UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(A) AND
AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
SCHEDULE 13D/A
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. 1)
UNITY WIRELESS CORPORATION
(Name of Issuer)
COMMON STOCK, PAR VALUE $0.001*
(Title of Class of Securities)
913347 10 0
(CUSIP Number)
CLAL INDUSTRIES AND INVESTMENTS LTD.
THE TRIANGULAR TOWER
45TH FLOOR
3 AZRIELI CENTER
TEL AVIV 67023
ATTN: CORPORATE SECRETARY
TELEPHONE: 972-3-6075794
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
DECEMBER 13, 2006
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f), or 13d-1(g), check the following
box: [_]
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 (the "Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
* AS SOME OF THE SECURITIES BENEFICIALLY OWNED BY THE REPORTING PERSONS ARE
SERIES B CONVERTIBLE NON-REDEEMABLE PREFERRED SHARES, PAR VALUE $0.001 PER
SHARE, OF THE ISSUER (THE "SERIES B SHARES"), EACH OF WHICH IS CURRENTLY
CONVERTIBLE INTO 1,000 SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF
THE ISSUER (THE "SHARES"), THE FIGURES IN THIS STATEMENT ARE SHOWN ON AN AS
CONVERTED BASIS.
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Israel Infinity Venture Capital (Corporate General Partner) Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Island
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 1,249,672 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
990,859 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,249,672 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.8%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 384,514 Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
2
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Infinity I Annex Fund (General Partner) Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 7,973,023 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
7,709,120 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,973,023 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.4%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 2,453,238 Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
3
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
FBR Infinity II Venture Partners Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
WC
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Bermuda
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 13,812,983 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
13,812,983 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
13,812,983 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.4%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 4,300,501 Shares and debentures
convertible into 1,309,156 Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
4
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Clal Venture Capital Fund Management Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 50,944 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
50,944 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
50,944 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 50,944 Shares, but excludes notes
convertible into 594,347 Shares (which are not convertible within 60 days
as of the date hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
5
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Clal Industries and Investments Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,588,376 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,255,844 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,588,376 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
20.1%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,564,535 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
1,725,152 Shares (which are not convertible within 60 days as of the date
hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
6
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Clalit Finance and Investments Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 82,406 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
25,356 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
82,406 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[_]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 25,356 Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
7
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
RDC Rafael Development Corporation Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 62,330 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
62,330 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
62,330 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 62,330 Shares, but excludes notes
convertible into 727,167 Shares (which are not convertible within 60 days
as of the date hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
8
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Elron Electronic Industries Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 84,756 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
84,756 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
84,756 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 84,756 Shares, but excludes notes
convertible into 988,810 Shares (which are not convertible within 60 days
as of the date hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
9
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ECI Telecom Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 27,907 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
27,907 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
27,907 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 27,907 Shares, but excludes notes
convertible into 325,578 Shares (which are not convertible within 60 days
as of the date hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
10
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Discount Investment Corporation Ltd. ("DIC")
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 157,516 *
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
157,516 *
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
157,516 *
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.1%
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 157,516 Shares, but excludes notes
convertible into 1,837,677 Shares (which are not convertible within 60 days
as of the date hereof).
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
11
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
IDB Development Corporation Ltd. ("IDB Development")
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, 54,938 Shares (the
"CIEH Shares") beneficially owned by a wholly owned subsidiary of Clal
Insurance Enterprises Holdings Ltd. ("CIEH"), a subsidiary of IDB
Development, for its own account.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
12
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
IDB Holding Corporation Ltd.
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
CO
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, the CIEH Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
13
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Nochi Dankner
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, the CIEH Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
14
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Shelly Bergman
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, the CIEH Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
15
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Ruth Manor
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, the CIEH Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
16
SCHEDULE 13D
CUSIP NO. 913347 10 0
--------------------------------------------------------------------------------
1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Avraham Livnat
--------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3) SEC USE ONLY
--------------------------------------------------------------------------------
4) SOURCE OF FUNDS
Not Applicable
--------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [_]
--------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Israel
--------------------------------------------------------------------------------
7) SOLE VOTING POWER
0
NUMBER OF -------------------------------------------------------------
SHARES 8) SHARED VOTING POWER
BENEFICIALLY 30,910,265*
OWNED BY -------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER
REPORTING 0
PERSON -------------------------------------------------------------
WITH 10) SHARED DISPOSITIVE POWER
29,577,733*
--------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,910,265*
--------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[X]
--------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.2%**
--------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
--------------------------------------------------------------------------------
* Includes warrants exercisable into 9,753,307 Shares and debentures
convertible into 1,309,156 Shares, but excludes notes convertible into
3,237,251 Shares (which are not convertible within 60 days as of the date
hereof). The 30,910,265 Shares include, among others, the CIEH Shares.
** Based on 146,876,729 Shares outstanding (on an as converted basis) as of
October 31, 2006. See Item 5.
17
This Amendment No. 1 amends and supplements the Statement on Schedule 13D
in respect of the shares of Common Stock, par value $0.001 per share (the
"Shares"), of Unity Wireless Corporation (the "Issuer"), filed by Israel
Infinity Venture Capital (Corporate General Partner) Ltd., Infinity I Annex Fund
(General Partner) Ltd., FBR Infinity II Venture Partners Ltd., Clal Venture
Capital Fund Management Ltd., Clal Industries and Investments Ltd., Clalit
Finance and Investments Ltd., RDC Rafael Development Corporation Ltd., Elron
Electronic Industries Ltd., ECI Telecom Ltd., Discount Investment Corporation
Ltd., IDB Development Corporation Ltd., IDB Holding Corporation Ltd., Mr. Nochi
Dankner, Mrs. Shelly Bergman, Mrs. Ruth Manor and Mr. Avraham Livnat
(collectively, the "Reporting Persons"), with the Securities and Exchange
Commission on December 7, 2006 (the "Statement").
Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to such terms in the Statement.
The following amends and supplements Items 2, 3, 4, 5, 6 and 7 of the
Statement.
ITEM 2. IDENTITY AND BACKGROUND.
The second paragraph of Section 16 of Item 2 of the Statement is hereby amended
and replaced in its entirety by the following:
"Nochi Dankner (together with a private company controlled by him) and his
sister Shelly Bergman control Ganden Holdings Ltd. ("Ganden Holdings"), a
private Israeli company. Ganden Holdings owns, as of November 22, 2006,
approximately 47.8% of the outstanding shares of IDB Holding (of which,
approximately 10.1% of the outstanding shares of IDB Holding are held directly
and approximately 37.7% of the outstanding shares of IDB Holding are held
through Ganden Investments I.D.B. Ltd. ("Ganden"), a private Israeli company,
which is an indirect wholly owned subsidiary of Ganden Holdings). In addition,
Shelly Bergman holds, through a wholly owned company, approximately 7.23% of the
outstanding shares of IDB Holding."
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Debentures and December Warrants (as such terms are defined below) were
acquired by the Infinity II Funds (and beneficially owned by Infinity II GP)
using funds from the working capital of the Infinity II Funds, as further
described in Item 4 below.
ITEM 4. PURPOSE OF TRANSACTION.
CELLETRA. The fourth paragraph under the heading "Celletra" in Item 4 of
the Statement is hereby amended and replaced in its entirety by the following:
"As part of the transaction, each of the shareholders has executed a letter
(the "Celletra Letter") whereby, among other things, they agreed to (1)
indemnify the Issuer against misrepresentations and breaches of warranty, but
the Issuer can look only to 10% of the merger consideration to recover on these
obligations and (2) the lock-up of the Series B Shares (excluding Shares
underlying the Celletra Warrants) as provided in Section 8 of the Celletra
Agreement, which generally provides that the holders of the Series B Shares may
not dispose of the shares (including Shares resulting from conversion of the
Series B Shares), except that up to one twelfth (1/12) of such shares shall be
released from the lock-up on the last day of each 12 calendar months beginning
with the first calendar month following the first anniversary of the closing of
the Celletra Agreement."
DECEMBER 2006 FINANCING. As contemplated in an Additional Issuance
Agreement (the "Additional Issuance Agreement") entered into between the Issuer
and the Infinity II Funds, on December 13, 2006, the Infinity II Funds purchased
from the Issuer $117,824 principal amount of 8% Convertible Secured Debentures
(the "Debentures") and warrants to purchase approximately 654,578 Shares (the
"December Warrants") as part of a $1.25 million round of financing of the
Issuer.
18
The Debentures are convertible into approximately 1,309,156 Shares at a
conversion price equal to $0.09 per Share (subject to adjustments) and are
subject to redemption and mandatory conversion upon certain terms and conditions
specified in the Debentures. At the Issuer's election, the interest on the
Debentures may be paid in cash or in Shares, subject to certain limitations.
Consequently, the Debentures are convertible into Shares by dividing the
principal amount and interest accrued thereon by the applicable conversion price
and the figure above (1,309,156 shares) may generally increase until the full
repayment of the Debentures.
The December Warrants are exercisable until December 13, 2011, at an
exercise price of $0.10 per Share (subject to adjustments) and contain a call
provision that allow the Issuer to call the warrants upon certain terms and
conditions specified therein.
As part of the transaction, the Infinity II Funds, as well as other holders
of the Debentures, entered into an Inter-Creditor Agreement (the "Inter-Creditor
Agreement") with the Issuer and other creditors of the Issuer concerning, among
others, the relationship between the different creditors. In addition, the
Issuer provided a letter (the "2006 Letter") to the Infinity II Funds that
generally provides that the Celletra Warrants beneficially owned by the
Reporting Persons will be amended as follows: (1) the exercise price of the
Celletra Warrants shall be reduced to $0.10 per share, (2) the exercise period
shall be extended until December 13, 2011, and (3) a provision shall be added to
address adjustments to the exercise price upon a reverse stock split of the
Shares.
THE FOREGOING DESCRIPTION OF THE ADDITIONAL ISSUANCE AGREEMENT, THE DEBENTURES,
THE DECEMBER WARRANTS, THE INTER-CREDITOR AGREEMENT AND THE 2006 LETTER DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, THE PROVISIONS OF THESE DOCUMENTS FILED AS EXHIBITS HERETO (SEE
ITEM 7), WHICH ARE INCORPORATED HEREIN.
PURPOSES OF THE REPORTING PERSONS. The Shares reported herein as
beneficially owned by the Reporting Persons are held for investment purposes.
The Reporting Persons intend to review on a continuing basis their investment in
the Shares and take such actions with respect to such investment, as they deem
appropriate in light of the circumstances existing from time to time. Such
actions could include, among other things, subject to applicable laws,
purchasing additional Shares. The Reporting Persons could also determine to
dispose of the Shares, in whole or in part, at any time, subject to applicable
laws (including the lock-up under the Celletra Agreement). Any such decision
would be based on an assessment by the Reporting Persons of a number of
different factors, including, without limitation, the business, prospects and
affairs of the Issuer, the market for the Shares, the condition of the
securities markets, general economic and industry conditions and other
opportunities available to the Reporting Persons. To the best knowledge of the
Reporting Persons, the persons named in Schedules A through J may purchase or
dispose of Shares on their own account from time to time, subject to applicable
laws.
Except as may be provided otherwise herein, none of the Reporting Persons,
nor to the best of their knowledge, any of the persons named in Schedules A
through J to the Statement, has any present plans or proposals which relate to
or would result in any of the actions described in subsections (a) through (j)
of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a), (b) Percentages are based on 146,876,729 Shares outstanding (on an as
converted basis), consisting of 115,966,464Shares outstanding as of December 19,
2006, as the Issuer informed the Reporting Persons, and the 30,910,265 Shares
(on an as converted basis) beneficially owned by the Reporting Persons (in the
aggregate).
19
As of December 13, 2006:
(1) Infinity I GP is the beneficial owner of 1,249,672 Shares (including
Celletra Warrants exercisable into 384,514 Shares) owned by the Infinity I
Funds, representing approximately 0.85% of the Shares outstanding (on an as
converted basis). The difference between the number of Shares contemplated in
the shared dispositive power and the shared voting power, as shown in the cover
pages hereto (which figures are incorporated herein by reference), is
attributable to such number of Shares held in escrow in accordance with the
terms of the Celletra Agreement with respect to which the Reporting Person has
voting power but not dispositive power.
(2) Infinity Annex GP is the beneficial owner of 7,973,023 Shares
(including Celletra Warrants exercisable into 2,453,238 Shares) owned by the
Infinity Annex Fund, representing approximately 5.43% of the Shares outstanding
(on an as converted basis). The difference between the number of Shares
contemplated in the shared dispositive power and the shared voting power, as
shown in the cover pages hereto (which figures are incorporated herein by
reference), is attributable to such number of Shares held in escrow in
accordance with the terms of the Celletra Agreement with respect to which the
Reporting Person has voting power but not dispositive power.
(3) Infinity II GP is the beneficial owner of 13,812,983 Shares (including
Celletra Warrants and December Warrants exercisable into an aggregate of
4,300,501 Shares) owned by the Infinity II Funds, representing approximately
9.40% of the Shares outstanding (on an as converted basis).
By reason of the relationships among Infinity I LP, Infinity I GP, Infinity
Annex GP, Infinity II LP and Infinity II GP (together, the "Infinity Group"),
demonstrated by (1) the overlapping directors and partners of the Infinity Funds
and (2) their agreement in connection with the designation of directors to the
Board of Directors of the Issuer as described in Item 4 above, they may be
deemed to constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act. Consequently, the Infinity Group may be deemed to be the
beneficial owners, and to share the power to vote and dispose of, 23,035,678
Shares owned in the aggregate by the Infinity Funds (as described in clauses (1)
through (3) above) (the "Infinity Shares"), representing approximately 15.68% of
the Shares outstanding (on an as converted basis). Each of these Reporting
Persons disclaims the existence of such Infinity Group and disclaims beneficial
ownership of all of the Shares, other than those reported hereinabove as being
beneficially owned by such Reporting Person.
(4) CVCM is the beneficial owner, and shares with Clal Industries the power
to vote and dispose of, 50,944 Shares (including Avantry Warrants exercisable
into 50,944 Shares) owned by CVC, representing approximately 0.03% of the Shares
outstanding (on an as converted basis).
(5) Clal Industries is the beneficial owner, and shares with ECI and CVCM
the power to vote and dispose of, 8,357,924 Shares and the power to vote
7,548,107 (including Celletra Warrants exercisable into 2,278,412 Shares and
Avantry Warrants exercisable into 147,870 Shares) owned in the aggregate by Clal
Industries (including its wholly owned subsidiary, Clal Electronics), ECI and
CVC, representing approximately 5.73% of the Shares outstanding (on an as
converted basis). Clal Industries disclaims beneficial ownership of the ECI
Shares.
By reason of the interests of Clal Industries in the Infinity Funds as described
in Item 2 above and the agreement in connection with the designation of
directors to the Board of Directors of the Issuer as described in Item 4 above,
it may be deemed to control the Infinity Group. Consequently, Clal Industries
may be deemed to be the beneficial owner, and to share with CVCM and the
Infinity Group the power to dispose of 30,588,376 Shares and the power to vote
29,255,844 Shares owned in the aggregate by Clal Industries, Clal Electronics,
ECI, CVC and the Infinity Funds, representing approximately 20.83% and 20.06%,
as applicable, of the Shares outstanding (on an as converted basis). The
difference between the number of Shares contemplated in the shared dispositive
power and the shared voting power, as shown in the cover pages hereto is
attributable to such number of Shares held in escrow in accordance with the
terms of the Celletra Agreement with respect to which the Reporting Person has
voting power but not dispositive power. Clal Industries disclaims the existence
of a "group" within the meaning of Section 13(d)(3) of the Exchange Act and
disclaims beneficial ownership of the Infinity Shares.
20
(6) Clalit Finance is the beneficial owner, and shares with IDB Development
the power to vote 82,406 Shares and the power to dispose of 25,368 Shares
(including Celletra Warrants exercisable into 25,356 Shares) owned by Clalit
Finance, representing approximately 0.06% of the Shares outstanding (on an as
converted basis). The difference between the number of Shares contemplated in
the shared dispositive power and the shared voting power is attributable to such
number of Shares held in escrow in accordance with the terms of the Celletra
Agreement with respect to which the Reporting Person has voting power but not
dispositive power.
(7) RDC is the beneficial owner, and shares with Elron and DIC the power to
vote and dispose, of the 62,330 Shares (including Avantry Warrants exercisable
into 62,330 Shares) owned by RDC, representing approximately 0.04% of the Shares
outstanding (on an as converted basis).
(8) Elron is the beneficial owner, and shares with RDC and DIC the power to
vote and dispose, of the 84,756 Shares (including Avantry Warrants exercisable
into 84,756 Shares) owned in the aggregate by Elron and RDC, representing
approximately 0.06% of the Shares outstanding (on an as converted basis).
(9) ECI is the beneficial owner, and may be deemed to share with DIC and
Clal Industries the power to vote and dispose, of the 27,907 Shares (including
Avantry Warrants exercisable into 27,907 Shares) owned by ECI (the "ECI
Shares"), representing approximately 0.02% of the Shares outstanding (on an as
converted basis).
(10) DIC is the beneficial owner, and may be deemed to share with Elron and
ECI the power to vote and dispose of, 157,516 Shares (including Avantry Warrants
exercisable into 157,516 Shares) owned in the aggregate by DIC and beneficially
owned by Elron and ECI, representing approximately 0.11% of the Shares
outstanding (on an as converted basis). DIC disclaims beneficial ownership of
the ECI Shares.
(11) IDB Development is the beneficial owner, and may be deemed to share
with DIC and Clal Industries the power to vote and dispose of, 30,855,327 Shares
owned in the aggregate by IDB Development (including its wholly owned
subsidiary, Clalit Finance) and beneficially owned by DIC and Clal Industries
(including the Infinity Shares), representing approximately 21.15% of the Shares
outstanding (on an as converted basis). IDB Development may also be deemed to
share the power to vote and dispose of the 54,938 Shares (including Celletra
Warrants exercisable into 16,904 Shares) held by Clal Insurance Enterprises
Holdings Ltd. and its wholly owned subsidiary (the "CIEH Shares"), for a total
of 30,910,265 Shares (including Celletra Warrants exercisable into 8,821,250
Shares, Avantry Warrants exercisable into 277,479 Shares, Debentures convertible
into 1,309,156 Shares and December Warrants exercisable into 654,578 Shares) in
the aggregate, representing approximately 21.19% of the Shares outstanding (on
an as converted basis). IDB Development disclaims beneficial ownership of the
ECI Shares and the Infinity Shares. The difference between the number of Shares
contemplated in the shared dispositive power and the shared voting power, as
shown in the cover pages hereto (which figures are incorporated herein by
reference), is attributable to such number of Shares held in escrow in
accordance with the terms of the Celletra Agreement with respect to which the
Reporting Person has voting power but not dispositive power.
(12) IDB Holding and the Reporting Persons who are natural persons may be
deemed to share the power to vote and dispose of the 30,910,265 Shares
beneficially owned by IDB Development, representing approximately 21.19% of the
Shares outstanding (on an as converted basis). IDB Holding and the Reporting
Persons who are natural persons disclaim beneficial ownership of the ECI Shares
and Infinity Shares. The difference between the number of Shares contemplated in
the shared dispositive power and the shared voting power, as shown in the cover
pages hereto (which figures are incorporated herein by reference), is
attributable to such number of Shares held in escrow in accordance with the
terms of the Celletra Agreement with respect to which the Reporting Person has
voting power but not dispositive power.
21
Information provided to the Reporting Person indicates that the persons
named in Schedules A through J to the Statement did not beneficially own as of
December 13, 2006 any Shares, except as set forth above.
(c) The Reporting Persons have not effected any transactions in the Shares in
the past 60 days ending on December 13, 2006, except as set forth above.
Information provided to the Reporting Persons indicates that none of the persons
named in Schedules A through J to the Statement purchased or sold during the
last 60 days ending on December 13, 2006, any Shares.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
None, except as described under Item 4 above, which is incorporated herein
by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Form of Additional Issuance Agreement
Exhibit 2 Intercreditor Agreement
Exhibit 3 Form of Debenture
Exhibit 4 Form of December Warrant
Exhibit 5 Form of 2006 Letter
22
SIGNATURES
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: December 20, 2006
Israel Infinity Venture Capital (Corporate General Partner) Ltd.
Infinity I Annex Fund (General Partner) Ltd.
FBR Infinity II Venture Partners Ltd.
Clal Venture Capital Fund Management Ltd.
Clal Industries and Investments Ltd.
Clalit Finance and Investments Ltd.
RDC Rafael Development Corporation Ltd.
Elron Electronic Industries Ltd.
ECI Telecom Ltd.
Discount Investment Corporation Ltd.
IDB Development Corporation Ltd.
IDB Holding Corporation Ltd.
Mr. Nochi Dankner
Mrs. Shelly Bergman
Mrs. Ruth Manor
Mr. Avraham Livnat
BY: CLAL INDUSTRIES AND INVESTMENTS LTD.
BY: /s/ Gonen Bieber, /s/ Guy Rosen
-----------------------------------
Gonen Bieber and Guy Rosen, authorized signatories of Clal
Industries and Investments Ltd., for itself and on behalf of the
other Reporting Persons pursuant to agreement annexed hereto as
Exhibit 1.
23
EXHIBIT 1
ADDITIONAL ISSUANCE AGREEMENT
This Additional Issuance Agreement ("AMENDMENT"), dated December ___, 2006, is
made pursuant to that certain Securities Purchase Agreement, dated as of
February 27, 2006 ("PURCHASE AGREEMENT"), by and between Unity Wireless
Corporation (the "COMPANY") and _________ (a "NEW PURCHASER") for the purchase
of the Company's 8% Senior Secured Convertible Debenture due February 28, 2009
(the "DEBENTURE") and the Common Stock Purchase Warrants issued in connection
therewith (the "WARRANT"). CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED
HEREIN THAT ARE DEFINED IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN
SUCH TERMS IN THE PURCHASE AGREEMENT.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. ISSUANCE OF ADDITIONAL DEBENTURES AND WARRANTS. The Company hereby
agrees to issue against payment to each New Purchaser (a) a debenture of the
Company with a principal amount of $____ which debenture shall be in the form
of, and on the same terms and conditions as, the Debentures, as amended pursuant
to that certain consent, waiver and amendment agreement of even date herewith by
and among the Company and the Purchasers (the "AMENDMENT AGREEMENT"), except
that the maturity date of such Debentures shall be November ___, 2009 (each, an
"ADDITIONAL DEBENTURE" and, collectively, the "ADDITIONAL DEBENTURES") and (b) a
warrant to purchase up to _______ shares of Common Stock, which warrant shall be
in the form of, and on the same terms and conditions as, the Warrants, as
amended pursuant to the Amendment Agreement, except that such warrants shall
expire on November ___, 2011 (the "ADDITIONAL WARRANTS"). The total purchase
price to each New Purchaser for the purchase of the Additional Debenture and the
Additional Warrants is $_____ (the "NEW SUBSCRIPTION AMOUNT"). Within 3 Trading
Days of the date hereof, the Company shall deliver to each New Purchaser the
Additional Debenture, Additional Warrants and opinion of counsel required
pursuant to Section 5 and each New Purchaser shall wire the New Subscription
Amount to the wire instructions attached hereto as ANNEX A.
2. DOCUMENTS. The rights and obligations of each New Purchaser and of the
Company with respect to the Additional Debentures, the Additional Warrants and
the shares of Common Stock issuable under the Additional Debentures, Additional
Warrants (the "ADDITIONAL UNDERLYING SHARES"), the Security Agreement and the
Registration Rights Agreement shall be identical in all respects to the rights
and obligations of such New Purchaser and of the Company with respect to the
Debentures, the Warrants and the Underlying Shares issued and issuable pursuant
to the Purchase Agreement. Any rights of a New Purchaser or covenants of the
Company which are dependant on such New Purchaser holding securities of the
Company or which are determined in magnitude by such New Purchaser's purchase of
securities pursuant to the Purchase Agreement shall be deemed to include any
securities purchased or issuable hereunder. The Purchase Agreement is hereby
amended so that the term "Debentures" includes the Additional Debentures issued
hereunder and "Underlying Shares" includes the Additional Underlying Shares. The
Registration Rights Agreement entered into in connection with the Purchase
Agreement is hereby amended so that the term "Registrable Securities" includes
in the calculation thereof the Additional Underlying Shares. The Security
Agreement is hereby amended so that the term "Debentures" includes the
Additional Debentures.
1
3. CONDITION PRECEDENT TO THE CLOSING OF THE AGREEMENT. It shall be
condition precedent to the closing and effectiveness of the Agreement that the
Purchasers shall have executed and delivered that certain Amendment Agreement
and the Purchasers, the New Purchasers and other creditors of the Company
signatory thereto shall have executed the intercreditor agreement, in the form
of EXHIBIT A attached hereto. In addition, the Company shall cause each of its
Subsidiaries to execute and deliver each New Purchaser a Subsidiary Guarantee
with respect to the New Debentures.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth on
the corresponding section of the disclosure schedules delivered to the New
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each New
Purchaser:
(a) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. This Agreement has
been duly executed by the Company and, when delivered 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 except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(b) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not: (i) conflict with or
violate any provision of the Company's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation
of any Lien (except as contemplated by the Security Documents) upon any of
the properties or assets of the Company in connection with, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any material agreement,
credit facility, debt or other material instrument (evidencing Company debt
or otherwise) or other material understanding to which such Company is a
party or by which any property or asset of the Company is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company 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), such as could not have or reasonably be expected to result in a
Material Adverse Effect.
2
(c) ISSUANCE OF THE ADDITIONAL DEBENTURES. The Additional Debentures
and Additional Warrants are duly authorized and, upon the execution of this
Agreement by a New Purchaser, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Additional Underlying Shares, when issued in accordance with the terms
of the Additional Debentures and Additional Warrants, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed
by the Company. The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Additional
Underlying Shares at least equal to the Required Minimum on the date
hereof.
(d) EQUAL CONSIDERATION. Except as set forth in this Agreement, no
consideration has been offered or paid to any person to amend or consent to
a waiver, modification, forbearance or otherwise of any provision of any of
the Transaction Documents.
(e) AFFIRMATION OF PRIOR REPRESENTATIONS AND WARRANTIES. The Company
hereby represents and warrants to each New Purchaser that the Company's
representations and warranties listed in Section 3.1 of the Purchase
Agreement are true and correct as of the date hereof.
5. REPRESENTATIONS AND WARRANTIES OF THE NEW PURCHASERS. Each New Purchaser
hereby, for itself and for no other New Purchaser, represents and warrants as of
the date hereof to the Company as follows:
(a) AUTHORITY. The execution, delivery and performance by such New
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
New Purchaser. This Agreement has been duly executed by such New Purchaser
and, when delivered by such Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of such New
Purchaser, enforceable against it in accordance with its terms, except (i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
3
(b) OWN ACCOUNT. Such New Purchaser (i) understands that the
Additional Debenture and Additional Warrants are "restricted securities"
and have not been registered under the Securities Act or any applicable
state securities law, (ii) is acquiring the Additional Debenture and
Additional Warrants as principal for its own account and not with a view to
or for distributing or reselling such Additional Debenture or Additional
Warrants or any part thereof in violation of the Securities Act or any
applicable state securities law, (iii) has no present intention of
distributing any of such Securities in violation of the Securities Act or
any applicable state securities law and (iv) has no arrangement or
understanding with any other persons regarding the distribution of such
Additional Debentures and Additional Warrants (this representation and
warranty not limiting such New Purchaser's right to sell the Additional
Underlying Shares pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in violation
of the Securities Act or any applicable state securities law. Such New
Purchaser is acquiring the Additional Debenture and Additional Warrants
hereunder in the ordinary course of its business. Such New Purchaser does
not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Additional Debentures, Additional Warrants
or Additional Underlying Shares.
(c) PURCHASER STATUS. Such New Purchaser is an "accredited investor"
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act. Such New Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) GENERAL SOLICITATION. Such New Purchaser is not purchasing the
Additional Debentures or Additional Warrants as a result of any
advertisement, article, notice or other communication regarding the
Additional Debentures or Additional Warrants 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.
(e) AFFIRMATION OF PRIOR REPRESENTATIONS AND WARRANTIES. Such New
Purchaser hereby represents and warrants to the Company that its
representations and warranties listed in Section 3.2 of the Purchase
Agreement are true and correct as of the date hereof.
6. DELIVERY OF OPINION. Concurrently herewith, the Company shall deliver to
the New Purchasers an opinion of outside counsel regarding this Agreement and
the issuance of the Additional Debentures and Additional Warrants in form and
substance reasonably acceptable to the New Purchasers.
4
7. PUBLIC DISCLOSURE. The Company shall, on or before the 4th Trading Day
following the date hereof, issue a Current Report on Form 8-K, reasonably
acceptable to the New Purchasers, disclosing the material terms of the
transactions contemplated hereby and attaching this Agreement as an exhibit
thereto. The Company shall consult with the New Purchasers in issuing any other
press releases with respect to the transactions contemplated hereby.
8. EFFECT ON TRANSACTION DOCUMENTS. Except as expressly set forth above,
all of the terms and conditions of the Transaction Documents shall continue in
full force and effect after the execution of this Agreement and shall not be in
any way changed, modified or superseded by the terms set forth herein,
including, but not limited to, any other obligations the Company may have to the
New Purchasers under the Transaction Documents. Notwithstanding the foregoing,
this Agreement shall be deemed for all purposes as an amendment to any
Transaction Document as required to serve the purposes hereof, and in the event
of any conflict between the terms and provisions of the Debentures, the
Registration Rights Agreement or any other Transaction Document, on the one
hand, and the terms and provisions of this Agreement, on the other hand, the
terms and provisions of this Agreement shall prevail.
9. EXPENSES. The Company agrees to pay to each New Purchaser upon demand
any and all reasonable out-of-pocket costs or expenses (including, without
limitation, reasonable legal fees and disbursements) incurred or sustained by
such New Purchaser, in connection with the preparation of this Agreement and
related matters.
10. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each New
Purchaser.
11. NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.
12. 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 Purchaser. The Company may not assign
(except by merger) its rights or obligations hereunder without the prior written
consent of all of the New Purchasers of the then-outstanding Securities. Each
New Purchaser may assign their respective rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
13. EXECUTION AND COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5
14. GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
15. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
16. HEADINGS. The headings in this Agreement are for convenience only, do
not constitute a part of the Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
17. INDEPENDENT NATURE OF NEW PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each New Purchaser hereunder are several and not joint with the
obligations of any other New Purchasers hereunder, and no New Purchaser shall be
responsible in any way for the performance of the obligations of any other New
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any New Purchaser
pursuant hereto, shall be deemed to constitute the New Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the New Purchasers are in any way acting in concert
with respect to such obligations or the transactions contemplated by this
Agreement. Each New Purchaser shall be entitled to protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
6
Executed as of December ___, 2006 by the undersigned duly authorized
representatives of the Company and the New Purchaser:
UNITY WIRELESS CORPORATION
By: __________________________________
Name: Ilan Kenig
Title: CEO
___________________________:
By: ________________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
7
EXHIBIT 2
INTER-CREDITOR AGREEMENT
This INTER-CREDITOR AGREEMENT (the "AGREEMENT") is made and effective as of
___, 2006, by and between the holders of the Unity Wireless Corporation 8%
Senior Secured Convertible Debentures ("EXISTING CREDITORS") and the New
Creditors (as defined below), (the Existing Creditors and the New Creditors are
collectively referred to as the "CREDITORS").
RECITALS
WHEREAS, the Existing Creditors are the parties to that certain Securities
Purchase Agreement dated February 27, 2006 and/or that certain additional
issuance agreement of even date herewith (such securities purchase agreement and
additional issuance agreement, collectively, the "PURCHASE AGREEMENT") by and
between each Existing Creditors signatory thereto and Unity Wireless Corporation
(the "COMPANY") and are the holders of those certain 8% Senior Secured
Convertible Debentures due February 28, 2009 and December 13, 2009, and issued
on February 28, 2006 and December 13, 2006, respectively, for an aggregate total
principal amount up to $3,450,000 (the "EXISTING INDEBTEDNESS"), and the
Existing Creditors are the beneficiaries of that certain Security Agreement
dated February 27, 2006 (the "SECURITY AGREEMENT") between the Company, its
Subsidiaries and the Existing Creditors;
WHEREAS, pursuant to that certain Loan and Security Agreement dated
December 13, 2006 (the "LOAN AGREEMENT"), the investors signatory thereto (the
"NEW CREDITORS") will be loaning the Company up to $1,500,000, evidenced by 8%
secured promissory notes due the earlier of (i) December 22, 2006 and (ii) the
date the Company obtains the right to receive net proceeds of at least
$1,500,000 in the aggregate in one or a series of debt or equity financings (the
amounts owed pursuant to such Notes, the "NEW INDEBTEDNESS" and together with
the Existing Indebtedness, the "INDEBTEDNESS");
WHEREAS, the Existing Indebtedness is secured by all assets of the Company
WHEREAS, New Indebtedness will also be secured by all assets of the
Company;
WHEREAS, the Creditors wish to memorialize their agreements concerning
their respective rights, duties and obligations to one another with respect to
the security interests granted under the Indebtedness.
NOW, THEREFORE, in consideration of the mutual covenants herein, their
respective performances and benefits pertaining to the Indebtedness, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. RANKING.
1.1 The Indebtedness shall rank in the following order of priority: any
sums secured or owed to the New Creditors pursuant to the New
Indebtedness shall rank senior to amounts owed to the Existing
Creditors, in proportion to such Creditor's outstanding principal
amounts of Indebtedness at any given time that a determination needs
to be made of pro-rata holdings. For clarity, as of the date of this
Agreement, the holdings of the Existing Creditors (collectively) are
$3,450,000 and the senior holdings of the senior New Creditors
(collectively) are $1,500,000. Any Existing Indebtedness shall rank
pari passu to any other Existing Indebtedness in proportion to each
Existing Creditors then holdings of Existing Indebtedness.
1.2 If an Event of Default (as defined under any Indebtedness) occurs and
any party hereto receives payment from the Company not in compliance
with this Agreement, the other parties hereto shall be immediately
notified and such payment shall be shared with all of the other
Creditors in proportion to their respective pro-rata holdings as set
forth above.
1.3 If an Event of Default occurs and any party hereto collects proceeds
pursuant to its rights under any Indebtedness, the other parties shall
be immediately notified and such payment shall be shared with all of
the other Creditors as set forth above.
1.4 Notwithstanding any other provision in this Agreement, adjustments
shall be made between the Creditors from time to time to reflect the
fact that any contingent obligation taken into account as an
obligation under the Indebtedness becomes satisfied or incapable of
maturing into an actual obligation.
1.5 Each Existing Creditor and New Creditor is hereby authorized to file a
UCC-1 in the jurisdictions set forth in, and pursuant to the terms of,
the Security Agreement and Loan Agreement, respectively.
1.6 Notwithstanding anything to the contrary contained in the Purchase
Agreement or any document executed in connection with the New
Indebtedness or the Existing Indebtedness and irrespective of: (i) the
time, order or method of attachment or perfection of the security
interests created in favor of Existing Creditors and the New
Creditors, (ii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect security
interests in any collateral; (iii) anything contained in any filing or
agreement to which any Creditor now or hereafter may be a party; and
(iv) the rules for determining perfection or priority under the
Uniform Commercial Code or any other law governing the relative
priorities of secured creditors, each Creditor acknowledges that (x)
all other Creditors have a valid security interest in the Collateral
and (y) the security interests of the New Creditors in any Collateral
pursuant to the New Indebtedness shall be senior to the security
interests of the Existing Creditors in such Collateral pursuant to the
Existing Indebtedness, and the security interests of the Existing
Creditors in any Collateral pursuant to any outstanding Existing
Indebtedness shall be pari-passu with each other.
1.7 Each Creditor agrees not to commence any action or proceeding
concerning the Indebtedness or the Collateral without providing at
least one business day's notice to all Creditors.
2
2. INDEMNIFICATION BY EXISTING CREDITORS. Existing Creditors shall, severally,
and not jointly, indemnify, defend, and hold harmless New Creditors against
and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable professional and attorneys' fees,
including those arising from settlement negotiations, that New Creditors
shall incur or suffer, which arise, result from, or relate to a breach of,
or failure by Existing Creditors to perform under this Agreement.
3. INDEMNIFICATION BY NEW CREDITORS. New Creditors shall, severally, and not
jointly, indemnify, defend, and hold harmless Existing Creditors against
and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable professional and attorneys' fees,
including those arising from settlement negotiations, that Existing
Creditors shall incur or suffer, which arise, result from, or relate to a
breach of, or failure by New Creditors to perform under this Agreement.
4. MISCELLANEOUS.
4.1 ASSIGNMENT. The rights and obligations of the Creditors under this
Agreement may be assigned to or assumed to a transferee of the Debentures
or Notes (as defined in the Purchase Agreement and Loan Agreement,
respectively), as applicable.
4.2 BINDING EFFECT. This Agreement shall be binding on, and shall
inure to the benefit of, the parties to it and their respective heirs,
legal representatives, and successors.
4.3 PARTIES IN INTEREST. Except as expressly provided in this
Agreement, nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to
any party to this Agreement, nor shall any provision give any third persons
any right to subrogation or action over against any party to this
Agreement.
4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties.
4.5 AMENDMENT. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by all the parties.
4.6 WAIVER. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
4.7 NOTICES. Notices given under this Agreement shall be delivered as
set forth in the Purchase Agreement.
3
4.8 GOVERNING LAW AND VENUE. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of New York, and
any action or proceeding, including arbitration, brought by any party in
which this Agreement is a subject, shall be brought in New York County, New
York.
4.9 EFFECT OF HEADINGS. The headings of the Sections of this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
4.10 INVALIDITY. Any provision of this Agreement which is invalid,
void, or illegal, shall not affect, impair, or invalidate any other
provision of this Agreement, and such other provisions of this Agreement
shall remain in full force and effect.
4.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties
and shall be deemed to be an original instrument which shall be enforceable
against the parties actually executing such counterparts and all of which
together shall constitute one and the same instrument. In lieu of the
original documents, a facsimile transmission or copy of the original
documents shall be as effective and enforceable as the original.
4.12 NUMBER AND GENDER. When required by the context of this
Agreement, each number (singular and plural) shall include all numbers, and
each gender shall include all genders.
4.13 FURTHER ASSURANCES. Each party to this Agreement agrees to
execute further instruments as may be necessary or desirable to carry out
this Agreement, provided the party requesting such further action shall
bear all related costs and expenses.
4.14 PROFESSIONAL FEES AND COSTS. If any legal or equitable action,
arbitration, or other proceeding, whether on the merits or on motion, are
brought or undertaken, or an attorney retained, to enforce this Agreement,
or because of an alleged dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Agreement, then the
successful or prevailing party or parties in such undertaking (or the party
that would prevail if an action were brought) shall be entitled to recover
reasonable attorney's fees and other professional fees and other costs
incurred in such action, proceeding, or discussions, in addition to any
other relief to which such party may be entitled. The parties intend this
provision to be given the most liberal construction possible and to apply
to any circumstances in which such party reasonably incurs expenses.
4
[SIGNATURE PAGE INTERCREDITOR AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Creditors as of the day and year first written above.
EXISTING CREDITORS:
Print Name: __________________________
By: __________________________________
Name:
Title:
ADDRESS FOR NOTICE:
_________________________
_________________________
__________________:
Print Name: __________________________
By: __________________________________
Name:
Title:
ADDRESS FOR NOTICE:
_________________________
_________________________
5
EXHIBIT 3
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES. UNLESS PERMITTED UNDER CANADIAN SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MAY NOT TRADE THIS SECURITY OR ANY
SECURITY ISSUED IN RESPECT OF THIS SECURITY IN CANADA BEFORE 4 MONTHS AFTER THE
DATE OF THIS AGREEMENT.
Original Issue Date: DECEMBER 13, 2006
Original Conversion Price (subject to adjustment herein): $0.09
$_______________
8% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE DECEMBER 13, 2009
THIS 8% SENIOR SECURED DEBENTURE is one of a series of duly authorized and
validly issued Secured Convertible Debentures of Unity Wireless Corporation, a
Delaware corporation, having its principal place of business at 7438 Fraser Park
Drive, Burnaby, British Columbia, Canada V5J 5B9 (the "COMPANY"), designated as
its 8% Senior Secured Convertible Debenture, due December 13, 2009 (this
debenture, the "DEBENTURE" and collectively with the other such series of
debentures, the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "HOLDER"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by December 13, 2009, or
such earlier date as this Debenture is 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 in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:
1
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement and (b) the
following terms shall have the following meanings:
"ALTERNATE CONSIDERATION" shall have the meaning set forth in Section
5(d).
"BANKRUPTCY EVENT" means any of the following events: (a) the Company
or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Company or any Significant Subsidiary thereof;
(b) there is commenced against the Company or any Significant Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days
after commencement; (c) the Company or any Significant Subsidiary thereof
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e)
the Company or any Significant Subsidiary thereof makes a general
assignment for the benefit of creditors; (f) the Company or any Significant
Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or (g)
the Company or any Significant Subsidiary thereof, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any
of the foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
"BASE CONVERSION PRICE" shall have the meaning set forth in Section
5(b).
"BUSINESS DAY" means any day except Saturday, Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by
law or other governmental action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CASH SALE REDEMPTION AMOUNT" shall equal the sum of (i) 200% of the
principal amount of this Debenture to be prepaid, plus all accrued and
unpaid interest thereon, (ii) the product of (A) the quotient obtained by
dividing (1) the principal amount of this Debenture to be prepaid, plus all
other accrued and unpaid interest hereon by (2) the Conversion Price on the
closing date of the applicable event and (B) the "Effective Price" (defined
below), and (iii) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture. The "EFFECTIVE PRICE" shall be the fair
market value of the consideration paid by the acquirer in such event (less
the amount set forth in clause (i) above) divided by the sum of; (x) the
issued and outstanding shares of Common Stock of the Company then
outstanding and (y) the shares of Common Stock into which the outstanding
Debentures may be converted on the day immediately preceding the record
date fixed for determining the holders of shares of Common Stock eligible
to receive a distribution (or if no such date has been fixed, the date of
the day immediately preceding the closing of the transaction) and (z) the
number of shares deemed issuable to the Warrant holders pursuant to the
mandatory redemption provisions in the Warrants which take effect upon sale
of assets for cash consideration whether or not any Warrant holder shall
have elected to have their Warrants Redeemed; PROVIDED, HOWEVER, that the
number of shares of Common Stock issuable on conversion of the Debentures
and issuable upon exercise of the Warrants for this purpose shall be
determined on a fully converted or exercised basis and ignoring any
conversion or exercise limitations therein).
2
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company
(other than by means of conversion or exercise of the Debentures and the
Securities issued together with the Debentures), or (ii) the Company merges
into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction,
the stockholders of the Company immediately prior to such transaction own
less than 66% of the aggregate voting power of the Company or the successor
entity of such transaction, or (iii) the Company sells or transfers all or
substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year
period of more than one-half of the members of the Company's board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those
individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority
of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events
set forth in clauses (i) through (iv) above.
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter be reclassified or changed into.
"CONVERSION DATE" shall have the meaning set forth in Section 4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section 4(b).
"CONVERSION SHARES" means, collectively, the shares of Common Stock
issuable upon conversion of this Debenture in accordance with the terms
hereof.
"DEBENTURE REGISTER" shall have the meaning set forth in Section 2(c).
3
"DILUTIVE ISSUANCE" shall have the meaning set forth in Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in Section
5(b).
"EFFECTIVENESS PERIOD" shall have the meaning set forth in the
Registration Rights Agreement.
"EQUITY CONDITIONS" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notices of Conversion of the
Holder, if any, (ii) the Company shall have paid all liquidated damages and
other amounts owing to the Holder in respect of this Debenture, (iii) there
is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents (and the Company believes,
in good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on a Trading Market
and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on such Trading Market (and the Company believes, in
good faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is no existing Event of
Default or no existing event which, with the passage of time or the giving
of notice, would constitute an Event of Default, (vii) the issuance of the
shares in question (or, in the case of an Optional Redemption, the shares
issuable upon conversion in full of the Optional Redemption Amount) to the
Holder would not violate the limitations set forth in Section 4(c) herein,
(viii) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been
consummated and (ix) the Holder is not in possession of any information
that constitutes, or may constitute, material non-public information.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FORCED CONVERSION" shall have the meaning set forth in Section 6(c).
"FORCED CONVERSION DATE" shall have the meaning set forth in Section
6(c).
"FORCED CONVERSION NOTICE" shall have the meaning set forth in Section
6(c).
"FORCED CONVERSION NOTICE DATE" shall have the meaning set forth in
Section 6(c).
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in Section
5(d).
4
"INTEREST CONVERSION RATE" means 85% of the lesser of (i) the average
of the VWAPs for the 20 consecutive Trading Days ending on the Trading Day
that is immediately prior to the applicable Interest Payment Date or (ii)
the average of the VWAPs for the 20 consecutive Trading Days ending on the
Trading Day that is immediately prior to the date the applicable Interest
Conversion Shares are issued and delivered if after the Interest Payment
Date.
"INTEREST CONVERSION SHARES" shall have the meaning set forth in
Section 2(a).
"INTEREST NOTICE PERIOD" shall have the meaning set forth in Section
2(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in Section
2(a).
"INTEREST SHARE AMOUNT" shall have the meaning set forth in Section
2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY DEFAULT AMOUNT" means the sum of (i) the greater of (A)
130% of the outstanding principal amount of this Debenture, plus all
accrued and unpaid interest hereon, or (B) the outstanding principal amount
of this Debenture, plus all accrued and unpaid interest hereon, divided by
the Conversion Price on the date the Mandatory Default Amount is either (a)
demanded (if demand or notice is required to create an Event of Default) or
otherwise due or (b) paid in full, whichever has a lower Conversion Price,
multiplied by the VWAP on the date the Mandatory Default Amount is either
(x) demanded or otherwise due or (y) paid in full, whichever has a higher
VWAP, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture.
"NEW YORK COURTS" shall have the meaning set forth in Section 9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in Section
4(a).
"OPTIONAL REDEMPTION" shall have the meaning set forth in Section
6(a).
"OPTIONAL REDEMPTION AMOUNT" means the sum of (i) (A) as to Optional
Redemptions in part or in full occurring after the Effective Date but prior
to the 6 month anniversary of the Effective Date, 110% of the principal
amount of the Debenture then redeemed or (B) as to Optional Redemptions in
part or in full occurring on or after the 6 month anniversary of the
Effective Date, 120% of the principal amount of the Debenture then
redeemed, (ii) accrued but unpaid interest and (iii) all liquidated damages
and other amounts due in respect of the Debenture.
"OPTIONAL REDEMPTION DATE" shall have the meaning set forth in Section
6(a).
"OPTIONAL REDEMPTION NOTICE" shall have the meaning set forth in
Section 6(a).
5
"OPTIONAL REDEMPTION NOTICE DATE" shall have the meaning set forth in
Section 6(a).
"ORIGINAL ISSUE DATE" means the date of the first issuance of the
Debentures, regardless of any transfers of any Debenture and regardless of
the number of instruments which may be issued to evidence such Debentures.
"PERMITTED INDEBTEDNESS" means (a) the Indebtedness existing on the
Original Issue Date and set forth on SCHEDULE 3.1(AA) attached to the
Purchase Agreement, (b) lease obligations and purchase money indebtedness
of up to $1,000,000, in the aggregate, incurred in connection with the
acquisition of capital assets and lease obligations with respect to newly
acquired or leased assets and (c) additional non-equity linked Indebtedness
up to an aggregate of $1,500,000, provided that such Indebtedness (i) is
provided by a reputable commercial lender whose primary business is not
investing in securities, (ii) has an initial maturity date that is no
earlier than the Maturity Date hereof and (iii) has such other terms and
conditions as are satisfactory to each Holder in each such Holder's sole
discretion.
"PERMITTED LIEN" means the individual and collective reference to the
following: (a) Liens for taxes, assessments and other governmental charges
or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company's business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of the Company's business, and
which (x) do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof
in the operation of the business of the Company and its consolidated
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject
to such Lien; (c) Liens incurred in connection with Permitted Indebtedness
under clause (a) thereunder; (d) Liens incurred in connection with
Permitted Indebtedness under clause (b) thereunder, provided that such
Liens are not secured by assets of the Company or its Subsidiaries other
than the assets so acquired or leased; and (e) Liens with the consent of
the Holders of a majority of the aggregate principal amount of the then
outstanding Debentures, provided that such Liens are expressly subordinated
to the security interest of the Holders pursuant to a written subordination
agreement satisfactory to the Holders.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"PURCHASE AGREEMENT" means the Additional Issuance Agreement among the
Company and the original Holders, dated as of November __, 2006 as amended,
modified or supplemented from time to time in accordance with its terms.
6
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement among the Company and the original Holders, dated as of the date
of the Purchase Agreement, as amended, modified or supplemented from time
to time in accordance with its terms.
"REGISTRATION STATEMENT" means a registration statement that registers
the resale of all Conversion Shares and Interest Conversion Shares of the
Holder, who shall be named as a "selling stockholder" therein, and meets
the requirements of the Registration Rights Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHARE DELIVERY DATE" shall have the meaning set forth in Section
4(d).
"SUBSIDIARY" shall have the meaning set forth in the Purchase
Agreement.
"THRESHOLD PERIOD" shall have the meaning set forth in Section 6(c).
"TRADING DAY" means a day on which the principal Trading Market is
open for business.
"TRADING MARKET" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the Nasdaq Capital Market, the Nasdaq National
Market, the New York Stock Exchange or the OTC Bulletin Board.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted for trading as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time); (b) if the OTC Bulletin Board
is not a Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then quoted for trading on the OTC
Bulletin Board and if prices for the Common Stock are then reported in the
"Pink Sheets" published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent
bid price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
7
"WARRANTS" shall have the meaning set forth in the Purchase Agreement.
SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 8% per annum, payable quarterly on
January 1, April 1, July 1 and October 1, beginning on January 1, 2007, on
each Optional Redemption Date (as to that principal amount then being
redeemed) and on the Maturity Date (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding
Business Day) (each such date, an "INTEREST PAYMENT DATE"), in cash or duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock at the Interest Conversion Rate (the amount to be paid in shares, the
"INTEREST SHARE AMOUNT"), or a combination thereof; PROVIDED, HOWEVER, that
payment in shares of Common Stock may only occur if (i) during the 20
Trading Days immediately prior to the applicable Interest Payment Date (the
"INTEREST NOTICE PERIOD") and through and including the date such shares of
Common Stock are issued to the Holder all of the Equity Conditions have
been met (unless waived by the Holder in writing), (ii) Authorized Share
Approval has been obtained and deemed effective, (iii) the Company shall
have given the Holder notice in accordance with the notice requirements set
forth below, (iv) such payment in shares of Common Stock shall not violate
the limitations set forth in Section 4(c)(i) of this Debenture and (v) as
to such Interest Payment Date, prior to such Interest Notice Period (but
not more than 5 Trading Days prior to the commencement of such Interest
Notice Period), the Company shall have delivered to the Holder's account
with The Depository Trust Company the requisite number of shares of Common
Stock (the "INTEREST CONVERSION SHARES").
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
cash or shares of Common Stock shall be at the discretion of the Company.
Prior to the commencement of any Interest Notice Period, the Company shall
deliver to the Holder a written notice of its election to pay interest
hereunder on the applicable Interest Payment Date either in cash, shares of
Common Stock or a combination thereof and the Interest Share Amount as to
the applicable Interest Payment Date, provided that the Company may
indicate in such notice that the election contained in such notice shall
apply to future Interest Payment Dates until revised by a subsequent
notice. During any Interest Notice Period, the Company's election (whether
specific to an Interest Payment Date or continuous) shall be irrevocable as
to such Interest Payment Date. Subject to the aforementioned conditions,
failure to timely provide such written notice shall be deemed an election
by the Company to pay the interest on such Interest Payment Date in cash.
At any time the Company delivers a notice to the Holder of its election to
pay the interest in shares of Common Stock, the Company shall timely file a
prospectus supplement pursuant to Rule 424 disclosing such election. The
aggregate number of shares of Common Stock otherwise issuable to the Holder
on an Interest Payment Date shall be reduced by the number of Interest
Conversion Shares previously issued to the Holder in connection with such
Interest Payment Date.
8
c) INTEREST CALCULATIONS. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and
unpaid interest, liquidated damages and other amounts which may become due
hereunder, has been made. Payment of interest in shares of Common Stock
(other than the Interest Conversion Shares issued prior to an Interest
Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein
and, solely for purposes of the payment of interest in shares, the Interest
Payment Date shall be deemed the Conversion Date. Interest shall cease to
accrue with respect to any principal amount converted, provided that the
Company actually delivers the Conversion Shares within the time period
required by Section 4(d)(ii). Interest hereunder will be paid to the Person
in whose name this Debenture is registered on the records of the Company
regarding registration and transfers of this Debenture (the "DEBENTURE
REGISTER"). Except as otherwise provided herein, if at any time the Company
pays interest partially in cash and partially in shares of Common Stock to
the holders of the Debentures, then such payment shall be distributed
ratably among the holders of the then-outstanding Debentures based on their
(or their predecessor's) initial purchases of Debentures pursuant to the
Purchase Agreement.
d) LATE FEE. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted by applicable law ("LATE
FEES") which shall accrue daily from the date such interest is due
hereunder through and including the date of payment in full.
Notwithstanding anything to the contrary contained herein, if on any
Interest Payment Date the Company has elected to pay accrued interest in
the form of Common Stock but the Company is not able to pay accrued
interest in Common Stock because it fails to satisfy the conditions for
payment in Common Stock set forth above, then, at the option of the Holder,
the Company, in lieu of delivering either shares of Common Stock pursuant
to this Section 2 or paying the regularly scheduled interest payment in
cash, shall deliver, within three Trading Days of each applicable Interest
Payment Date, an amount in cash equal to the product of (x) the number of
shares of Common Stock otherwise deliverable to the Holder in connection
with the payment of interest due on such Interest Payment Date multiplied
by (y) the highest VWAP during the period commencing on the Interest
Payment Date and ending on the Trading Day prior to the date such payment
is made. If any Interest Conversion Shares are issued to the Holder in
connection with an Interest Payment Date and are not applied against an
Interest Share Amount, then the Holder shall promptly return such excess
shares to the Company.
e) PREPAYMENT. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
9
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be payable for such registration of transfer or exchange.
b) INVESTMENT REPRESENTATIONS. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) RELIANCE ON DEBENTURE REGISTER. Prior to due presentment for
transfer to the Company of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
SECTION 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible, in whole or in part, into shares of Common Stock at the option
of the Holder, at any time and from time to time (subject to the conversion
limitations set forth in Section 4(c) hereof. The Holder shall effect
conversions by delivering to the Company a Notice of Conversion, the form
of which is attached hereto as ANNEX A (a "NOTICE OF CONVERSION"),
specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion shall be effected (a "CONVERSION
DATE"). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is deemed
delivered hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount(s) converted and the
date of such conversion(s). The Company may deliver an objection to any
Notice of Conversion within 1 Business Day of delivery of such Notice of
Conversion. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and determinative in the absence of manifest
error. THE HOLDER, AND ANY ASSIGNEE BY ACCEPTANCE OF THIS DEBENTURE,
ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF THIS PARAGRAPH,
FOLLOWING CONVERSION OF A PORTION OF THIS DEBENTURE, THE UNPAID AND
UNCONVERTED PRINCIPAL AMOUNT OF THIS DEBENTURE MAY BE LESS THAN THE AMOUNT
STATED ON THE FACE HEREOF.
b) CONVERSION PRICE. The conversion price in effect on any Conversion
Date shall be equal to $0.09 (subject to adjustment herein) (the
"CONVERSION PRICE").
10
c) CONVERSION LIMITATIONS. (i) The Company shall not effect any
conversion of this Debenture, and a Holder shall not have the right to
convert any portion of this Debenture, to the extent that after giving
effect to the conversion set forth on the applicable Notice of Conversion,
such Holder (together with such Holder's Affiliates, and any other person
or entity acting as a group together with such Holder or any of such
Holder's Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by such
Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect to which such
determination is being made, but shall exclude the number of shares of
Common Stock which are issuable upon (A) conversion of the remaining,
unconverted principal amount of this Debenture beneficially owned by such
Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the
limitation contained herein (including, without limitation, any other
Debentures or the Warrants) beneficially owned by such Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 4(c)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the limitation
contained in this Section 4(c)(i) applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by
such Holder together with any Affiliates) and of which principal amount of
this Debenture is convertible shall be in the sole discretion of such
Holder, and the submission of a Notice of Conversion shall be deemed to be
such Holder's determination of whether this Debenture may be converted (in
relation to other securities owned by such Holder together with any
Affiliates) and which principal amount of this Debenture is convertible, in
each case subject to such aggregate percentage limitations. To ensure
compliance with this restriction, each Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such
Notice of Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to demand such
representation or to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder. For purposes of this
Section 4(c)(i), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common
Stock as stated in the most recent of the following: (A) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent
public announcement by the Company; or (C) a more recent notice by the
Company or the Company's transfer agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request of a Holder,
the Company shall within two Trading Days confirm orally and in writing to
such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the
Company, including this Debenture, by such Holder or its Affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported. The "Beneficial Ownership Limitation" shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion
of this Debenture held by the Holder. The Beneficial Ownership Limitation
provisions of this Section 4(c)(i) may be waived by such Holder, at the
election of such Holder, upon not less than 61 days' prior notice to the
Company, to change the Beneficial Ownership Limitation to 9.99% of the
number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of this
Debenture held by the Holder and the provisions of this Section 4(c)(i)
shall continue to apply. Upon such a change by a Holder of the Beneficial
Ownership Limitation from such 4.99% limitation to such 9.99% limitation.
The Beneficial Ownership Limitation provision may be waived by the Holder
in its entirety upon 61 days' prior notice to the Company, in which event
the provisions of this paragraph shall not apply and shall be void. The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c)(i)
to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein
contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture.
11
(ii) Until the Company has obtained Authorized Share Approval,
the Company may not issue upon conversion of this Debenture a number
of shares of Common Stock which, when aggregated with any shares of
Common Stock issued prior to such Conversion Date (A) pursuant to any
Debentures issued pursuant to the Purchase Agreement and (B) pursuant
to any Warrants issued pursuant to the Purchase Agreement, would
exceed 10,000,000 shares of Common Stock ("ISSUABLE MAXIMUM"). Each
Holder shall be entitled to a portion of the Issuable Maximum equal to
the quotient obtained by dividing (x) the aggregate principal amount
of the Debenture(s) issued and sold to such Holder on the Original
Issue Date by (y) the aggregate principal amount of all Debentures
issued and sold by the Company on the Original Issue Date. If any
Holder shall no longer hold the Debenture(s), then such Holder's
remaining portion of the Issuable Maximum shall be allocated pro-rata
among the remaining Holders. If on any Conversion Date: (1) the
applicable Conversion Price then in effect is such that the shares
issuable upon conversion in full of all then outstanding Debentures
would exceed the Issuable Maximum, and (2) the Company has not
previously obtained Authorized Share Approval, then the Company shall
issue to the Holder requesting a conversion a number of shares of
Common Stock equal to such Holder's pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the Issuable Maximum and,
with respect to the remainder of the aggregate principal amount of the
Debentures (including any interest) then held by such Holder for which
a conversion in accordance with the applicable Conversion Price would
result in an issuance of shares of Common Stock in excess of such
Holder's pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum (the "EXCESS PRINCIPAL"), the
Company shall be prohibited from converting such Excess Principal, and
shall notify the Holder of the reason therefore. This Debenture shall
thereafter be unconvertible to such extent until and unless Authorized
Share Approval is subsequently obtained, but this Debenture shall
otherwise remain in full force and effect.
12
d) MECHANICS OF CONVERSION.
i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF PRINCIPAL
AMOUNT. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than three
Trading Days after each Conversion Date (the "SHARE DELIVERY DATE"),
the Company shall deliver, or cause to be delivered, to the Holder (A)
a certificate or certificates representing the Conversion Shares
which, on or after the Effective Date, shall be free of restrictive
legends and trading restrictions (other than those which may then be
required by the Purchase Agreement) representing the number of shares
of Common Stock being acquired upon the conversion of this Debenture
(including, if the Company has given continuous notice pursuant to
Section 2(b) for payment of interest in shares of Common Stock at
least 20 Trading Days prior to the date on which the Conversion Notice
is delivered to the Company, shares of Common Stock representing the
payment of accrued interest otherwise determined pursuant to Section
2(a) but assuming that the Interest Payment Period is the 20 Trading
Days period immediately prior to the date on which the Conversion
Notice is delivered to the Company and excluding for such issuance the
condition that the Company deliver Interest Conversion Shares as to
such interest payment) and (B) a bank check in the amount of accrued
and unpaid interest (if the Company has elected or is required to pay
accrued interest in cash). On or after the Effective Date, the Company
shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4
electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the fifth
Trading Day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the
Holder any original Debenture delivered to the Company and the Holder
shall promptly return the Common Stock certificates representing the
principal amount of this Debenture tendered for conversion to the
Company.
13
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. The
Company's obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach
by the Holder or any other Person of any obligation to the Company or
any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; PROVIDED,
HOWEVER, that such delivery shall not operate as a waiver by the
Company of any such action the Company may have against the Holder. In
the event the Holder of this Debenture shall elect to convert any or
all of the outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an
injunction from a court, on notice to Holder, restraining and or
enjoining conversion of all or part of this Debenture shall have been
sought and obtained, and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the outstanding
principal amount of this Debenture, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of
which shall be payable to such Holder to the extent it obtains
judgment. In the absence of such injunction, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. If the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(d)(ii)
by the fifth Trading Day after the Conversion Date, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a
penalty, for each $1000 of principal amount being converted, $10 per
Trading Day (increasing to $20 per Trading Day on the seventh Trading
Day after such liquidated damages begin to accrue) for each Trading
Day after such fifth Trading Day until such certificates are
delivered. Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 8
hereof for the Company's failure to deliver Conversion Shares within
the period specified herein and such Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
14
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates by the Share
Delivery Date pursuant to Section 4(d)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase
(in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a "BUY-IN"), then the Company
shall (A) pay in cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including any brokerage commissions)
for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the
actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B)
at the option of the Holder, either reissue (if surrendered) this
Debenture in a principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms hereof.
vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Company
covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock for the sole
purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
Persons other than the Holder (and the other holders of the
Debentures), not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions set forth
in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5) upon the conversion of the
outstanding principal amount of this Debenture and payment of interest
hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration
Statement is then effective under the Securities Act, shall be
registered for public sale in accordance with such Registration
Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing
fractions of shares of Common Stock, but may if otherwise permitted,
make a cash payment in respect of any final fraction of a share based
on the VWAP at such time. If the Company elects not, or is unable, to
make such a cash payment, the Holder shall be entitled to receive, in
lieu of the final fraction of a share, 1 whole share of Common Stock.
15
viii. TRANSFER TAXES. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such
certificates, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of this Debenture so converted and
the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any time while
this Debenture is outstanding: (A) pays a stock dividend or otherwise makes
a distribution or distributions payable in shares of Common Stock on shares
of Common Stock or any Common Stock Equivalents (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company
upon conversion of, or payment of interest on, this Debenture); (B)
subdivides outstanding shares of Common Stock into a larger number of
shares; (C) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares; or (D)
issues, in the event of a reclassification of shares of the Common Stock,
any shares of capital stock of the Company, then the Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding any treasury shares of the Company)
outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
16
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary thereof,
as applicable, at any time while this Debenture is outstanding, sells or
grants any option to purchase or sells or grants any right to reprice its
securities, or otherwise disposes of or issues (or announces any sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then
Conversion Price (such lower price, the "BASE CONVERSION PRICE" and such
issuances collectively, a "DILUTIVE ISSUANCE") (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance
shall be deemed to have occurred for less than the Conversion Price on such
date of the Dilutive Issuance), then the Conversion Price shall be reduced
to equal the Base Conversion Price; PROVIDED, HOWEVER, if in any calendar
year the Company issues Common Stock or Common Stock Equivalents for an
aggregate value of less than $500,000 and such issuance includes no
mandatory, demand or similar registration rights (but may include piggyback
registration rights) for the purchasers or placement agent, then, for
purposes of such issuance only, the Conversion Price shall be adjusted
downward, but never upward, by multiplying the Conversion Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately prior to the Dilutive Issuance plus the number of
shares of Common Stock which the offering price for such Dilutive Issuance
would purchase at the Conversion Price, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance plus the number of shares of Common Stock so
issued or issuable in connection with the Dilutive Issuance. Such
adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustment will
be made under this Section 5(b) in respect of an Exempt Issuance. The
Company shall notify the Holder in writing, no later than the Business Day
following the issuance of any Common Stock or Common Stock Equivalents
subject to this Section 5(b), indicating therein the applicable issuance
price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the "DILUTIVE ISSUANCE NOTICE"). For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, the Holder is entitled to receive a number of Conversion
Shares based upon the Base Conversion Price on or after the date of such
Dilutive Issuance, regardless of whether the Holder accurately refers to
the Base Conversion Price in the Notice of Conversion.
c) SUBSEQUENT RIGHTS OFFERINGS. If the Company, at any time while this
Debenture is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share that is lower
than the VWAP on the record date referenced below, then the Conversion
Price shall be multiplied by a fraction of which the denominator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares so offered
(assuming delivery to the Company in full of all consideration payable upon
exercise of such rights, options or warrants) would purchase at such VWAP.
Such adjustment shall be made whenever such rights or warrants are issued,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
17
d) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Debenture is outstanding, distributes to all holders of Common Stock (and
not to the Holders) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security (other than the Common Stock, which shall be subject to Section
5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good faith.
In either case the adjustments shall be described in a statement delivered
to the Holder describing the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to 1 share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
e) FUNDAMENTAL TRANSACTION. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one transaction or a series of
related transactions, (C) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"FUNDAMENTAL TRANSACTION"), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion immediately prior
to the occurrence of such Fundamental Transaction, the same kind and amount
of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of 1 share of
Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on
the amount of Alternate Consideration issuable in respect of 1 share of
Common Stock in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture consistent with the foregoing provisions and evidencing the
Holder's right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this Section 5(e) and insuring that
this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
18
f) CALCULATIONS. All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding any treasury shares of the
Company) issued and outstanding.
g) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the Conversion Price
is adjusted pursuant to any provision of this Section 5, the Company
shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in
the Purchase Agreement).
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the Company
shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (C)
the Company shall authorize the granting to all holders of the Common
Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to
be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be delivered to the
Holder at its last address as it shall appear upon the Debenture
Register, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any
defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such
notice. The Holder is entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the
effective date of the event triggering such notice.
19
h) ADJUSTMENT UPON A REVERSE STOCK SPLIT. In the event the Company
effects a reverse stock split of the Common Stock at any time while this
Debenture is outstanding, in addition to any other adjustment provided
herein, the Conversion Price shall be reduced effective as of the 23rd
Trading Day following such stock split (the "RESET DATE") to a price equal
to the lesser of (i) the average of the VWAPs for the 22 Trading Days
immediately following such reverse stock split or (ii) the average of the
VWAPs for the 5 Trading Days immediately prior to the Reset Date, subject
to further adjustment as provided herein. If such an adjustment does not
result in a reduction of the Conversion Price then in effect, no adjustment
will be made.
SECTION 6. REDEMPTION AND FORCED CONVERSION.
a) OPTIONAL REDEMPTION AT ELECTION OF COMPANY. Subject to the
provisions of this Section 6, on any (i) February 27, February 28, March 1
or March 2 or (ii) August 29, August 30, August 31 or September 1 after the
Effective Date, the Company may deliver a notice to the Holder (an
"OPTIONAL REDEMPTION NOTICE" and the date such notice is deemed delivered
hereunder, the "OPTIONAL REDEMPTION NOTICE DATE") of its irrevocable
election to redeem (i) all of the then outstanding Debentures or (ii) a
part of each outstanding Debenture equal to or greater than $250,000 in
principal amount for cash in an amount equal to the Optional Redemption
Amount on the 20th Trading Day following the Optional Redemption Notice
Date (such date, the "OPTIONAL REDEMPTION DATE" and such redemption, the
"OPTIONAL REDEMPTION"). The Optional Redemption Amount is payable in full
on the Optional Redemption Date. The Company may only effect an Optional
Redemption if on each Trading Day during the period commencing on the
Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date payment of the Optional Redemption Amount is
actually made, each of the Equity Conditions shall have been met. If any of
the Equity Conditions shall cease to be satisfied at any time during the 20
Trading Day period, then the Holder may elect to nullify the Optional
Redemption Notice by notice to the Company within 3 Trading Days after the
first day on which any such Equity Condition has not been met (provided
that if, by a provision of the Transaction Documents, the Company is
obligated to notify the Holder of the non-existence of an Equity Condition,
such notice period shall be extended to the third Trading Day after proper
notice from the Company) in which case the Optional Redemption Notice shall
be null and void, AB INITIO. The Company covenants and agrees that it will
honor all Notices of Conversion tendered from the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon are
due and paid in full.
20
b) REDEMPTION PROCEDURE. The payment of cash or issuance of Common
Stock, as applicable, pursuant to an Optional Redemption shall be made on
the Optional Redemption Date. If any portion of the payment pursuant to an
Optional Redemption shall not be paid by the Company by the applicable due
date, interest shall accrue thereon until such amount is paid in full at an
interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law. Notwithstanding anything herein contained to
the contrary, if any portion of the Optional Redemption Amount remains
unpaid after such date, the Holder may elect, by written notice to the
Company given at any time thereafter, to invalidate AB INITIO such
redemption, and, with respect to the Company's failure to honor the
Optional Redemption, the Company shall have no further right to exercise
such Optional Redemption. Notwithstanding anything to the contrary in this
Section 6, the Company's determination to redeem in cash or its elections
under Section 6(b) shall be applied ratably among the Holders of
Debentures. The Holder may elect to convert the outstanding principal
amount of the Debenture pursuant to Section 4 prior to actual payment in
cash for any redemption under this Section 6 by the delivery of a Notice of
Conversion to the Company.
c) FORCED CONVERSION. Notwithstanding anything herein to the contrary,
if after the Effective Date, (i) the VWAPs for each of any 10 consecutive
Trading Days, which period shall have commenced only after the Effective
Date, such period the "THRESHOLD PERIOD")) exceeds 200% of the then
effective Conversion Price (subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the Original Issue Date)
and (ii) the average daily volume for such Threshold Period, which
Threshold Period shall have commenced only after the Effective Date,
exceeds 100,000 shares of Common Stock per Trading Day (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like after the Original Issue Date), the Company may,
within 2 Trading Days after the end of any such Threshold Period, deliver a
written notice to the Holder (a "FORCED CONVERSION NOTICE" and the date
such notice is delivered to the Holder, the "FORCED CONVERSION NOTICE
DATE") to cause the Holder to convert all or part of the then outstanding
principal amount of Debentures, it being agreed that the "Conversion Date"
for purposes of Section 4 shall be deemed to occur on the 20th Trading Day
following the Forced Conversion Notice Date (such 20th Trading Day, the
"FORCED CONVERSION DATE"). The Company may not deliver a Forced Conversion
Notice, and any Forced Conversion Notice delivered by the Company shall not
be effective, unless all of the Equity Conditions are met on each Trading
Day occurring during the applicable Threshold Period through and including
the later of the Forced Conversion Date and the Trading Day after the date
such Conversion Shares pursuant to such conversion are delivered to the
Holder. Any Forced Conversion shall be applied ratably to all Holders based
on their initial purchases of Debentures pursuant to the Purchase
Agreement, provided that any voluntary conversions by a Holder shall be
applied against such Holder's pro-rata allocation, thereby decreasing the
aggregate amount forcibly converted hereunder if only a portion of this
Debenture is forcibly converted. For purposes of clarification, a Forced
Conversion shall be subject to all of the provisions of Section 4,
including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions.
21
d) REDEMPTION AT ELECTION OF HOLDER. If the Company shall agree to
sell substantially all of its assets in one or more transactions in which
the consideration consists solely of cash, cash equivalents, assumption of
indebtedness, or any combination thereof, the Holder shall have the right
to require the Company, by written notice to the Company, to redeem this
Debentures, in full and in cash, at the closing of such Change of Control
Transaction, Fundamental Transaction or sale of assets. The aggregate
amount payable upon such Change of Control Transaction, Fundamental
Transaction or sale of assets shall be equal to the Cash Sale Redemption
Amount. In the event that the Company fails to pay the Cash Sale Redemption
Amount on or prior to the applicable closing date, the interest rate on
this Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable law,
until the Cash Sale Redemption Amount is paid in full. Concurrently with
the payment in full of the Cash Sale Redemption Amount, the Holder shall
surrender this Debenture to or as directed by the Company (or the successor
company). The Holder may elect to convert the outstanding principal amount
of the Debenture pursuant to Section 4 prior to actual payment in cash for
the redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.
For purposes of this Section 6(d) only, "CHANGE OF CONTROL
TRANSACTION" means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of effective control (whether through legal or beneficial ownership of
capital stock of the Company, by contract or otherwise) of in excess of 45%
of the voting securities of the Company (other than by means of conversion
or exercise of the Debentures and the Securities issued together with the
Debentures), or (ii) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and,
after giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 55% of the aggregate
voting power of the Company or the successor entity of such transaction, or
(iii) the Company sells or transfers all or substantially all of its assets
to another Person and the stockholders of the Company immediately prior to
such transaction own less than 55% of the aggregate voting power of the
acquiring entity immediately after the transaction, or (iv) a replacement
at one time or within a three year period of more than one-half of the
members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on
the date hereof (or by those individuals who are serving as members of the
board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth in clauses (i) through (iv)
above.
22
SECTION 7. NEGATIVE COVENANTS. As long as any portion of this Debenture
remains outstanding, the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
a) other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
b) amend its charter documents, including without limitation, the
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a DE MINIMIS number of shares of its Common Stock or
Common Stock Equivalents other than as to (a) the Conversion Shares or
Warrant Shares as permitted or required under the Transaction Documents and
(b) repurchases of Common Stock or Common Stock Equivalents of departing
officers and directors of the Company, provided that such repurchases shall
not exceed an aggregate of $100,000 for all officers and directors during
the term of this Debenture);
d) repay, repurchase or offer to repay, repurchase or otherwise
acquire debt securities of the Company that are junior or PARI PASSU to the
Debentures in rights to interest payments or liquidation preference;
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of the
Company.
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT" means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
shall be voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any order, rule
or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any
Debenture or (B) interest, liquidated damages and other amounts owing
to a Holder on any Debenture, as and when the same shall become due
and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not cured
within 3 Trading Days;
23
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in the Debentures (other than a breach
by the Company of its obligations to deliver shares of Common Stock to
the Holder upon conversion, which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure, within the
earlier to occur of (A) 5 Trading Days after notice of such failure
sent by the Holder or by any other Holder and (B) 10 Trading Days
after the Company has become or should have become aware of such
failure;
iii. a default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any
other material agreement, lease, document or instrument to which the
Company or any Subsidiary is obligated (and not covered by clause (vi)
below);
iv. any representation or warranty made in this Debenture, any
other Transaction Documents, any written statement pursuant hereto or
thereto or any other report, financial statement or certificate made
or delivered to the Holder or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed
made;
v. the Company or any Significant Subsidiary shall be subject to
a Bankruptcy Event;
vi. the Company or any Significant Subsidiary shall default on
any of its obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or
evidenced, any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement that (a) involves an
obligation greater than $150,000, whether such indebtedness now exists
or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;
vii. the Common Stock shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to
resume listing or quotation for trading thereon within five Trading
Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction or shall agree to sell or
dispose of all or in excess of 33% of its assets in one transaction or
a series of related transactions (whether or not such sale would
constitute a Change of Control Transaction);
24
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), either (a) the effectiveness of the
Registration Statement lapses for any reason or (b) the Holder shall
not be permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Registration Statement for a
period of more than 20 consecutive Trading Days or 30 non-consecutive
Trading Days during any 12 month period; PROVIDED, HOWEVER, that if
the Company is negotiating a merger, consolidation, acquisition or
sale of all or substantially all of its assets or a similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include
information concerning such pending transaction(s) or the parties
thereto which information is not available or may not be publicly
disclosed at the time, the Company shall be permitted an additional 20
consecutive Trading Days during any 12 month period pursuant to this
Section 8(a)(x);
xi. the Company shall fail for any reason to deliver certificates
to a Holder prior to the fifth Trading Day after a Conversion Date or
any Forced Conversion Date pursuant to Section 4(d) or the Company
shall provide at any time notice to the Holder, including by way of
public announcement, of the Company's intention to not honor requests
for conversions of any Debentures in accordance with the terms hereof;
xii. The Company shall fail to obtain Authorized Share Approval
within 120 calendar days of the Closing Date; or
xiii. any monetary judgment, writ or similar final process shall
be entered or filed against the Company, any Significant Subsidiary or
any of their respective property or other assets for more than
$150,000, and such judgment, writ or similar final process shall
remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs, the
outstanding principal amount of this Debenture, plus accrued but unpaid
interest, liquidated damages and other amounts owing in respect thereof
through the date of acceleration, shall become, at the Holder's election,
immediately due and payable in cash at the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results
in the eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at an interest rate equal to the lesser of 18% per
annum or the maximum rate permitted under applicable law. Upon the payment
in full of the Mandatory Default Amount, the Holder shall promptly
surrender this Debenture to or as directed by the Company. In connection
with such acceleration described herein, the Holder need not provide, and
the Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such acceleration
may be rescinded and annulled by Holder at any time prior to payment
hereunder and the Holder shall have all rights as a holder of the Debenture
until such time, if any, as the Holder receives full payment pursuant to
this Section 8(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
25
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
(604) 267-2749, ATTN: DALLAS PRETTY, CHIEF FINANCIAL OFFICER or such other
facsimile number or address as the Company may specify for such purpose by
notice to the Holder delivered in accordance with this Section 9. Any and
all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of such Holder
appearing on the books of the Company, or if no such facsimile number or
address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 9 prior to 5:30 p.m. (New York City time), (ii)
the date immediately following the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified
in this Section 9 between 5:30 p.m. (New York City time) and 11:59 p.m.
(New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
b) ABSOLUTE OBLIGATION. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
liquidated damages and accrued interest, as applicable, on this Debenture
at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company. This
Debenture ranks PARI PASSU with all other Debentures now or hereafter
issued under the terms set forth herein.
c) LOST OR MUTILATED DEBENTURE. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed, but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership
hereof, reasonably satisfactory to the Company.
26
d) GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws thereof.
Each party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the "NEW YORK COURTS"). Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.
e) WAIVER. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver by the Company or the Holder must be in
writing.
27
f) SEVERABILITY. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any Person or circumstance,
it shall nevertheless remain applicable to all other Persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable
law. The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
or other law which would prohibit or forgive the Company from paying all or
any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this
indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impeded the
execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) HEADINGS. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or any surviving entity in
a Fundamental Transaction shall (i) assume, prior to such Fundamental
Transaction, all of the obligations of the Company under this Debenture and
the other Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be unreasonably
withheld or delayed) and (ii) issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially similar in
form and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this
Debenture, which shall be satisfactory to the Holder (any such approval not
to be unreasonably withheld or delayed). The provisions of this Section
9(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Debenture.
28
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.
UNITY WIRELESS CORPORATION
By:
--------------------------
Name:
Title:
29
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Senior
Secured Convertible Debenture of Unity Wireless Corporation, a Delaware
corporation (the "COMPANY"), due on December 13, 2009, into shares of common
stock, par value $.001 per share (the "COMMON STOCK"), of the Company according
to the conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates and opinions as reasonably requested by the Company in
accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account
of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
30
SCHEDULE 1
CONVERSION SCHEDULE
The 8% Senior Secured Convertible Debentures due on December 13, 2009, in the
aggregate principal amount of $____________ issued by Unity Wireless
Corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.
Dated:
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Original (or original
Issue Date) Amount of Conversion Principal Amount) Company Attest
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
------------------------------- ------------------------- ----------------------- ------------------------------
31
EXHIBIT 4
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES. UNLESS PERMITTED UNDER CANADIAN SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MAY NOT TRADE THIS SECURITY OR ANY
SECURITY ISSUED IN RESPECT OF THIS SECURITY IN CANADA BEFORE 4 MONTHS AFTER THE
DATE OF THIS AGREEMENT.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
UNITY WIRELESS CORPORATION
THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") certifies that, for
value received, _____________ (the "HOLDER"), is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the "INITIAL EXERCISE
DATE") and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the "TERMINATION DATE") but not
thereafter, to subscribe for and purchase from Unity Wireless Corporation,
a Delaware corporation (the "COMPANY"), up to ______ shares (the "WARRANT
SHARES") of Common Stock, par value $.001 per share, of the Company (the
"COMMON STOCK"). The purchase price of one share of Common Stock under this
Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
SECTION 1. DEFINITIONS. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Additional Issuance
Agreement (the "PURCHASE AGREEMENT"), dated December 13, 2006, among the Company
and the purchasers signatory thereto.
1
SECTION 2. EXERCISE.
a) EXERCISE OF WARRANT. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the
address of such Holder appearing on the books of the Company); and, within
3 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full, in
which case, the Holder shall surrender this Warrant to the Company for
cancellation within 3 Trading Days of the date the final Notice of Exercise
is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the
date of such purchases. The Company shall deliver any objection to any
Notice of Exercise Form within 1 Business Day of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree
that, by reason of the provisions of this paragraph, following the purchase
of a portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) EXERCISE PRICE. The exercise price per share of the Common Stock
under this Warrant shall be $0.10, subject to adjustment hereunder (the
"EXERCISE PRICE").
c) CASHLESS EXERCISE. So long as at any time after one year from the
date of issuance of this Warrant there is no effective Registration
Statement registering, or no current prospectus available for, the resale
of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a "cashless exercise" in which the
Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of
a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).
2
d) EXERCISE LIMITATIONS. (i) The Company shall not effect any exercise
of this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 2(c) or otherwise, to the
extent that after giving effect to such issuance after exercise as set
forth on the applicable Notice of Exercise, such Holder (together with such
Holder's Affiliates, and any other person or entity acting as a group
together with such Holder or any of such Holder's Affiliates), as set forth
on the applicable Notice of Exercise, would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by such Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which
such determination is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by such Holder or
any of its Affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Holder or any of its affiliates. Except
as set forth in the preceding sentence, for purposes of this Section
2(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by a Holder that the Company is not
representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for
any schedules required to be filed in accordance therewith. To the extent
that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by such Holder together with any Affiliates) and of which
a portion of this Warrant is exercisable shall be in the sole discretion of
a Holder, and the submission of a Notice of Exercise shall be deemed to be
each Holder's determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with any
Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to such aggregate percentage limitation, and the Company shall
have no obligation to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above
shall be determined in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder. For purposes of this
Section 2(d), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Form 10-QSB or Form
10-KSB, as the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of a Holder, the Company shall within two
Trading Days confirm orally and in writing to such Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this
Warrant, by such Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The "Beneficial
Ownership Limitation" shall be 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock issuable upon exercise of this Warrant. The Beneficial
Ownership Limitation provisions of this Section 2(d)(i) may be waived by
such Holder, at the election of such Holder, upon not less than 61 days'
prior notice to the Company to change the Beneficial Ownership Limitation
to 9.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
upon exercise of this Warrant, and the provisions of this Section 2(d)
shall continue to apply. Upon such a change by a Holder of the Beneficial
Ownership Limitation from such 4.99% limitation to such 9.99% limitation.
The Beneficial Ownership Limitation provision may be waived by the Holder
in its entirety upon 61 days' prior notice to the Company, in which event
the provisions of this paragraph shall not apply and shall be void. The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 2(d)(i)
to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein
contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.
3
(ii) Unless the Company has obtained Authorized Share Approval,
the Company may not issue upon exercise of this Warrant a number of
shares of Common Stock which, when aggregated with any shares of
Common Stock issued (A) upon prior conversion of any Debentures issued
pursuant to the Purchase Agreement and (B) upon prior exercise of any
Warrants issued pursuant to the Purchase Agreement would exceed
10,000,000 shares of Common Stock ("ISSUABLE MAXIMUM"). If on any
attempted exercise of this Warrant, the issuance of Warrant Shares
would exceed the Issuable Maximum and the Company's shareholders have
not previously voted in favor of Authorized Share Approval, then the
Company shall issue to the Holder request a Warrant exercise such
number of Warrant Shares as may be issued below the Issuable Maximum
and, with respect to the remainder of the aggregate number of Warrant
Shares, this Warrant shall not be exercisable until and unless
Authorized Share Approval has been obtained.
e) MECHANICS OF EXERCISE.
i. AUTHORIZATION OF WARRANT SHARES. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes,
liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
4
ii. DELIVERY OF CERTIFICATES UPON EXERCISE. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent
of the Company to the Holder by crediting the account of the Holder's
prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission ("DWAC") system if the Company is a
participant in such system, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise within 3
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required) and payment of
the aggregate Exercise Price as set forth above ("WARRANT SHARE
DELIVERY DATE"). This Warrant shall be deemed to have been exercised
on the date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section
2(e)(vii) prior to the issuance of such shares, have been paid.
iii. DELIVERY OF NEW WARRANTS UPON EXERCISE. If this Warrant
shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the
time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights
of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.
iv. RESCISSION RIGHTS. If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by
the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON EXERCISE. In addition to any other rights available
to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its
broker to purchase (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares which the Holder anticipated receiving upon such
exercise (a "BUY-IN"), then the Company shall (1) pay in cash to the
Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the
Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale
price giving rise to such purchase obligation of $10,000, under clause
(1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of
the amount of such loss. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
5
vi. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the
Exercise Price or round up to the next whole share.
vii. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the
Holder; PROVIDED, HOWEVER, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
viii. CLOSING OF BOOKS. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.
6
f) CALL PROVISION. Subject to the provisions of Section 2(d) and this
Section 2(f), if, after the two year anniversary of the Effective Date (i)
the VWAP for each of 20 consecutive Trading Days (the "MEASUREMENT PERIOD",
which 20 Trading Day period shall not have commenced until after the
Effective Date) exceeds 200% of the then Exercise Price (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like after the Initial Exercise Date) (the "THRESHOLD
PRICE"), (ii) the average daily volume for such Measurement Period exceeds
100,000 shares of Common Stock per Trading Day (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and
the like after the Initial Exercise Date) and (iii) the Holder is not in
possession of any information furnished by the Company that constitutes, or
might constitute, material non-public information, then the Company may,
within two Trading Days of the end of such period, call for cancellation of
all or any portion of this Warrant for which a Notice of Exercise has not
yet been delivered (such right, a "CALL"). To exercise this right, the
Company must deliver to the Holder an irrevocable written notice (a "CALL
NOTICE"), indicating therein the portion of unexercised portion of this
Warrant to which such notice applies. If the conditions set forth below for
such Call are satisfied from the period from the date of the Call Notice
through and including the Call Date (as defined below), then any portion of
this Warrant subject to such Call Notice for which a Notice of Exercise
shall not have been received by the Call Date will be cancelled at 6:30
p.m. (New York City time) on the twentieth Trading Day after the date the
Call Notice is received by the Holder (such date and time, the "CALL
DATE"). Any unexercised portion of this Warrant to which the Call Notice
does not pertain will be unaffected by such Call Notice. In furtherance
thereof, the Company covenants and agrees that it will honor all Notices of
Exercise with respect to Warrant Shares subject to a Call Notice that are
tendered through 6:30 p.m. (New York City time) on the Call Date. The
parties agree that any Notice of Exercise delivered following a Call Notice
which calls less than all the Warrants shall first reduce to zero the
number of Warrant Shares subject to such Call Notice prior to reducing the
remaining Warrant Shares available for purchase under this Warrant. For
example, if (x) this Warrant then permits the Holder to acquire 100 Warrant
Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z) prior to
6:30 p.m. (New York City time) on the Call Date the Holder tenders a Notice
of Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the
right under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled, (2) the Company, in the time and manner required under this
Warrant, will have issued and delivered to the Holder 50 Warrant Shares in
respect of the exercises following receipt of the Call Notice, and (3) the
Holder may, until the Termination Date, exercise this Warrant for 25
Warrant Shares (subject to adjustment as herein provided and subject to
subsequent Call Notices). Subject again to the provisions of this Section
2(f), the Company may deliver subsequent Call Notices for any portion of
this Warrant for which the Holder shall not have delivered a Notice of
Exercise. Notwithstanding anything to the contrary set forth in this
Warrant, the Company may not deliver a Call Notice or require the
cancellation of this Warrant (and any such Call Notice will be void),
unless, from the beginning of the 20th consecutive Trading Day used to
determine whether the Common Stock has achieved the Threshold Price through
the Call Date, (i) the Company shall have honored in accordance with the
terms of this Warrant all Notices of Exercise delivered by 6:30 p.m. (New
York City time) on the Call Date, (ii) the Registration Statement shall be
effective as to all Warrant Shares and the prospectus thereunder available
for use by the Holder for the resale of all such Warrant Shares and (iii)
the Common Stock shall be listed or quoted for trading on the Trading
Market, and (iv) there is a sufficient number of authorized shares of
Common Stock for issuance of all Securities under the Transaction
Documents, and (v) the issuance of the shares shall not cause a breach of
any provision of 2(d) herein. The Company's right to Call the Warrant shall
be exercised ratably among the Holders based on each Holder's initial
purchase of Warrants.
7
g) REDEMPTION AT ELECTION OF HOLDER. If the Company shall agree to
sell substantially all of its assets in one or more transactions in which
the consideration consists solely of cash, cash equivalents, assumption of
indebtedness, or any combination thereof, the Holder shall have the right
to require the Company, by written notice to the Company, to redeem this
Warrant, in full and in cash, at the closing of such sale of assets. The
aggregate amount payable in full redemption of the Warrants required to be
redeemed upon such sale of assets shall be equal to the Warrant Cash Sale
Redemption Amount (as defined below). In the event that the Company fails
to pay the Warrant Cash Sale Redemption Amount within three business days
of the closing of the sale transaction, interest shall accrue on the unpaid
Warrant Cash Redemption Amount at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable law,
until the Warrant Cash Sale Redemption Amount is paid in full. Concurrently
with the payment in full of the Warrant Cash Sale Redemption Amount, the
Holder shall surrender this Warrant to or as directed by the Company (or
the successor company). The Holder may elect to exercise this Warrant
pursuant to Sections 2(a) or 2(c) hereof prior to actual payment in cash
for the redemption.
h) Definitions Applicable to Section 2(g). For the purposes of Section
2(g):
"WARRANT CASH SALE REDEMPTION AMOUNT" shall equal the sum of (i) the
product of (A) all unexercised Warrant Shares underlying this Warrant if
the Warrants were issued pursuant to a cashless exercise exercised on the
date the redemption right hereunder is exercised based on the Effective
Price (as defined below) and (B) the Effective Price and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of this
Warrant. The "EFFECTIVE PRICE" shall be the cash consideration paid by the
acquirer in such event (less the amount paid in redemption of the
Debentures in clause (i) of the definition of Cash Sale Redemption Amount
set forth therein) divided by the sum of; (x) the issued and outstanding
shares of Common Stock of the Company then outstanding and (y) the shares
of Common Stock into which the outstanding Debentures may be converted on
the day immediately preceding the record date fixed for determining the
holders of shares of Common Stock eligible to receive a distribution (or if
no such date has been fixed, the date of the day immediately preceding the
closing of the transaction) and (z) the number of shares deemed issuable to
the Warrant holders pursuant to the mandatory redemption provisions in this
and the other Warrants which take effect upon sale of assets for cash
consideration whether or not any Warrant holder shall have elected to have
their Warrants Redeemed; provided, however, that the number of shares of
Common Stock issuable on conversion of the Debentures and issuable upon
exercise of the Warrants for this purpose shall be determined on a fully
converted or exercised basis and ignoring any conversion or exercise
limitations therein.
8
SECTION 3. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary thereof,
as applicable, at any time while this Warrant is outstanding, shall sell or
grant any option to purchase or sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale,
grant or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common
Stock, at an effective price per share less than the then Exercise Price
(such lower price, the "BASE SHARE PRICE" and such issuances collectively,
a "DILUTIVE ISSUANCE") (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per
share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is
less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the Dilutive
Issuance), then the Exercise Price shall be reduced and only reduced to
equal the Base Share Price and the number of Warrant Shares issuable
hereunder shall be increased such that the aggregate Exercise Price payable
hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such adjustment;
PROVIDED, HOWEVER, if in any calendar year the Company issues Common Stock
or Common Stock Equivalents for an aggregate value of less than $500,000
and such issuance includes no mandatory, demand or similar registration
rights (but may include piggyback registration rights) for the purchasers
or placement agent, then, for purposes of such issuance only, the Exercise
Price shall be adjusted downward, but never upward, by multiplying the
Exercise Price by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately prior to the Dilutive
Issuance plus the number of shares of Common Stock which the offering price
for such Dilutive Issuance would purchase at the Exercise Price, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the Dilutive Issuance plus the
number of shares of Common Stock so issued or issuable in connection with
the Dilutive Issuance and the number of shares issuable pursuant to this
Warrant shall be proportionally increased. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustments shall be made, paid or issued
under this Section 3(b) in respect of an Exempt Issuance. The Company shall
notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalents subject to this
section, indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing terms (such
notice the "DILUTIVE ISSUANCE NOTICE"). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant to
this Section 3(b), upon the occurrence of any Dilutive Issuance, after the
date of such Dilutive Issuance the Holder is entitled to receive a number
of Warrant Shares based upon the Base Share Price regardless of whether the
Holder accurately refers to the Base Share Price in the Notice of Exercise.
9
c) SUBSEQUENT RIGHTS OFFERINGS. If the Company, at any time while the
Warrant is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise
of such rights, options or warrants) would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
d) PRO RATA DISTRIBUTIONS. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not
to Holders of the Warrants) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for
or purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be
the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of the Common Stock as determined by the Board of Directors in good faith.
In either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned
above.
10
e) FUNDAMENTAL TRANSACTION. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"FUNDAMENTAL TRANSACTION"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the "ALTERNATE
CONSIDERATION") receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this
Warrant as determined in accordance with the Black-Scholes option pricing
formula. For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any exercise
of this Warrant following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to
the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 3(d) and
insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
f) CALCULATIONS. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any) issued
and outstanding.
11
g) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
h) NOTICE TO HOLDERS.
i. ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company
shall promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of
a Variable Rate Transaction (as defined in the Purchase Agreement).
ii. NOTICE TO ALLOW EXERCISE BY HOLDER. If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock; (C) the Company
shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of any stockholders of
the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder
is entitled to exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the
event triggering such notice.
12
i) ADJUSTMENT UPON A REVERSE STOCK SPLIT. In the event the
Company effects a reverse stock split of the Common Stock at any time
while this Warrant is outstanding, in addition to any other adjustment
provided herein, the Exercise Price shall be reduced effective as of
the 23rd Trading Day following such stock split (the "RESET DATE") to
a price equal to the lesser of (i) the average of the VWAPs for the 22
Trading Days immediately following such reverse stock split or (ii)
the average of the VWAPs for the 5 Trading Days immediately prior to
the Reset Date, subject to further adjustment as provided herein. If
such an adjustment does not result in a reduction of the Exercise
Price then in effect, no adjustment will be made.
SECTION 4. TRANSFER OF WARRANT.
a) TRANSFERABILITY. Subject to compliance with any applicable
securities laws and the conditions set forth in Section 4(d) hereof and to
the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney
and funds sufficient to pay any transfer taxes payable upon the making of
such transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor
a new Warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall promptly be cancelled. A Warrant, if properly assigned,
may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b) NEW WARRANTS. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
c) WARRANT REGISTER. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
13
d) TRANSFER RESTRICTIONS. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
promulgated under the Securities Act or a "qualified institutional buyer"
as defined in Rule 144A(a) under the Securities Act.
SECTION 5. MISCELLANEOUS.
a) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof as set forth in Section 2(e)(ii).
b) LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include
the posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
c) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such
right may be exercised on the next succeeding Business Day.
d) AUTHORIZED SHARES.
Subject to Authorized Share Approval, the Company covenants that
during the period the Warrant is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the
Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may
be listed.
14
Except and to the extent as waived or consented to by the Holder,
the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not
increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of this Warrant, and
(c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company
to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in
the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) JURISDICTION. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
f) RESTRICTIONS. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding the fact that all rights hereunder terminate on
the Termination Date. If the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
15
h) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
i) LIMITATION OF LIABILITY. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) REMEDIES. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.
k) SUCCESSORS AND ASSIGNS. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
l) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
m) SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
n) HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
16
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: December 13, 2006
UNITY WIRELESS CORPORATION
By:_____________________________________
Name:
Title:
17
NOTICE OF EXERCISE
TO: UNITY WIRELESS CORPORATION
(1)______The undersigned hereby elects to purchase ________ Warrant Shares
of the Company pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
(2)______Payment shall take the form of (check applicable box):
[_] in lawful money of the United States; or
[_] [if permitted] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth
in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
________________________________________
The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
________________________________________
________________________________________
________________________________________
(4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: ______________________________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT 5
[Infinity II Ventures]
Dear sirs:
Re: Participation in placement of Convertible Debentures
We understand that you propose to participate in the purchase of convertible
debentures of Unity Wireless Corporation (the "Corporation") on the terms set
out in the form of Additional Issuance Agreement attached hereto. Pursuant to
that placement you will be required to execute the Additional Issuance Agreement
(customized with your name and placement amount), an Intercreditor Agreement
dealing with the pari passu ranking of security interests among debtholders, and
will be required to consent to the prior granting of a security interest over
the accounts receivable of the Corporation and its subsidiaries in favour of a
lender that will provide accounts receivables financing to the Corporation in
the near future.
In consideration of your purchase of the convertible debentures and agreement to
provide the consent to the AR financing, the Corporation agrees that, for the
purchasers of the convertible debentures and their affiliates(1), the Class A,
B, C and D warrants issued by the Corporation pursuant to the acquisition by the
Corporation of Celletra Ltd. in accordance with a Purchase Agreement dated July
17, 2006, (the "warrants") will be amended as follows:
1. The exercise price of the warrants will be reduced to $0.10 per share
of common stock, subject to any adjustment specified in the warrants.
2. The term of the warrants will be extended to be 5 years from the
closing date of the above referenced placement of the convertible
debentures (the "New Term") and it shall be clarified that the
warrants shall not be void after August 17, 2009 but that their
validity shall extend to the New Term.
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(1) Affiliates means the following entities: IDB Development Corporation Ltd.,
Clalit Finance and Investments Ltd., Clal Insurance Enterprise Holdings Ltd.,
Clal Insurance Company Ltd., Infinity I Annex Fund, L. P., Israel Infinity
Venture Capital Fund (Israel) L.P., Israel Infinity Venture Capital Fund
(Delaware) L.P., Israel Infinity Venture Capital Fund (Cayman I), L.P., Israel
Infinity Venture Capital Fund (Cayman II)L.P., Clal Industries and Investments
Ltd. Clal Electronics Industries Ltd., Gemini Israel II L.P., Gemini Israel II
Parallel Fund Limited Partnership, Gemini Partner Investors L.P., Advent PGGM
Gemini L.P. SVE STAR Ventures Enterprises No. VII, a German Civil Law
Partnership (with limitation of liability), Star Seed Enterprises, a German
Civil Law Partnership (with limitation of liability), SVE Star Ventures
Enterprises GmbH & Co. No. VIIa KG, SVM STAR Ventures Managementgesellschaft mbH
Nr. 3 & Co. Beteiligungs KG Nr. 2 ,SVM Star Ventures Management GmbH Nr.3, Lior
Bregman, FBR Infinity II Ventures (Israel) LP, FBR Infinity II Ventures LP, FBR
Infinity II Ventures (Erisa) LP, Valley Venture Capital Limited Partnership.
3. The warrants will incorporate the following additional provision:
"ADJUSTMENT UPON A REVERSE STOCK SPLIT. In the event the Company
effects a reverse stock split of the Common Stock at any time while
this Warrant is outstanding, in addition to any other adjustment
provided herein, the Exercise Price shall be reduced effective as of
the 23rd Trading Day following such stock split (the "RESET DATE") to
a price equal to the lesser of (i) the average of the daily volume
weighted average prices of the Company's common shares ("VWAPs") for
the 22 Trading Days immediately following such reverse stock split or
(ii) the average of the VWAPs for the 5 Trading Days immediately prior
to the Reset Date, subject to further adjustment as provided herein.
If such an adjustment does not result in a reduction of the Exercise
Price then in effect, no adjustment will be made."
The warrants held by persons that do not participate, directly or by means of
their affiliates in the placement of convertible debentures will not be amended.
We confirm that the Corporation has the requisite corporate power and authority
to enter into and to carry out its undertakings and obligations herein and that
the amending of the warrant terms as specified herein does not and will not: (i)
conflict with or violate any provision of the Corporation's organizational or
charter documents, or (ii) conflict with, or constitute a default under any
material instrument or other material understanding to which the Corporation is
a party.
Yours truly,
Unity Wireless Corporation
Per:
By: Ilan Kenig
Date:______________