Price. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. However, upon the expiration of
any Common Stock Equivalents the issuance of which resulted in an adjustment in
the Exercise Price pursuant to this Section, if any such Common Stock
Equivalents shall expire and shall not have been exercised, the Exercise Price
shall immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Exercise Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Exercise Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such Common Stock Equivalents actually exercised.
5
<PAGE>
(e) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half (1/2) of
the assets of the Company (on a book value basis) in one or a series of related
transactions, the Holder shall have the right thereafter to exercise this
Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the Common Stock for which this Warrant could have been exercised
immediately prior to such merger, consolidation or sales would have been
entitled. The terms of any such merger, sale or consolidation shall include such
terms so as to continue to give the Holder the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.
(f) For the purposes of this Section 8, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price is adjusted pursuant to Section 8(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(i) If: (i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
6
<PAGE>
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock, any
consolidation or merger to which the Company is
a party, any sale or transfer of all or
substantially all of the assets of the Company,
or any compulsory share exchange whereby the
Common Stock is converted into other securities,
cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least twenty (20) calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder shall pay the Exercise
-------------------------
Price in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately available
-------------
funds; or
(b) Cashless Exercise. At any time after one (1) year from the
-----------------
original issuance date of the Warrant if the registration statement required to
be filed pursuant to the Registration Rights Agreement in connect with the
Warrant Shares is not effective then, the Holder may surrender this Warrant to
the Company together with a notice of cashless exercise, in
7
<PAGE>
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y ((A-B)/A)
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the original issue date.
10. Certain Exercise Restrictions. (a) A Holder may not exercise
-----------------------------
this Warrant to the extent such exercise would result in the Holder, together
with any affiliate thereof, beneficially owning (as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules promulgated thereunder) in excess of 4.999% of the
------------
then issued and outstanding shares of Common Stock, including shares issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of an exercise hereunder, unless
the exercise at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than
sixty-one (61) days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it
8
<PAGE>
may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 9.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
The provisions of this Section may be waived by a Holder (but only as to itself
and not to any other Holder) upon not less than sixty-one (61) days prior notice
to the Company.
(c) If the Common Stock is then listed for trading on the Nasdaq
SmallCap Stock Market or the Nasdaq National Market, NASD Rules
4310(c)(25)(H)(i) or 4460(i)(l) are applicable and the Company has not obtained
the Shareholder Approval (as defined below), then the Company may not issue in
excess of two million five hundred thirty four thousand eighty five (2,534,085)
shares of Common Stock (which equals 19.999% of the number of shares of Common
Stock outstanding immediately prior to the closing of transactions set forth in
the Purchase Agreement) upon exercise of this Warrant less the sum of shares of
Common Stock issued upon the conversion of Debentures (as defined in the
Purchase Agreement) issued to the Holders (such number of shares, the "Issuable
--------
Maximum"). If on any Date of Exercise (a) the Common Stock is listed for
-------
trading on the Nasdaq SmallCap Stock Market or the Nasdaq National Market, (b)
the Exercise Price then in effect is such that the aggregate number of shares of
Common Stock that would then be issuable upon exercise in full of this Warrant
in shares of Common Stock, together with any shares of Common Stock previously
issued upon conversion of Debentures and as payment of interest thereon and
exercise of Warrants and owned by the Holder, would exceed the Issuable Maximum,
and (c) the Company shall not have previously obtained the vote of shareholders
(the "Shareholder Approval"), if any, as may be required by the applicable rules
--------------------
and regulations of the Nasdaq Stock Market (or any successor entity) applicable
to approve the issuance of shares of Common Stock in excess of the Issuable
Maximum pursuant to the terms hereof, then the Company shall issue to the Holder
requesting exercise of a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the Warrant then held by such
Holder for which a conversion in accordance with the Exercise Price would result
in an issuance of shares of Common Stock in excess of the Issuable Maximum (the
"Excess Shares"), the Company shall use its best efforts to obtain the
-------------
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the sixty (60) day after such request. It is understood
and agreed that shares of Common Stock delivered to and held by the Holder or
one or more of its affiliates on account of exercise hereunder may cast votes on
the matter of Shareholder Approval. Shares not deliverable on account of
exercise hereunder and not held by the Holder or its affiliates may not cast
votes on the matter of Shareholder Approval.
11. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section, be issuable on
9
<PAGE>
the exercise of this Warrant, the Company shall pay an amount in cash equal to
the Exercise Price multiplied by such fraction or issue one additional shares
for such fraction.
12. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a Business Day, provided that
a copy is sent postage prepaid by nationally recognized overnight courier
service or United States certified mail return receipt requested, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, provided that a copy is sent
postage prepaid by nationally recognized overnight courier service or United
States certified mail return receipt requested, (iii) the Business Day following
the date of mailing, if sent postage prepaid for next day delivery by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 6333 Greenwich Drive, Suite
#230, San Diego, California 92122, Facsimile No.: (858) 552-4474, attention
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.
13. Warrant Agent. The Company shall serve as warrant agent under
-------------
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Warrant may
be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
(c) All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance
10
<PAGE>
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
ONE VOICE TECHNOLOGIES, INC.
By: __________________________________
Name: Dean Weber
Title: Chief Executive Officer
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: One Voice Technologies, Inc.
The undersigned hereby irrevocably elects to purchase _____________ shares
of common stock, $.001 par value per share, of One Voices Technologies, Inc.
(the "Common Stock") and , if such Holder is not utilizing the cashless exercise
------------
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
In connection with this Election to Purchase, Holder hereby represents and
warrants that Holder is not an affiliate of the Company, nor has Holder been an
affiliate of the Company during the ninety (90) days preceding this Election to
Purchase.
The Exercise Price applicable to the purchase hereunder equals $__________.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
___________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: ______ , _____ Name of Holder:
(Print) ____________________________________
(By:) ______________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
FORM OF ASSIGNMENT
------------------
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of One Voice
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of One Voice
Technologies, Inc. with full power of substitution in the premises.
Dated:
______________ , ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
<PAGE>
EXHIBIT C
---------
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
--------------
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OR THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
ONE VOICE TECHNOLOGIES, INC.
CONDITIONAL WARRANT TO PURCHASE 5%
CONVERTIBLE DEBENTURES
AND WARRANTS TO PURCHASE COMMON STOCK
The Transferability of this Conditional Warrant
Is Restricted as Provided in Section 2.
Void after October 3, 2001 Right to Purchase up to $8,000,000 principal
amount of 5% Convertible Debentures and
Warrants to Purchase Shares of Common Stock
PREAMBLE
One Voice Technologies, Inc. (the "Company"), a Nevada corporation, hereby
-------
certifies that, for value received, Nevelle Investors LLC, a Delaware limited
liability company, or its registered assigns (hereinafter, the "Registered
----------
Holder"), is, subject to the terms set forth herein, entitled to purchase from
------
the Company at any time or from time to time beginning on the date hereof and
ending at 5:00 P.M. New York time, on the date one (1) year from the date hereof
(the "Expiration Time") up to (i) eight million dollars ($8,000,000) principal
---------------
amount of the Company's 5% Convertible Debentures (the "Additional Debentures")
---------------------
substantially in the form of Exhibit A to the Securities Purchase Agreement (as
---------
defined below) and (ii) warrants (the "Additional Warrants") to puchase an
-------------------
amount of shares of common stock, par value $.001 per share (the "Common Stock")
------------
determined in accordance with Section 3.4 hereof. For purposes of this warrant
-----------
(the "Conditional Warrant") the aggregate price payable by the Registered Holder
-------------------
for the Additional Debentures and the Additional Warrants, being purchased on
the applicable Conditional Closing Date (as defined below) shall be equal to the
principal amount of Additional Debentures being purchased on such date and is
referred to herein as the "Purchase Price".
--------------
<PAGE>
Subject to the terms set forth herein from time to time, beginning sixty
(60) days after the date on which the initial Registration Statement (as defined
in Registration Rights Agreement as defined below) covering the Securities is
declared effective by the Commission and ending at the Expiration Time and
provided that the Per Share Market Value on the date of delivery of the
Conditional Exercise Notice is greater than ten dollars ($10.00), at the
election of the Company upon delivery of a Conditional Exercise Notice to the
Registered Holder, the Registered Holder shall at any time or from time to time
before the Expiration Time be required to exercise this Conditional Warrant and
purchase in four (4) separate tranches (each a "Tranche" and referred to as
-------
Tranche I, Tranche II, Tranche III, Tranche IV) each up to two million dollars
--------- ---------- ----------- ----------
($2,000,000) principal amount of Additional Debentures and Additional Warrants
to purchase shares of Common Stock in accordance with Section 3.4 attached
-----------
hereto up to a maximum aggregate principal amount of eight million dollars
($8,000,000) of Additional Debentures and Additional Warrants to purchase shares
of Common Stock in accordance with Section 3.4 hereof, at the Purchase Price for
-----------
each tranche set forth on Schedule I attached hereto; provided, that, the
----------
Registered Holder shall not be required to exercise and purchase any such
Additional Debentures or Additional Warrants if at any time from and after the
delivery to the Registered Holder of the Conditional Exercise Notice through the
applicable Conditional Closing Date (as defined below) (the "Interim Period")
--------------
any of the Closing Conditions (as defined below) shall not have been satisfied;
and provided further that the Company shall not be entitled to exercise this
Conditional Warrant with respect to any additional tranche listed on Schedule 1
----------
to the extent that the Company has failed to exercise this Conditional Warrant
with respect to a previous tranche listed on Schedule 1.
----------
This is the Conditional Warrant to purchase up to a maximum aggregate
principal amount of eight million dollars ($8,000,000) of Additional Debentures
and Additional Warrants to purchase shares of Common Stock issued pursuant to
the Securities Purchase Agreement (the "Securities Purchase Agreement"), dated
-----------------------------
as of October 3, 2000, by and between the Company and Nevelle Investors LLC.
The Securities Purchase Agreement contains certain additional terms that are
binding upon the Company and each Registered Holder of this Conditional Warrant.
A copy of the Securities Purchase Agreement, including the Exhibits thereto, may
be obtained by any Registered Holder of the Conditional Warrant from the Company
upon written request. Capitalized terms used but not defined herein shall have
the meanings set forth in the Securities Purchase Agreement, including the
Exhibits thereto.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Closing Conditions" shall mean the conditions set forth in
------------------
Section 5 hereof.
(b) The term "Company" includes any corporation which shall succeed to or
-------
assume the obligations of the Company hereunder.
(c) The term the "Conditional Exercise Notice" shall mean a written notice
---------------------------
delivered not less than ten (10) Business Days nor more than twenty (20)
Business Days prior to the Conditional Closing Date which sets forth the
principal amount of the Additional Debentures to be purchased on the Conditional
Closing Date.
2
<PAGE>
(d) The term the "Conditional Closing Date" shall mean the date specified
------------------------
in a duly delivered Conditional Exercise Notice.
(e) The term "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 Company with or into another person (other than (A)
pursuant to 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 the Company is the surviving entity and
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
necessary to elect a majority of the members of the board of directors of the
Company); (ii) the sale or transfer of all or substantially all of the Company's
assets; or (iii) consummation of a purchase, tender or exchange offer made to
the holders of more than thirty percent (30%) of the outstanding shares of
Common Stock.
(f) The term "Material Adverse Change" means any change, event, result or
-----------------------
happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(g) The term "Other Securities" refers to any class of shares (other than
----------------
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of this Conditional Warrant at any time shall be
entitled to receive, or shall have received, upon the exercise of the
Conditional Warrant, in lieu of or in addition to the Additional Debentures and
Additional Warrants, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of the Additional Debentures or
Additional Warrants or Other Securities.
(h) The term "Per Share Market Value" means on any particular date (a) the
----------------------
closing bid price per share of Common Stock on such date on the OTC Bulletin
Board as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices or on a
Subsequent Market (as defined in the Initial Debenture) on which the shares of
Common Stock are then listed or quoted, or if there is no such price on such
date, then the closing bid price on the OTC Bulletin Board or on such Subsequent
Market on the date nearest preceding such date, or (b) if the shares of Common
Stock are not then listed or quoted on the OTC Bulletin Board or a Subsequent
Market, then the average of the "Pink Sheet" quotes for the relevant conversion
----------
period, as determined in good faith by the Holder, or (c) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Debentures then
outstanding.
(i) The term "Registration Rights Agreement" means that certain
-----------------------------
registration rights agreement by and between the Registered Holder and the
Company dated as of the date hereof.
(j) The term "Tranche" shall mean one of the tranches set forth on
-------
Schedule 1 attached hereto and the term "Tranche Period" shall mean one of the
---------- --------------
tranche periods described on Schedule 1 attached hereto.
----------
(k) The term "Triggering Event" shall be deemed to have occurred at such
----------------
time as any of the following events: (i) the failure of the initial Registration
Statement to be declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights Agreement); (ii) while
the initial Registration Statement is required to be maintained
3
<PAGE>
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the initial Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Additional Debentures 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 five (5) consecutive trading days, provided that the
cause of such lapse or unavailability is not due to factors solely within the
control of such holders of Registrable Securities; (iii) the suspension from
listing or the failure of the Common Stock to be listed on the OTC Bulletin
Board, the Nasdaq SmallCap Market, the Nasdaq National Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
(5) consecutive days; (iv) the Company's notice to any holder of Debentures,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of Debentures into shares of Common
Stock; (v) if the Per Share Market Value shall be less than ten dollars ($10.00)
per share at any time during the Interim Period; (vi) the Company's stockholders
shall not have authorized and approved the transactions contemplated by the
Securities Purchase Agreement and this Conditional Warrant in accordance with
applicable law if so required; (vii) a material breach by the Company of any
representation, warranty, covenant or other term or condition of the Securities
Purchase Agreement, the Registration Rights Agreement, this Warrant or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby or hereby; or (viii) if Dean Weber is
no longer employed by the Company in the position which he served the Company on
the Initial Closing Date.
1. Registration Rights.
The rights of the holder of this Conditional Warrant to register the shares
of Common Stock issuable upon conversion of the Additional Debentures
purchasable hereunder and the shares of Common Stock issuable upon exercise of
the Additional Warrants purchasable hereunder (such shares of Common Stock, the
"Underlying Shares") shall be as stated in the Registration Rights Agreement,
-----------------
which agreement is Exhibit E to the Securities Purchase Agreement.
---------
2. Restricted Stock.
If, at the time of any transfer or exchange of this Conditional Warrant or
any Additional Debentures or Additional Warrants issuable upon exercise of this
Conditional Warrant (other than a transfer or exchange not involving a change in
the beneficial ownership of this Conditional Warrant or any Additional
Debentures or Additional Warrants, as applicable), such Conditional Warrant,
such Additional Debentures or such Additional Warrants shall not be registered
under the Securities Act, and the Company's obligation to transfer such
Conditional Warrant, such Additional Debentures or such Additional Warrants
shall be subject to the provisions of Section 3.1 of the Securities Purchase
Agreement.
3. Exercise of Conditional Warrant and Issuance of Additional Debentures and
Additional Warrants.
3.1. Exercise in Full with respect of an Applicable Tranche. During each
------------------------------------------------------
applicable Tranche Period, the holder of this Conditional Warrant may, and shall
on the Conditional Closing Date, provided the Conditional Exercise Notice is
given and the Closing Conditions are
4
<PAGE>
satisfied as required below, exercise this Conditional Warrant in full with
respect to all two million dollars ($2,000,000) in principal amount of
Additional Debentures and the related Additional Warrants for the applicable
Tranche by surrendering this Conditional Warrant, with the form of Election to
Purchase attached hereto as Annex A hereof duly executed by such Registered
-------
Holder or the Company, as applicable, to the Company in the manner set forth in
Section 12 hereof. On the applicable Conditional Closing Date, subject to the
provisions of Section 2 hereof, the Registered Holder shall deliver currently
available funds to the order of the Company, in the amount equal to two million
dollars ($2,000,000) and the Company, at its expense, will forthwith issue and
deliver to or upon the order of the Registered Holder hereof a new Conditional
Warrant or Conditional Warrants of like tenor, in the name of the Registered
Holder hereof or as such Registered Holder may request, calling in the aggregate
on the face or faces thereof for the Additional Debentures and Additional
Warrants equal to the number of shares of Additional Debentures and Additional
Warrants called for on the face of this Conditional Warrant minus the number of
such Additional Debentures and Additional Warrants designated in the applicable
Conditional Exercise Notice.
3.2. Partial Exercise with respect of an Applicable Tranche. During each
------------------------------------------------------
applicable Tranche Period, the holder of this Conditional Warrant may, and shall
on the Conditional Closing Date, provided the Conditional Exercise Notice is
given and the Closing Conditions are satisfied as required below, exercise this
Conditional Warrant in part in an amount of at least one million dollars
($1,000,000) in principal amount of Additional Debentures by surrendering this
Conditional Warrant, with the form of Election to Purchase attached hereto as
Annex A hereof duly executed by such Registered Holder or the Company, as
-------
applicable, to the Company in the manner set forth in Section 12 hereof. On the
applicable Conditional Closing Date in connection with such partial exercise,
subject to the provisions of Section 2 hereof, the Registered Holder shall
deliver currently available funds to the order of the Company in the amount of
the applicable Purchase Price and the Company, at its expense, will forthwith
issue and deliver to or upon the order of the Registered Holder hereof a new
Conditional Warrant or Conditional Warrants of like tenor, in the name of the
Registered Holder hereof or as such Registered Holder may request, calling in
the aggregate on the face or faces thereof for the Additional Debentures and
Additional Warrants equal to the number of shares of Additional Debentures and
Additional Warrants called for on the face of this Conditional Warrant minus the
number of such Additional Debentures and Additional Warrants designated in the
applicable Conditional Exercise Notice.
3.3. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise, exchange or transfer of this Conditional Warrant, upon the request of
the Registered Holder hereof, acknowledge in writing its continuing obligation
to afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Conditional Warrant, provided that if the Registered Holder of this
Conditional Warrant shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such Registered
Holder or transferee any such rights.
3.4. Conditional Warrant to Purchase Common Stock. Within three (3)
--------------------------------------------
Business Days of the applicable Conditional Closing Date, the Company shall
issue to the Registered Holder a Warrant substantially in the form of Exhibit B
to the Securities Purchase Agreement to purchase
5
<PAGE>
such number of shares of Common Stock as shall equal the product of (x) thirty
percent (30%) and (y) the quotient of the Purchase Price paid by the Registered
Holder on such Conditional Closing Date divided by the Per Share Market Value on
the trading day prior to such Conditional Closing Date.
4. Delivery of Debenture upon Exercise. Following the exercise of this
Conditional Warrant in full or in part, within the time periods and in the
manner provided by the Transfer Agent Instructions, the Company, at its expense
(including the payment by it of any applicable issue taxes), will cause to be
issued in the name of and delivered to the Registered Holder hereof, or as such
Registered Holder (upon payment by such Registered Holder of any applicable
transfer taxes) may direct, a Debenture substantially in the form of Exhibit A
---------
to the Securities Purchase Agreement to which such Registered Holder shall be
entitled on such exercise.
5. Closing Conditions. Notwithstanding anything herein to the contrary, the
Company shall not be permitted to deliver a Conditional Exercise Notice, nor
shall the Registered Holder be required to exercise and purchase on a
Conditional Closing Date any Additional Debentures and Additional Warrants
unless in either case each of the following conditions is satisfied: (i) the
initial Registration Statement shall have been declared effective and shall
remain effective for a period of at least sixty (60) days and at all times
during the applicable Interim Period; (ii) the Per Share Market Value for the
Common Stock shall not be less than ten dollars ($10.00) per share; (iii) during
the period beginning on the original issue date of this Conditional Warrant and
ending on and including the applicable Conditional Closing Date, there shall not
have occurred (A) a public announcement of a Major Transaction which has not
been abandoned or terminated, (B) a Triggering Event or (C) a Material Adverse
Change; (iv) at all times during the period beginning on the original issue date
of this Conditional Warrant and ending on and including the applicable
Supplemental Closing Date, the Common Stock shall have been designated on the
OTC Bulletin Board or Subsequent Market and shall not have been suspended from
quoting, listing or trading thereon and the Company shall not have been notified
of any pending or threatened proceeding or other action to delist or suspend the
Common Stock from so trading; (v) the Company's Articles of Incorporation and
By-laws as amended shall be in full force and effect and shall not have been
amended since the original issue date of this Conditional Warrant; (vi) the
representations and warranties of the Company in the Securities Purchase
Agreement shall be true and correct as of the date when made and as of the
applicable Conditional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the applicable Conditional Closing
Date (and the Registered Holder of this Conditional Warrant shall have received
a certificate, executed by the Chief Executive Officer of the Company, dated as
of the applicable Conditional Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such holder); (vii) as of
the applicable Conditional Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, the sum of (a) two (2) times the sum
of (x) maximum number of shares of Common Stock that could be issuable upon the
conversion of the Initial Debentures and (y) the maximum number of shares that
could be issuable upon conversion of the Additional Debentures previously
purchased by the Registered Holder and the Additional Debentures being sold in
the current Tranche and (b) the sum of the number of shares of Common Stock
issuable upon exercise in full of the Initial Warrants and the Additional
Warrants
6
<PAGE>
previously purchased by the Registered Holder and the Additional Warrants being
sold in the current Tranche, excluding from such calculation all Underlying
Shares relating to Debentures or Warrants which have previously been converted
or exercised, respectively, by the Registered Holder; (viii) with respect to the
Additional Debentures and Additional Warrants being sold in connection with
Tranche I, the Initial Registration Statement filed pursuant to the Registration
Rights Agreement has been declared effective and remains effective; and (ix)(1)
with respect to the Additional Debentures and Additional Warrants being sold in
connection with Tranche II, the Company has filed a Registration Statement as
defined in the Registration Rights Agreement and in connection with the shares
of Common underlying the Additional Debentures and Additional Warrants to be
sold in connection with the such Tranche and such Registration Statement has
been declared effective by the Commission and remains effective on the
applicable Conditional Closing Date, (2) with respect to the Additional
Debentures and Additional Warrants being sold in connection with Tranche III,
the Company has filed a Registration Statement as defined in the Registration
Rights Agreement and in connection with the shares of Common underlying the
Additional Debentures and Additional Warrants to be sold in connection with the
such Tranche and such Registration Statement has been declared effective by the
Commission and remains effective on the applicable Conditional Closing Date, and
(3) with respect to the Additional Debentures and Additional Warrants being sold
in connection with Tranche IV, the Company has filed a Registration Statement as
defined in the Registration Rights Agreement and in connection with the shares
of Common underlying the Additional Debentures and Additional Warrants to be
sold in connection with the such Tranche and such Registration Statement has
been declared effective by the Commission and remains effective on the
applicable Conditional Closing Date .
6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-laws, or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Conditional Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holders of the Conditional Warrants, as specified herein and in the Securities
Purchase Agreement, against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not effect a subdivision or split
up of shares or similar transaction with respect to any class of the Common
Stock without effecting an equivalent transaction with respect to all other
classes of Common Stock.
7. Notice of Record Date. In case of:
(a) any taking by the Company of a record of the holders of any class
of its securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, or
7
<PAGE>
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of a
Conditional Warrant a notice specifying (i) the date on which any record is to
be taken for the purpose of any such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
Common Stock (or Other Securities) for securities or other property deliverable
on such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up, and (iii) the
amount and character of any stock or other securities, or rights or options with
respect thereto, proposed to be issued or granted, the date of such proposed
issue or grant and the persons or class of persons to whom such proposed issue
or grant is to be offered or made. Such notice shall be mailed at least thirty
(30) days prior to the date specified in such notice on which any such action is
to be taken.
8. Exchange of Conditional Warrants. On surrender for exchange of any
Conditional Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Conditional Warrant or Conditional Warrants of like tenor,
in the name of such holder or as such holder may direct, calling in the
aggregate on the face or faces thereof for the Additional Debentures and
Additional Warrants called for on the face or faces of the Conditional Warrant
or Conditional Warrants so surrendered.
9. Replacement of Conditional Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Conditional Warrant and, in the case of any such loss, theft or destruction of
any Conditional Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of such Conditional Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Conditional Warrant of like tenor.
10. Conditional Warrant Agent. The Company may, by written notice to each
holder of a Conditional Warrant, appoint an agent having an office for the
purpose of issuing Additional Debentures and Additional Warrants on the exercise
of the Conditional Warrants pursuant to Section 3, exchanging Conditional
Warrants pursuant to Section 8, and replacing Conditional Warrants pursuant to
Section 9, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
11. Negotiability, Etc. This Conditional Warrant is issued upon the following
terms, to all of which each Registered Holder or owner hereof by the taking
hereof consents and agrees:
(a) subject to the terms of Section 3.1 of the Securities Purchase
Agreement, title to this Conditional Warrant may be transferred by endorsement
(by the Registered Holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
8
<PAGE>
(b) any person in possession of this Conditional Warrant properly
endorsed is authorized to represent himself, herself or itself as absolute owner
hereof and is empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior taker or
owner waives and renounces all of his equities or rights in this Conditional
Warrant in favor of each such bona fide purchaser, and each such bona fide
purchaser shall acquire absolute title hereto and to all rights represented
hereby; and
(c) until this Conditional Warrant is transferred on the books of the
Company, the Company may treat the Registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
12. Notices. All notices and other communications from the Company to the
Registered Holder of this Conditional Warrant shall be given in writing (unless
otherwise specified herein) and shall be effective upon personal delivery, via
facsimile (upon receipt of confirmation of error-free transmission and mailing a
copy of such confirmation postage prepaid by certified mail return receipt
requested) or one (1) Business Days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed,
to such address as may have been furnished to the Company in writing by such
Registered Holder or, until any such Registered Holder furnishes to the Company
an address, then to, and at the address of, the last Registered Holder of this
Conditional Warrant who has so furnished an address to the Company.
13. Amendments; Waivers. No provision of this Conditional Warrant may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and the Registered Holder or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Conditional Warrant shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
14. Headings. The headings herein are for convenience only, do not constitute a
part of this Conditional Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
15. Successors and Assigns. This Conditional Warrant shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Conditional Warrant or any rights or obligations
hereunder without the prior written consent of the Registered Holder.
16. Governing Law. This Conditional Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any
9
<PAGE>
such court, that such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Conditional
Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
17. Execution. This Conditional Warrant may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
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
page were an original thereof.
18. Severability. In case any one or more of the provisions of this Conditional
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Conditional Warrant
shall not in any way be affecting or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Conditional Warrant.
19. Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Registered
Holder will be entitled to specific performance of the obligations of the
Company under this Conditional Warrant. The Company and the Registered Holder
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
20. Termination. In connection with any Additional Debentures and Additional
Warrants purchasable in any of the Tranches hereunder which at such time are not
subject to an Election to Purchase (the "Unexercised Portion"), the Company may
terminate its ability and the ability of the Registered Holder to further
exercise this Conditional Warrant by delivering to the Registered Holder a
written notice of the Company's desire to terminate the Unexercised Portion (the
"Termination Notice") and within three (3) Business Days of delivery of such
Termination Notice delivering to the Registered Holder a warrant (the
"Termination Warrant"), substantially in the form of Exhibit B to the Securities
Purchase Agreement to purchase such number of shares of Common Stock as shall
equal the product of (x) fifteen percent (15%) and (y) the quotient of the
aggregate principal amount of the Additional Debentures which are part of the
Unexercised Portion on such Conditional Closing Date divided by the Per Share
Market Value on the trading day prior to the date of delivery of the Termination
Notice and with an exercise price equal to one hundred and ten percent (110%) of
the Per Share Market Value on the trading day prior to the date of delivery of
the Termination Notice, provided that in the event that such Termination Warrant
is not delivered to the Registered Holder in such three (3) day period the
related Termination Notice shall be void and of no force and effect.
10
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS.]
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Conditional Warrant
as of October 3, 2000.
ONE VOICE TECHNOLOGIES, INC.
By: /s/ Dean Weber
----------------------------------
Name: Dean Weber
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED:
NEVELLE INVESTORS LLC
By: WEC Asset Management LLC, Manager
By: /s/ Ethan Benovitz
-----------------------------
Name: Ethan Benovitz
Title: Managing Director
<PAGE>
Annex A
-------
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Conditional Warrant, by and between One Voice Technologies,
Inc. (the "Company") and Nevelle Investors LLC (the "_________"), dated as of
-------
October 3, 2000 (the "Conditional Warrant"), to purchase or cause to be
-------------------
purchased [_____] Additional Debentures and Additional Warrants to purchase
[____] shares of Common Stock and requires to be tendered in payment for such
securities currently available funds to the order of ONE VOICE TECHNOLOGIES,
INC., in the amount of [$________], all in accordance with the terms hereof. The
undersigned requests that an Additional Debenture and Additional Warrant be
registered in the name of _________________________, whose address is
_________________________________ and that such Debenture and Warrants be
delivered to ___________________________,whose address is __________________.
The Conditional Closing Date for such transaction shall be [________________].
Capitalized terms used and not defined herein shall have the respective meanings
ascribed to them in the Conditional Warrant.
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Conditional Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
Annex B
-------
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder desires to transfer the
Conditional Warrant.)
FOR VALUE RECEIVED, ____________________
hereby sells, assigns and transfers unto
____________________________________________
(Please print name and address of transferee)
the attached Conditional Warrant, by and between One Voice Technologies, Inc.
(the "Company") and Nevelle Investors LLC (the "___________"), dated as of
-------
October 3, 2000 (the "Conditional Warrant"), together with all right, title and
-------------------
interest therein, and does so hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Conditional Warrant on
the books of the within-named Company, with full power of substitution.
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Conditional Warrant.)
___________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
----------
Tranches
--------
----------------------------------------------------------------------------------------------------
Maximum
Principal Amount of
Additional Debentures and Maximum Number of Shares of
Tranche Purchase Price for such Common Stock Purchasable, by
Tranche the Additional Warrants Tranche Period
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I Two Million Dollars An amount of shares determined Sixty (60) days after the
($2,000,000) pursuant to Section 3.4 of Initial Registration
this Conditional Warrant. Statement is declared
effective.
----------------------------------------------------------------------------------------------------
II Two Million Dollars An amount of shares determined Ninety (90) days following
($2,000,000) pursuant to Section 3.4 of the Conditional Closing
this Conditional Warrant. Date related to Tranche I
----------------------------------------------------------------------------------------------------
III Two Million Dollars An amount of shares determined Ninety (90) days following
($2,000,000) pursuant to Section 3.4 of the Conditional Closing
this Conditional Warrant. Date related to Tranche II
----------------------------------------------------------------------------------------------------
IV Two Million Dollars An amount of shares determined Ninety (90) days following
($2,000,000) pursuant to Section 3.4 of the Conditional Closing
this Conditional Warrant. Date related to Tranche III
----------------------------------------------------------------------------------------------------
</TABLE>
Capitalized terms used and not defined herein shall have the respective meaning
ascribed to them in the Registration Rights Agreement (as defined in the
Conditional Warrant) and Conditional Warrant.
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of October 3, 2000, among One Voice Technologies, Inc., a Nevada
corporation (the "Company"), and Nevelle Investors LLC, a Delaware limited
-------
liability company (the "Purchaser").
---------
WHEREAS, this Agreement was made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchaser (the
"Purchase Agreement"); and
------------------
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchaser agree as follows:
1. Definitions
-----------
Capitalized terms used and not otherwise defined herein shall have the
respective meaning ascribed to such terms in the Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"Additional Debentures" means the convertible debentures of the
---------------------
Company issuable to the Purchaser in accordance with the terms of the
Conditional Warrant or such other securities that such debentures shall
thereafter be convertible into.
"Additional Warrants" means the Common Stock purchase warrants issued
-------------------
to the Purchaser pursuant to the Conditional Warrant.
"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.
"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 or the State of California generally are authorized or required by law
or other government actions to close.
"Closing Date" shall mean the Initial Closing Date as defined in the
------------
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
----------
<PAGE>
"Common Stock" means the Company's common stock, $0.001 par value per
------------
share, or such securities that such stock shall hereafter be reclassified into.
"Conditional Warrant" means that certain Conditional Warrant, by and
-------------------
between the Company and the Purchaser, dated as of the date hereof, pursuant to
which the Additional Debentures and Additional Warrants are issuable and any
Conditional Warrant issued by the Company in replacement of the current
Conditional Warrant or as a balance Conditional Warrant in connection with the
exercise of a portion of the Conditional Warrant or any subsequent Conditional
Warrant related thereto.
"Debentures" shall mean (i) the Initial Debentures and (ii) the
----------
Additional Debentures.
"Effectiveness Date" means the earlier (i) if the initial Registration
------------------
Statement is not reviewed by the Commission the earlier of the ninetieth (90th)
day following the date hereof or the date which is five (5) Business Days after
the date on which either the Company or its counsel is so notified, whether
orally or in writing or (ii) in the event of review by the Commission of the
initial Registration Statement the earlier of one hundred thirty-five (135) days
following the date hereof or five (5) Business Days after the date on which
either the Company or its counsel is notified that the initial Registration
Statement will not be reviewed by the Commission.
"Effectiveness Period" shall have the meaning set forth in Section
--------------------
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means the thirtieth (30th) day following the date
-----------
hereof.
"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).
------------------
"Initial Debentures" means the convertible debentures of the Company
------------------
issued to the Purchaser in accordance with the Purchase Agreement or such
securities that such debentures shall hereafter be converted into.
"Initial Registrable Securities" mean the shares of Common Stock
------------------------------
issuable upon conversion in full of the Initial Debentures and the shares of
Common Stock issuable upon exercise of the Initial Warrants and shares of Common
Stock issuable upon conversion in full of the Additional Debentures purchasable
in connection with Tranche I and the shares of Common Stock issuable upon
exercise of the Additional Warrants purchasable in connection with Tranche I.
2
<PAGE>
"Initial Warrant" means the Common Stock purchase Warrants issued to
---------------
the Purchaser pursuant to the Purchase Agreement.
"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 or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
----------------------
upon conversion in full of the Debentures and the shares of Common Stock
issuable upon exercise in full of the Warrants.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement, including, without
limitation, the initial Registration Statement and any Subsequent 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.
"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.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
3
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Special Counsel" means one (1) special counsel to the Holders, for
---------------
which the Holders will be reimbursed by the Company pursuant to Section 4.
"Tranche" or "Tranche I, II, III and IV" shall have the respective
---------------------------------------
meanings ascribed to them in the Conditional Warrant.
"Warrants" shall mean (i) the Initial Warrants and (ii) the Additional
--------
Warrants.
2. Shelf Registrations
-------------------
(a) The Initial Registration Statement.
----------------------------------
(i) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a "Shelf" Registration Statement covering the resale of the
Initial Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (except
if the Company is not then eligible to register for resale the Registrable
Securities on Form SB-2, in which case such registration shall be on another
appropriate form, provided, however, if the Company is eligible to register for
resale the Registrable Securities on Form S-3, such Registration Statement shall
be on Form S-3) and shall contain the "Plan of Distribution" attached hereto as
Annex A, and cause such Registration Statement to become effective and remain
-------
effective as provided herein. The Company shall use its 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 shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is two (2) years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"), provided, that the Company shall not be deemed to have
--------------------- --------
used its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(ii) The initial Registration Statement relating to the Initial
Registrable Securities required to be filed hereunder shall include (but not be
limited to) a number of shares of Common Stock equal to no less than the sum of
(i) two hundred percent (200%) of the number of shares of Common Stock issuable
upon conversion in full of the outstanding principal amount of the Initial
Debentures, assuming all interest is paid in shares of Common Stock and that
such Initial Debentures remain outstanding for two (2) years, and that such
conversion occurred on the
4
<PAGE>
Initial Closing Date, (ii) two hundred (200%) of the number of shares of Common
Stock issuable upon conversion in full of the Additional Debentures purchasable
in connection with Tranche I, assuming all interest is paid in shares of Common
Stock and that such Additional Debentures remain outstanding for two years, and
that such conversion occurred on the Initial Closing Date, (iii) the number of
shares of Common Stock issuable upon exercise in full of the Initial Warrants,
assuming exercise of such warrants on the Closing Date and (iv) the number of
shares of Common Stock issuable upon exercise in full of the Additional Warrants
purchasable in connection with Tranche I, assuming exercise of such warrant on
the Closing Date.
(iii) If (a) the initial Registration Statement is not filed on or
prior to the Filing Date (if the Company files such Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file with the Commission
a request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five (5) 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 (c) the initial Registration Statement filed hereunder is not declared
effective by the Commission on or prior to the day following the Effectiveness
Date, or (d) after a Registration Statement is filed with and declared
effective by the Commission, such Registration Statement ceases to be effective
as to all Registrable Securities at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten (10) days by an
amendment to such Registration Statement or by a subsequent Registration
Statement filed with and declared effective by the Commission, or (e) the Common
Stock shall be suspended from being quoted on the OTC Bulletin Board without
resuming trading and/or being relisted or thereon or listed on the New York
Stock Exchange, American Stock Exchange, Nasdaq SmallCap Market or Nasdaq
National Market (each, a "Subsequent Market") for more than three (3) days
-----------------
(which need not be consecutive days), or (f) the conversion rights of the
Holders pursuant to the Debentures are suspended for any reason, or (g) an
amendment to a Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
such amendment is required in order for such Registration Statement to be
declared effective or (h) upon the occurrence of a Blackout Event (as defined
below) (any such failure or breach being referred to as an "Event," and for
-----
purposes of clauses (a), (c), (f) and (g) the date on which such Event occurs,
or for purposes of clause (b) the date on which the applicable five (5) day
period is exceeded, or for purposes of clauses (d) and (g) the date which the
applicable ten (10) day period is exceeded, or for purposes of clause (e) the
date on which the applicable three (3) day-period is exceeded, being referred to
as "Event Date"), then, on the Event Date and each monthly anniversary thereof
----------
until the applicable Event is cured, the Company shall pay to each Holder two
percent (2%) of the purchase price paid by such Holder pursuant to the Purchase
Agreement and Conditional Warrant, in cash, as liquidated damages and not as a
penalty. If the Company fails to pay any liquidated damages pursuant to this
Section in full within seven (7) days after the date payable, the Company will
pay interest thereon at a rate of fourteen percent (14%) per annum (or such
lesser maximum amount that is permitted to be paid by applicable law) to the
Holder, accruing daily from the date such liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The liquidated
damages pursuant to the terms hereof shall apply on a pro-rata basis for any
portion of a month prior to the cure of an Event.
5
<PAGE>
(b) The Subsequent Registration Statements.
--------------------------------------
(i) On or prior to applicable Conditional Closing Date (as defined in the
Conditional Warrant) in connection with Tranche II, III or IV, the Company shall
prepare and file with the Commission a "Shelf" Registration Statement or
Statements covering the resale of the Registrable Securities relating to such
Tranche for an offering to be made on a continuous basis pursuant to Rule 415 (a
"Subsequent Registration Statement"). The Subsequent Registration Statement
---------------------------------
shall be on Form SB-2 (except if the Company is not then eligible to register
for resale the Registrable securities on Form SB-2, in which case such
registration shall be on another appropriate form, provided, however, if the
Company is eligible to register for resale the Registrable Securities on Form S-
3, such Subsequent Registration Statement shall be on Form S-3) and shall
contain the "Plan of Distribution" attached hereto as Annex A, and cause such
-------
Subsequent Registration Statement to become effective and remain effective as
provided herein. The Company shall use its best efforts to cause such
Subsequent Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event prior to
the applicable Conditional Closing Date, and shall use its best efforts to keep
such Subsequent Registration Statement continuously effective under the
Securities Act until the date which is two (2) years after the date that such
Subsequent Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Subsequent
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) as determined by counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the
Company's transfer agent and the affected Holders (the applicable "Subsequent
----------
Effectiveness Period"), provided, that the Company shall not be deemed to have
-------------------- --------
used its best efforts to keep the Subsequent Registration Statement effective
during the applicable Subsequent Effectiveness Period if it voluntarily takes
any action that would result in the Holders not being able to sell the
Registrable Securities covered by such Subsequent Registration Statement during
the applicable Subsequent Effectiveness Period, unless such action is required
under applicable law or the Company has filed a post-effective amendment to the
Subsequent Registration Statement and the Commission has not declared it
effective.
(ii) The Subsequent Registration Statement relating to the
Registrable Securities required to be filed hereunder relating to Tranche II,
III or IV shall include (but not be limited to) a number of shares of Common
Stock equal to no less than the sum of (i) two hundred percent (200%) of the
number of shares of Common Stock issuable upon conversion in full of the
outstanding principal amount of the Additional Debentures, assuming all interest
is paid in shares of Common Stock and that the Debentures purchased in
connection with such Tranche or Tranches, as applicable, remain outstanding for
two (2) years, and that such conversion occurred on the Initial Closing Date,
and (ii) the number of shares of Common Stock issuable upon exercise in full of
the Additional Warrants purchasable in connection with such Tranche or Tranches
as applicable.
(iii) If in connection with a Subsequent Registration Statement (a)
if the Company files such Subsequent Registration Statement without affording
the Holder the
6
<PAGE>
opportunity to review and comment on the same as required by Section 3(a)
hereof, or (b) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five (5) days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that a Subsequent Registration
Statement will not be "reviewed," or not subject to further review, or (c) after
a Subsequent Registration Statement is filed with and declared effective by the
Commission, such Subsequent Registration Statement ceases to be effective as to
all Registrable Securities at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten (10) days by an
amendment to such Subsequent Registration Statement or by a Subsequent
Registration Statement filed with and declared effective by the Commission, or
(d) the Common Stock shall be suspended from being quoted on the OTC Bulletin
Board without resuming trading and/or being relisted or thereon or listed on a
Subsequent Market for more than three (3) days (which need not be consecutive
days), or (e) the conversion rights of the Holders pursuant to the Debentures
are suspended for any reason, or (f) an amendment to a Subsequent Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for such Subsequent Registration Statement to be declared effective or (g)
upon the occurrence of a Blackout Event (any such failure or breach being
referred to as an "Event," and for purposes of clauses (a), (e) and (g) the date
-----
on which such Event occurs, or for purposes of clause (b) the date on which the
applicable five (5) day period is exceeded, or for purposes of clauses (c) and
(f) the date which the applicable ten (10) day period is exceeded, or for
purposes of clause (d) the date on which the applicable three (3) day-period is
exceeded, being referred to as "Event Date"), then, on the Event Date and each
----------
monthly anniversary thereof until the applicable Event is cured, the Company
shall pay to each Holder two percent (2%) of the purchase price paid by such
Holder pursuant to the Purchase Agreement and Conditional Warrant, in cash, as
liquidated damages and not as a penalty. If the Company fails to pay any
liquidated damages pursuant to this Section in full within seven (7) days after
the date payable, the Company will pay interest thereon at a rate of fourteen
percent (14%) per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The liquidated damages pursuant to the terms hereof shall
apply on a pro-rata basis for any portion of a month prior to the cure of an
Event.
3. Registration Procedures
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Not less than two (2) 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 or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders and their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
their 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
7
<PAGE>
respective counsel to such to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file any Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities and their Special
Counsel shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to any Registration Statement and any
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the applicable 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;
(iii) respond as promptly as reasonably possible, and in any event within
fifteen (15) days, to any comments received from the Commission with respect to
a Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to a Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by a
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in a
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) File additional Registration Statements if the number of
Registrable Securities required to be registered at any time exceeds one hundred
percent (100%)of the number of shares of Common Stock then registered in a
Registration Statement. The Company shall have twenty (20) days to file such
additional Registration Statements after such requirement notice of which is
given by the Holders.
(d) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than two (2) Business Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to a Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement covering any or all of
the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) 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
8
<PAGE>
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the case of a
Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder and their Special Counsel, without charge,
at least one (1) 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 their 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 Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
amended or supplemented from time-to-time by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus as amended or supplemented.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
their 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, that the
--------
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified 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 delivered
to a transferee pursuant to a Registration Statement, which certificates shall
be free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.
9
<PAGE>
(j) Upon the occurrence of any event contemplated by Section
3(d)(iii) or (vi) (any of such events a "Blackout Event"), as promptly as
--------------
reasonably possible, prepare a supplement or amendment, including a post-
effective amendment, to the applicable Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the applicable Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company shall promptly notify the Purchaser upon the
occurrence of a Blackout Event. The Purchaser agrees that, upon receipt of any
notice from the Company of the happening of any Blackout Event, it will
immediately discontinue disposition of its Registrable Securities pursuant to a
Registration Statement covering such Registrable Securities until such copies of
the supplemented or amended prospectus contemplated by this Section 3(j) shall
be furnished to the Purchaser.
(k) Comply with all applicable rules and regulations of the
Commission.
(l) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested by the Commission, the
controlling person thereof.
4. Registration Expenses. All fees and expenses incident to the
---------------------
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASD, OTC Bulletin Board and any Subsequent Market
on which the Common Stock is then quoted or listed for trading, and (B) 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 or exemptions 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 one Special Counsel for the Holders
not to exceed five thousand dollars ($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. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on
10
<PAGE>
any securities exchange as required hereunder. The Company shall not be
responsible for, and the Holders shall pay their portion of, any underwriting
commissions and discounts.
5. Indemnification
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
any termination of this Agreement, indemnify and hold harmless each Holder, the
managers, members, officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees 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 any Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (2) in the case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). 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 or 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) arising solely out of or based solely upon any untrue
statement of a material fact contained in a Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or 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 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 to the Company specifically
11
<PAGE>
for inclusion in a Registration Statement or such Prospectus or to the extent
that such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall 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 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. 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
12
<PAGE>
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 (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 fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in 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.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. 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.
6. 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 agrees that, in the event of any action for
13
<PAGE>
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 entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
-------------
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person.
(c) No Piggyback on Registrations. Except as and to the extent
-----------------------------
specified in Schedule 6(b) hereto, neither the Company nor any of its security
-------------
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Compliance. Each Holder covenants and agrees that it will comply
----------
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to a Registration
Statement.
(e) Discontinued Disposition. Each Holder agrees by its acquisition
------------------------
of the Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under a 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. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(f) Piggy-Back Registrations. If at any time during the Effectiveness
------------------------
Period there is not an effective Registration Statement covering all of the
Registrable Securities required to be registered at such time pursuant to this
Agreement and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen (15) days after receipt of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered.
14
<PAGE>
(h) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds (2/3) of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
-------- -------
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(i) Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 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 in this Agreement later than 6:30 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 postage prepaid
for overnight delivery by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: One Voice Technologies, Inc.
6333 Greenwich Drive, Suite #240
San Diego, California 92122
Attention: Dean Weber
Fax: (858) 552-4474
With copies to: Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite #2600
San Diego, California 92101
Attention: Dennis J. Doucette, Esq.
Fax: (619) 232-8311
If to the Purchaser: Nevelle Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Ethan Benovitz
Fax: (914) 271-0889
15
<PAGE>
With copies to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Fax: (212) 326-0806
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(j) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(k) 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.
(l) Governing Law. All questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.
(m) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their 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.
(o) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
16
<PAGE>
(p) 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY:
ONE VOICE TECHNOLOGIES, INC.
By: /s/ Dean Weber
--------------------------------
Name: Dean Weber
Title: Chief Executive Officer
PURCHASER:
NEVELLE INVESTORS LCC
By: WEC Asset Management LLC,
Manager
By: /s/ Ethan Benovitz
--------------------------------
Name: Ethan Benovitz
Title: Managing Director
<PAGE>
ANNEX A
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Plan of Distribution
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-dealer
solicits Purchaser;
. block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
. an exchange distribution in accordance with the rules of the applicable
exchange;
. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a Selling Stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Shareholders may pledge their shares of Common
Stock to their brokers under the margin provisions of customer agreements. If a
Selling Stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts
<PAGE>
from the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
Selling Stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders, but excluding brokerage commissions or underwriter
discounts. The Company and the Selling Stockholders have agreed to indemnify
each other against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
2
