SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
F O R M 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of
July 2004
RADA ELECTRONIC INDUSTRIES LIMITED
(Name of Registrant)
7 Giborei Israel Street, Netanya 42504, Israel
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F __
Indicate by check mark if the registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__
Indicate by check mark if the registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__
Indicate by check mark whether by furnishing the information
contained in this Form, the registrant is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes __ No X
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82-____________
This Form 6-K is being incorporated by reference into the Company's
Form F-3 Registration Statements File Nos. 333- 12074 and 333-115598.
RADA ELECTRONIC INDUSTRIES LTD.
6-K Items
1. Securities Purchase Agreement dated as of July 9, 2004.
2. Registration Rights Agreement dated as of July 9, 2004
3. Form of Senior Secured Convertible Note.
4. Form of Warrant.
5. Form of Additional Investment Right.
6. Debenture dated as of July 12, 2004.
ITEM 1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 9, 2004,
by and among RADA Electronic Industries Ltd., a corporation organized under the
laws of the State of Israel, with headquarters located at 7 Giborei Israel
Street, Netanya 42504, Israel (the "Company"), and the investors listed on the
Schedule of Buyers attached hereto (individually, a "Buyer" and collectively,
the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured notes of the
Company in the form attached hereto as Exhibit A (together with any senior
secured convertible notes issued in replacement thereof in accordance with the
terms thereof, the "Notes"), which Notes shall be convertible into the Company's
Ordinary Shares, NIS 0.005 nominal value per share (the "Ordinary Shares") (as
converted, the "Conversion Shares"), in accordance with the terms of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate number of
Ordinary Shares set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers (which aggregate number for all Buyers shall be 1,800,000
Ordinary Shares and shall collectively be referred to herein as the "Purchased
Shares"), (ii) that aggregate principal amount of Notes set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers (which aggregate amount for
all Buyers shall be $3,000,000), (iii) warrants, in substantially the form
attached hereto as Exhibit B (the "Warrants"), to acquire up to that number of
additional Ordinary Shares set forth opposite such Buyer's name in column (5) of
the Schedule of Buyers (as exercised, collectively, the "Warrant Shares") and
(iv) a right to acquire up to that number of additional Ordinary Shares set
forth opposite such Buyer's name in column (6) on the Schedule of Buyers (the
"Additional Investment Rights"), in substantially the form attached hereto as
Exhibit C (as exercised, collectively, the "Additional Investment Right
Shares").
D. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit D (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Purchased Shares, the Conversion Shares,
the Warrant Shares and the Additional Investment Right Shares under the 1933 Act
and the rules and regulations promulgated thereunder, and applicable state
securities laws.
E. The Purchased Shares, the Notes, the Conversion Shares, the Warrants,
the Warrant Shares, the Additional Investment Rights and the Additional
Investment Right Shares collectively are referred to herein as the "Securities".
F. The Notes will rank senior to all outstanding and future indebtedness of
the Company (other than the Current Bank Debt (as defined in the Notes)) and
will be secured by a second ranking floating charge over all of the assets of
the Company, as evidenced by the debenture attached hereto as Exhibit E (the
"Debenture" or the "Security Documents").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE PURCHASED SHARES, NOTES, WARRANTS AND ADDITIONAL
INVESTMENT RIGHTS.
(a) Purchase of Purchased Shares, Notes, Warrants and Additional
Investment Rights.
(i) Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to
each Buyer, and each Buyer severally, but not jointly, agrees to
purchase from the Company on the Closing Date (as defined below), (w)
the number of Purchased Shares as is set forth opposite such Buyer's
name in column (3) on the Schedule of Buyers, (x) a principal amount
of Notes as is set forth opposite such Buyer's name in column (4) on
the Schedule of Buyers, (y) Warrants to acquire up to that number of
Warrant Shares as is set forth opposite such Buyer's name in column
(5) on the Schedule of Buyers and (z) Additional Investment Rights to
acquire up to that number of Additional Investment Right Shares as is
set forth opposite such Buyer's name in column (6) on the Schedule of
Buyers (the "Closing").
(ii) Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City Time, on July 12, 2004 (or
such later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below at the
offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New
York 10022.
(iii) Purchase Price. The aggregate purchase price for the
Purchased Shares, the Notes, the Warrants and the Additional
Investment Rights to be purchased by each Buyer at the Closing (the
"Purchase Price") shall be the amount set forth opposite such Buyer's
name in column (7) of the Schedule of Buyers. Each Buyer shall pay (x)
$1.60 per Purchased Share and related Additional Investment Rights to
be purchased by such Buyer at the Closing and (y) $1.00 for each $1.00
of principal amount of Notes for the Notes and related Warrants to be
purchased by such Buyer at the Closing.
(b) Form of Payment. On the Closing Date, (i) each Buyer shall
pay its Purchase Price to the Company for the Purchased Shares, the
Notes, the Warrants and the Additional Investment Rights to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer (A) one
or more share certificates (in such denominations as such Buyer shall
request) which such Buyer is then purchasing, (B) the
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Additional Investment Rights (in the amounts as such Buyer shall
request) such Buyer is purchasing, (C) the Notes (in the principal
amounts as such Buyer shall request) which such Buyer is then
purchasing and (D) the Warrants (in the amounts as such Buyer shall
request) such Buyer is purchasing, in each case duly executed on
behalf of the Company and registered in the name of such Buyer or its
designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Purchased Shares, the Notes, the Warrants and the Additional Investment
Rights (ii) upon conversion of the Notes and exercise of the Warrants and
the Additional Investment Rights (other than pursuant to a Cashless
Exercise (as defined in the Warrants and the Additional Investment Rights,
respectively)) will acquire the Conversion Shares issuable upon conversion
of the Notes, the Warrant Shares issuable upon exercise of the Warrants and
the Additional Investment Right Shares upon exercise of the Additional
Investment Rights, for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not
agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption
under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
(b) Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy
of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Securities which have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received to their satisfaction answers to such
questions. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such
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accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.
(e) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the offering of the Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and
are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel reasonably acceptable to the Company, in
a generally acceptable form, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company
with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933
Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which
the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined
in the 1933 Act) may require compliance with some other exemption under the
1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes, Warrants and Additional Investment
Rights and, until such time as the resale of the Purchased Shares, the
Conversion Shares, the Warrant Shares and the Additional Investment Right
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Purchased Shares, the Conversion Shares, the Warrant Shares and the
Additional Investment Right Shares, except as set forth below, shall bear
any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION
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STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (B) AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is stamped, if, unless otherwise required by state securities laws, (i)
such Securities are registered for resale under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides
the Company with an opinion of counsel reasonably satisfactory to the
Company, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act and that such legend is
no longer required, or (iii) such holder provides the Company with
reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A.
(h) Validity; Enforcement. This Agreement, the Registration Rights
Agreement and the Security Documents to which such Buyer is a party have
been duly and validly authorized (for any such Buyer that is not a natural
person), executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms,
except as such enforceability may be limited by general principles of
equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party and the consummation by such Buyer
of the transactions contemplated hereby and thereby will not (i) for any
such Buyer that is not a natural person, result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of
clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and its sole active
subsidiary listed in Schedule 3(a) hereto (the "Subsidiary") are entities
duly organized and validly existing under the laws of the jurisdiction in
which they are formed, and have the requisite power and authorization to
own their properties and to carry on their business as now being conducted.
The Subsidiary does not engage in any business other than the testing and
repairing of commercial aviation automated testing equipment. The
operations of the Company's subsidiaries (including the Subsidiary) are not
material to the Company. No proceeding has been instituted by the Registrar
of Companies in Israel (the "Registrar") for the dissolution of the
Company. Each of the Company and its Subsidiary is duly qualified as a
foreign entity to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted
by it makes such qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect" means
any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiary, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by
the agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company
has no active subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations
under this Agreement, the Notes, the Registration Rights Agreement, the
Security Documents, the Irrevocable Transfer Agent Instructions (as defined
in Section 5(b)), the Warrants, the Additional Investment Rights, and each
of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents") and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Purchased Shares, the Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Notes, the reservation for issuance
and issuance of Warrant Shares issuable upon exercise of the Warrants, the
reservation for issuance and the issuance of the Additional Investment
Right Shares issuable upon exercise of the Additional Investment Rights and
the granting of a security interest in the Collateral (as defined in the
Security Documents) have been duly authorized by the Company's Board of
Directors and (other than (i) the filing of appropriate Israeli pledge
forms with the appropriate states and other authorities pursuant to the
Debenture, (ii) the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement and (iii) the consent of Bank Hapoalim B.M. and Bank Leumi
Le-Israel B.M., (collectively the "Banks") to the grant of the second
ranking security interest in the assets of the Company as further detailed
in the Debenture, (iv) the consent of the OCS (as defined below), and (v)
filing of a Share Allotment Report with the Registrar), no further filing,
consent, or authorization is required by the Company, its Board of
Directors or its shareholders. This
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Agreement and the other Transaction Documents of even date herewith have
been duly executed and delivered by the Company, and constitute the legal,
valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies. As of the Closing, the Transaction
Documents dated after the date hereof and required to have been executed
and delivered shall have been duly executed and delivered by the Company,
and shall constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditor's rights and remedies.
(c) Issuance of Securities. The issuance of the Purchased Shares, the
Notes, the Warrants and the Additional Investment Rights are duly
authorized. Other than Israeli stamp tax and withholding tax, there is no
tax, levy, impost, duty, fee, assessment or other governmental charge, or
any deduction or withholding, imposed by any governmental agency or
authority in or of Israel either (A) on or by virtue of the execution or
delivery of the Transaction Documents to which the Company is a party, (B)
the issuance of the Securities pursuant hereto or (C) on any payment to be
made by Company pursuant to the Transaction Documents. As of the Closing, a
number of Ordinary Shares shall have been duly authorized and reserved for
issuance which equals 130% of the maximum number of Ordinary Shares
issuable upon conversion of the Notes and upon exercise of the Warrants and
Additional Investment Rights. Upon conversion in accordance with the Notes
or exercise in accordance with the Warrants and the Additional Investment
Rights, as the case may be, the Conversion Shares, the Warrant Shares and
the Additional Investment Right Shares, respectively, will be validly
issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder of
Ordinary Shares. Assuming the accuracy of each Buyer's representations
herein, the offer and issuance by the Company of the Securities is exempt
from registration under the 1933 Act. The Company is not required to
publish a prospectus in Israel under the Israeli Securities Law--1968 in
connection with the offer and issuance of the Securities.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Purchased Shares, the Notes, Warrants and
Additional Investment Rights, the granting of a security interest in the
Collateral (as defined in the Security Documents) and reservation for
issuance and issuance of the Conversion Shares, the Warrant Shares and the
Additional Investment Right Shares) will not (i) result in a violation of
the Articles of Association (as defined in Section 3(r)) of the Company,
any capital stock of the Company or Memorandum (as defined in Section 3(r))
of the Company or its Subsidiary or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or its Subsidiary is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and
7
regulations and the rules and regulations of The Nasdaq SmallCap Market
(the "Principal Market")) applicable to the Company or its Subsidiary or by
which any property or asset of the Company or its Subsidiary is bound or
affected.
(e) Consents. Except as disclosed in Schedule 3(e), the Company is not
required to obtain any consent, authorization or order of, or make any
filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by
the Transaction Documents, in each case in accordance with the terms hereof
or thereof. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the Closing Date, and the
Company and its Subsidiary are unaware of any facts or circumstances which
might prevent the Company from obtaining or effecting any of the
registration, application or filings pursuant to the preceding sentence.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the
capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company, (ii) an "affiliate" of
the Company (as defined in Rule 144) or (iii) to the knowledge of the
Company, a "beneficial owner" of more than 10% of the Ordinary Shares (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the "1934 Act")). The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a
Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to
enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorney's fees
and out-of-pocket expenses) arising in connection with any such claim. The
Company acknowledges that it has engaged Olympus Securities LLC as
placement agent (the "Agent") in connection with the sale of the
Securities. Other than the Agent, the Company has not engaged any placement
agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that
8
would require registration of any of the Securities under the 1933 Act or
cause this offering of the Securities to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence
that would require registration of any of the Securities under the 1933 Act
or cause the offering of the Securities to be integrated with other
offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes, the
Warrant Shares issuable upon exercise of the Warrants and the Additional
Investment Right Shares issuable upon exercise of the Additional Investment
Rights will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of the Notes in accordance with this Agreement and the Notes, its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants and its obligation to issue
Additional Investment Right Shares upon exercise of the Additional
Investment Rights in accordance with this Agreement and the Additional
Investment Rights is, in each case, absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership
interests of other shareholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Articles of
Association or the laws of the jurisdiction of its formation which is or
could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and any Buyer's ownership of the
Securities. The Company has not adopted a shareholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of
Ordinary Shares or a change in control of the Company.
(k) SEC Documents; Financial Statements. Since December 31, 2002, the
Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has delivered
to the Buyers or their respective representatives true, correct and
complete copies of those requested SEC Documents not available on the EDGAR
system. To the Company's knowledge, as of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with
9
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information provided by or on
behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in
Section 2(d) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are
or were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since December 31, 2003, there has been no material adverse change and no
material adverse development in the business, properties, operations,
condition (financial or otherwise), results of operations or prospects of
the Company or its Subsidiaries. Since December 31, 2003, the Company has
not (i) declared or paid any dividends, (ii) sold any assets, individually
or in the aggregate, in excess of $250,000 outside of the ordinary course
of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $250,000. The Company has not taken any steps to
seek protection pursuant to any bankruptcy or reorganization law nor does
the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy or reorganization proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to
do so. The Company is not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l),
"Insolvent" means (i) the present fair saleable value of the Company's
assets is less than the amount required to pay the Company's total
Indebtedness (as defined in Section 3(s)), (ii) the Company is unable to
pay its debts and liabilities, subordinated, contingent or otherwise, as
such debts and liabilities become absolute and matured, (iii) the Company
intends to incur or believes that it will incur debts that would be beyond
its ability to pay as such debts mature or (iv) the Company has
unreasonably small capital with which to conduct the business in which it
is engaged as such business is now conducted and is proposed to be
conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or
is contemplated to occur with respect to the Company or its Subsidiaries or
their respective business, properties, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form F-1 filed
with the SEC relating to an issuance and sale by the Company of its
Ordinary Shares and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits.
(i) Neither the Company nor its Subsidiary is in violation of any
term of or in default under its Articles of Association or Memorandum
or their organizational
10
charter or memorandum of association or bylaws, respectively. Neither
it nor any its Subsidiary is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiary, and neither the Company nor its Subsidiary
will conduct its business in violation of any of the foregoing, except
for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of
the rules, regulations or requirements of the Principal Market and has
no knowledge of any facts or circumstances which would reasonably lead
to delisting or suspension of the Ordinary Shares by the Principal
Market in the foreseeable future. Since December 31, 2003, (i) the
Ordinary Shares have been designated for quotation on the Principal
Market, (ii) trading in the Ordinary Shares have not been suspended by
the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Ordinary Shares from the
Principal Market. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit.
(ii) The Company is in compliance in all material respects with
all conditions and requirements stipulated by the instruments of
approval granted to it with respect to the "Approved Enterprise"
status of any of the Company's facilities by Israeli laws and
regulations relating to such "Approved Enterprise" status and other
tax benefits received by the Company; and the Company has not received
any notice of any proceeding or investigation relating to revocation
or modification of any "Approved Enterprise" status granted with
respect to any of the Company's facilities. All information supplied
by the Company with respect to such applications was true, correct and
complete in all material respects when supplied to the appropriate
authorities.
(iii) Except as disclosed in Schedule 3(n), the Company is not in
violation of any condition or requirement stipulated by the
instruments of approval granted to the Company by the Office of Chief
Scientist in the Israeli Ministry of Industry and Trade (the "OCS")
and any applicable laws and regulations with respect to any research
and development grants given to it by such office. All information
supplied by the Company with respect to such applications was true,
correct and complete in all material respects when supplied to the
appropriate authorities. Schedule 3(n)(iii) provides a correct and
complete list of the aggregate amount of pending and outstanding
grants from the OCS, net of royalties paid.
(o) Foreign Corrupt Practices. Neither the Company, nor its
Subsidiary, nor has any director, officer, agent, employee or other Person
acting on behalf of the Company or any of its Subsidiaries, in the course
of its actions for, or on behalf of, the Company (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from corporate funds; (iii) violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made
11
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
(p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are
effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date hereof, except where such noncompliance would not have, individually
or in the aggregate, a Material Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than
the grant of stock options disclosed on Schedule 3(r), none of the
officers, directors, employees or 25% shareholder of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any such officer, director, employee or 25% shareholder
or, to the knowledge of the Company, any corporation, partnership, trust or
other entity in which any such officer, director, employee or 25%
shareholder has a substantial interest or is an officer, director, trustee
or partner.
(r) Equity Capitalization. As of the date hereof, the authorized share
capital of the Company consists of 45,000,000 Ordinary Shares, of which as
of the date hereof, 18,548,633 are issued and outstanding, 3,086,000 shares
are reserved for issuance pursuant to the Company's stock option and
purchase plans and 18,074,031 shares are reserved for issuance pursuant to
securities (other than the Notes, the Warrants and the Additional
Investment Rights) exercisable or exchangeable for, or convertible into,
Ordinary Shares. All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(r): (i) none of the Company's share capital is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any share
capital of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to issue additional share capital
of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any share capital of the Company or its Subsidiary; (iii)
there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
Indebtedness ( as defined in 3(s) below) of the Company or its Subsidiary
or by which the Company or its Subsidiary is or may become bound; (iv)
there are no financing statements securing obligations in any material
amounts, either singly or in the aggregate, filed in connection with the
Company; (v) there are no agreements or arrangements under which the
Company or its Subsidiary is obligated to register the sale of any of their
securities under the 1933 Act (except the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the Company or
any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by
which the Company or its Subsidiary is or may become bound to redeem a
12
security of the Company or its Subsidiary; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements
or any similar plan or agreement; and (ix) the Company and its Subsidiaries
have no liabilities or obligations required to be disclosed in the SEC
Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries'
respective businesses and which, individually or in the aggregate, do not
or would not have a Material Adverse Effect. Except as disclosed in
Schedule 3(s), the Company has furnished to the Buyer true, correct and
complete copies of the Company's Articles of Association, as amended and as
in effect on the date hereof (the "Articles of Association"), and the
Company's Memorandum of Association, as amended and as in effect on the
date hereof and as filed with the SEC (the "Memorandum"), and the terms of
all securities convertible into, or exercisable or exchangeable for,
Ordinary Shares and the material rights of the holders thereof in respect
thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule
3(s), neither the Company nor its Subsidiary (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement
or instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument would result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness,
except where such violations and defaults would not result, individually or
in the aggregate, in a Material Adverse Effect, or (iv) is a party to any
contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule 3(s) provides a
detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness" of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in
the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in
either case with respect to any property or assets acquired with the
proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the periods
covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns
such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) "Contingent Obligation" means, as to any Person,
any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other
13
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid
or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or
in part) against loss with respect thereto; and (z) "Person" means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or
any department or agency thereof.
(t) Absence of Litigation. Except as disclosed under the caption
"Legal Proceedings" in the Company's Annual Report on Form 20-F for the
fiscal year ended December 31, 2003 of the SEC Documents, there is no
material action, suit, proceeding, inquiry or investigation before or by
the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the Ordinary Shares
or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such,
except as set forth in Schedule 3(t).
(u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor the Subsidiary is
a party to any collective bargaining agreement or employs any member of a
union. The Company believes that its relations with its employees are good.
No executive officer of the Company (as defined in Rule 501(f) of the 1933
Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
No executive officer of the Company, to the knowledge of the Company, is,
or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or
any restrictive covenant, and to the Company's knowledge the continued
employment of each such executive officer does not subject the Company to
any liability with respect to any of the foregoing matters.
(ii) Neither the Company nor any of its Subsidiaries is subject
to, nor do any of its employees benefit from, whether pursuant to
applicable employment laws, regulations, extension orders ("tzavei
harchava") or otherwise, any agreement, arrangement, understanding or
custom with respect to employment (including, without limitation,
termination thereof), other than the minimum benefits and working
conditions required by law to be provided pursuant to rules and
regulations of the Histadrut (General Federation of Labor), the
Coordinating Bureau of Economic Organization and the Industrialists'
Association or extension orders that apply to all employees in Israel
or to all employees in the Company's industry in
14
Israel. The severance pay due to the Employees is fully funded or
provided for in accordance with generally accepted accounting
principles, consistently applied.
(iii) The Company is in compliance with all applicable laws and
regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect.
(w) Title. Except as disclosed in Schedule 3(w), the Company and its
Subsidiaries have good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects except
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held
under lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
("Intellectual Property Rights") necessary to conduct their respective
businesses as now conducted. None of the Company's Intellectual Property
Rights have expired or terminated, or are expected to expire or terminate,
within three years from the date of this Agreement. The Company does not
have any knowledge of any infringement by the Company or its Subsidiaries
of Intellectual Property Rights of others. There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements
or claims, actions or proceedings. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
(y) Environmental Laws. To the Company's knowledge, the Company (i) is
in compliance with any and all Environmental Laws (as hereinafter defined),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all material terms and
conditions of any such permit, license or approval where, in each of the
foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental Laws" means all applicable Israeli
laws relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or
wastes (collectively, "Hazardous Materials") into the environment, or
otherwise relating to the
15
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by
the Company or such Subsidiary.
(aa) Tax Status. The Company (i) has made or filed all Israeli income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith or for which extensions for the payment
thereof have been granted and with respect to which adequate reserves have
been set aside and (iii) has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any
such claim.
(bb) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities
at reasonable intervals and appropriate action is taken with respect to any
difference.
(cc) Taxes. Except as disclosed in Schedule 3(cc) no tax, levy,
impost, duty, fee, assessment or other governmental charge or any deduction
or withholding imposed by any governmental agency or authority in or of the
State of Israel is payable by or on behalf of the Buyers or any assignee of
any of the Buyers (i) as a result of the execution, delivery or performance
by the Company of any of the Transaction Documents, including, but not
limited to, the issuance by the Company of the Securities and the payment
of the Company of any amounts owing under the Notes from time to time or
(ii) assuming no Buyer holds 10% or more of the voting power of the
Company, any resale by the Buyers of any of the Securities in accordance
with the terms thereof and this Agreement.
(dd) Form F-3 Eligibility; Foreign Private Issuer Status. The Company
is eligible to register the resale by the Buyers of the Ordinary Shares
acquired pursuant to the Transaction Documents on a registration statement
on Form F-3 under the 1933 Act. The Company qualifies as a "foreign private
issuer" as such term is defined in the 1934 Act . There is no agreement to
which the Company is a party which would restrict or delay the Company from
filing a registration statement pursuant to the terms of the Registration
Rights Agreement.
16
(ee) Ranking of Notes. Except as set forth on Schedule 3(ee), and
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies, no Indebtedness
of the Company is senior to or ranks pari passu with the Notes in right of
payment, whether with respect of payment of redemptions, interest, damages
or upon liquidation or dissolution or otherwise.
(ff) Disclosure. The Company confirms that neither it nor any Person
acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that the Company believes constitutes
material, non-public information. The Company understands and confirms that
the Buyers will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company.
4. COVENANTS.
(a) Reasonable Best Efforts. Each party shall use its reasonable best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at the Closing pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports
that it reasonably determines are necessary relating to the offer and sale
of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date. provided,
however, that the Company shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares, Warrant Shares and Additional Investment Right Shares
and none of the Notes, Warrants or Additional Investment Rights is
outstanding (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under
the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for working capital purposes and repayment of the Current
Debt Facility (as defined in the Notes) and not for the (i) repayment of
any other outstanding Indebtedness of the Company or any of its
Subsidiaries or (ii) redemption or repurchase of any of its equity
securities.
17
(e) Financial Information. The Company agrees to send the following to
each Investor during the Reporting Period (i) unless the following are
filed with the SEC through EDGAR and are available to the public through
the EDGAR system, within one (1) Business Day after the filing thereof with
the SEC, a copy of its Annual Reports on Form 20-F, any interim reports or
any consolidated balance sheets, income statements, shareholders' equity
statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 6-K and any registration statements (other than
on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices
and other information made available or given to the shareholders of the
Company generally, contemporaneously with the making available or giving
thereof to the shareholders.
(f) Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Ordinary Shares are then listed (subject to
official notice of issuance) and shall maintain such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall use its reasonable best efforts to
maintain the Ordinary Shares' authorization for quotation on the Principal
Market. Neither the Company nor any of its Subsidiaries shall take any
action which would be reasonably expected to result in the delisting or
suspension of the Ordinary Shares on the Principal Market. The Company
shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) Fees. Subject to Section 8 below, at the Closing, the Company
shall pay an expense allowance of $50,000 to Smithfield Fiduciary LLC (a
Buyer) or its designee(s) (in addition to any other expense amounts paid to
any Buyer prior to the date of this Agreement), which amount shall be
withheld by such Buyer from its Purchase Price at the Closing. The Company
shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby, including, without limitation, any fees or commissions
payable to the Agent. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment. Except as otherwise
set forth in the Transaction Documents, each party to this Agreement shall
bear its own expenses in connection with the sale of the Securities to the
Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge
of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities
shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or
any other Transaction Document, including, without limitation, Section 2(f)
hereof; provided that an Investor and its pledgee shall be required to
comply with the provisions of Section 2(f) hereof in order to effect a
sale, transfer or assignment of Securities to such pledgee. The Company
hereby agrees to execute and deliver such
18
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on July 12, 2004, the Company shall file a
Current Report on Form 6-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934
Act and attaching the material Transaction Documents (including, without
limitation, this Agreement (and all schedules to this Agreement), the form
of each of the Notes, the form of Warrant, the form of Additional
Investment Right, the Registration Rights Agreement and the Security
Documents) as exhibits to such filing (including all attachments, the "6-K
Filing"). From and after the filing of the 6-K Filing with the SEC, no
Buyer shall be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of its respective
officers, directors, employees or agents, that is not disclosed in the 6-K
Filing. The Company shall not, and shall cause each of its Subsidiaries and
its and each of their respective officers, directors, employees and agents,
not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing
of the 6-K Filing with the SEC without the express written consent of such
Buyer. In the event of a breach of the foregoing covenant by the Company,
any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided
herein or in the Transaction Documents, a Buyer shall have the right to
make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without
the prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have
any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, shareholders or agents for any
such disclosure. Subject to the foregoing, neither the Company nor any
Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 6-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
(j) Restriction on Redemption and Cash Dividends. So long as any Notes
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, the Ordinary Shares
without the prior express written consent of the holders of Notes
representing not less than a majority of the aggregate principal amount of
the then outstanding Notes.
(k) Additional Notes; Variable Securities; Dilutive Issuances. So long
as any Buyer beneficially owns any Securities, the Company will not issue
any Notes other than to the Buyers as contemplated hereby and the Company
shall not issue any other securities that would cause a breach or default
under the Notes. For long as any Notes or Warrants remain outstanding, the
Company shall not, in any manner, issue or sell any rights, warrants or
options to subscribe for or purchase Ordinary Shares or directly or
indirectly convertible into or exchangeable or exercisable for Ordinary
Shares at a price which varies or may vary with the market price of the
Ordinary Shares, including by way of one or more reset(s) to any fixed
price
19
unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Ordinary Shares into which any Note is
convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Ordinary Shares into which any Warrant is
exercisable. For long as any Notes, Warrants or Additional Investment
Rights remain outstanding, the Company shall not, in any manner, enter into
or affect any Dilutive Issuance (as defined in the Notes) if the effect of
such Dilutive Issuance is to cause (A) the Company to be required to issue
upon conversion of any Note or exercise of any Warrant or Additional
Investment Right any Ordinary Shares in excess of that number of Ordinary
Shares which the Company may issue upon conversion of the Notes and
exercise of the Warrants and Additional Investment Rights without breaching
the Company's obligations under the rules or regulations of the Principal
Market or (B) the respective Exercise Prices of the Warrants and Additional
Investment Rights, but for the provisions of Section 2(a)(vi) of each of
the Warrants and the Additional Investment Rights, to be less than the
amounts set forth in such sections.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction
(as defined in the Notes) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Notes, the Warrants and the Additional Investment Rights.
(m) Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance,
after the Closing Date, 130% of the number of Ordinary Shares issuable upon
conversion of the Notes and issuable upon exercise of the Warrants and the
Additional Investment Rights.
(n) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would
not result, either individually or in the aggregate, in a Material Adverse
Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions
shall apply.
(1) "Convertible Securities" means any stock or securities
(other than Options) convertible into or exercisable or
exchangeable for Ordinary Shares.
(2) "Options" means any rights, warrants or options to
subscribe for or purchase Ordinary Shares or Convertible
Securities.
(3) "Ordinary Share Equivalents" means, collectively,
Options and Convertible Securities.
(ii) From the date hereof until the date that is 90 Trading Days
(as defined in the Notes) following the Effective Date (as defined in
the Registration Rights Agreement) (the "Trigger Date"), the Company
will not, directly or indirectly, offer, sell, grant
20
any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of)
any of its or its Subsidiaries' equity or equity equivalent
securities, including without limitation any debt, preferred stock or
other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or
exercisable for Ordinary Shares or Ordinary Share Equivalents (any
such offer, sale, grant, disposition or announcement being referred to
as a "Subsequent Placement").
(iii) From the Trigger Date until the eighteen month anniversary
thereof, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with
this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer who purchased
Notes on the Closing Date a written notice (the "Offer Notice")
of any proposed or intended issuance or sale or exchange (the
"Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall
(w) identify and describe the Offered Securities, (x) describe
the price and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities
to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Buyers all of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's
pro rata portion of the aggregate principal amount of Notes
purchased hereunder (the "Basic Amount"), and (b) with respect to
each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the
Basic Amounts of other Buyers as such Buyer shall indicate it
will purchase or acquire should the other Buyers subscribe for
less than their Basic Amounts (the "Undersubscription Amount").
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the
tenth (10th) Business Day after such Buyer's receipt of the Offer
Notice (the "Offer Period"), setting forth the portion of such
Buyer's Basic Amount that such Buyer elects to purchase and, if
such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to
purchase (in either case, the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all eligible Buyers are less than
the total of all of the Basic Amounts, then each Buyer who has
set forth an Undersubscription Amount in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the
"Available Undersubscription Amount"), each Buyer who has
subscribed for any Undersubscription Amount shall be entitled to
purchase only that portion of the Available Undersubscription
Amount as the Basic Amount of such Buyer bears to the total Basic
Amounts of all eligible Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary.
(3) The Company shall have ten (10) Business Days from the
expiration of the Offer Period above to offer, issue, sell or
exchange all or any part of
21
such Offered Securities as to which a Notice of Acceptance has
not been given by the eligible Buyers (the "Refused Securities"),
but only to the offerees described in the Offer Notice (if so
described therein) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer
Notice.
(4) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and
on the terms specified in Section 4(o)(iii)(3) above), then each
Buyer may, at its sole option and in its sole discretion, reduce
the number or amount of the Offered Securities specified in its
Notice of Acceptance to an amount that shall be not less than the
number or amount of the Offered Securities that such Buyer
elected to purchase pursuant to Section 4(o)(iii)(2) above
multiplied by a fraction, (i) the numerator of which shall be the
number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities
to be issued or sold to Buyers pursuant to Section 4(o)(iii)(3)
above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities. In the
event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such
securities have again been offered to the Buyers in accordance
with Section 4(o)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities, the Buyers shall
acquire from the Company, and the Company shall issue to the
Buyers, the number or amount of Offered Securities specified in
the Notices of Acceptance, as reduced pursuant to Section
4(o)(iii)(3) above if the Buyers have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Buyers
of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and
their respective counsel.
(6) Any Offered Securities not acquired by the Buyers or
other persons in accordance with Section 4(o)(iii)(3) above may
not be issued, sold or exchanged until they are again offered to
the eligible Buyers under the procedures specified in this
Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of
this Section 4(o) shall not apply in connection with the issuance of
any Excluded Securities (as defined in the Notes).
(p) Incurrence of Indebtedness. For so long as any Notes remain
outstanding, the Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced
by the Notes and (ii) Permitted Indebtedness (as defined in the Notes).
22
(q) Release of Pledges. The Company shall use its best efforts to
cause the floating pledges currently registered with the Israeli Companies
Registrar, other than such pledges securing Indebtedness listed on Schedule
3(s) hereto, to be erased within 30 days after the Closing Date.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate
by notice to each holder of Securities), a register for the Ordinary
Shares, the Notes, the Warrants and the Additional Investment Rights, in
which the Company shall record the name and address of the Person in whose
name the Ordinary Shares, the Notes, the Warrants and Additional Investment
Rights have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number
of Warrant Shares issuable upon exercise of the Warrants held by such
Person and the number of Additional Investment Rights Shares issuable upon
exercise of the Additional Investment Rights held by such Person. The
Company shall keep the register open and available at all times during
business hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to
issue certificates or credit shares to the applicable balance accounts at
The Depository Trust Company ("DTC"), registered in the name of each Buyer
or its respective nominee(s), for the Purchased Shares, the Conversion
Shares, the Warrant Shares and the Additional Investment Right Shares
issued at the Closing or upon conversion of the Notes or exercise of the
Warrants or Additional Investment Rights in such amounts as specified from
time to time by each Buyer to the Company upon conversion of the Notes or
exercise of the Warrants or Additional Investment Rights in the form of
Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions").
The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5(b), and stop
transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as
and to the extent provided in this Agreement and the other Transaction
Documents. If a Buyer effects a sale, assignment or transfer of the
Securities in accordance with Section 2(f), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or
more certificates or credit shares to the applicable balance accounts at
DTC in such name and in such denominations as specified by such Buyer to
effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Ordinary Shares, Conversion Shares, Warrant
Shares or Additional Investment Right Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144,
the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will
be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance
23
and transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Closing Date. The obligation of the Company hereunder to issue and
sell the Purchased Shares, the Notes and the related Warrants and the
related Additional Investment Rights to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of Smithfield Fiduciary
LLC, the amounts withheld pursuant to Section 4(g)) for the Purchased
Shares, the Notes and the related Warrants and the related Additional
Investment Rights being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) Such Buyer and each other Buyer shall have signed the
undertaking to the OCS contained in Exhibit I.
(iv) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
Closing Date. The obligation of each Buyer hereunder to purchase
the Purchased Shares, the Notes and the related Warrants and the
related Additional Investment Rights at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(i) The Company shall have executed and delivered to such
Buyer (i) each of the Transaction Documents, (ii) certificates
for the Purchased Shares (in such denominations as such Buyer
shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement, (iii) the Notes (in such principal
amounts as such Buyer shall request) being purchased by such
Buyer at the Closing pursuant to this Agreement, (iv) the
Warrants (in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement
and (v) the Additional Investment Rights (in such amounts
24
as such Buyer shall request) being purchased by such Buyer at the
Closing pursuant to this Agreement; provided, however, that the
Company may furnish to each Buyer a facsimile copy of the stock
certificate representing the Purchased Shares, with the original
stock certificate held in trust by counsel for the Company until
delivery thereof on the second (2nd) Business Day following the
Closing.
(ii) Such Buyer shall have received the opinions of Carter,
Ledyard & Milburn LLP, the Company's United States outside
counsel, and S. Friedman & Co, Advocates and Notaries, the
Company's Israeli outside counsel, each dated as of the Closing
Date, in substantially the form of Exhibits G-1 and G-2 attached
hereto.
(iii) The Company shall have delivered to such Buyer a copy
of the Irrevocable Transfer Agent Instructions, in the form of
Exhibit F attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company's
transfer agent.
(iv) The Company shall have delivered to such Buyer a
certified copy of the Articles of Association as certified by the
Chief Executive Officer of the Company.
(v) The Company shall have delivered to such Buyer a
certificate, executed by the Chief Executive Officer of the
Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the
Company's Board of Directors in a form reasonably acceptable to
such Buyer (the "Transaction Resolutions"), (ii) the Articles of
Association and (iii) the Memorandum, each as in effect at the
Closing, in the form attached hereto as Exhibit H.
(vi) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied in
all respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
Such Buyer shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer in the form attached hereto
as Exhibit H.
(vii) The Company shall have delivered to such Buyer a
letter from the Company's transfer agent certifying the number of
Ordinary Shares outstanding as of a date within five days of the
Closing Date.
(viii) The Ordinary Shares (I) shall be designated for
quotation or listed on the Principal Market and (II) shall not
have been suspended, as of the Closing Date, by the SEC or the
Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the
SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.
25
(ix) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any,
necessary for the sale of the Securities. Without limiting the
generality of the foregoing, the Company shall also have obtained
(A) approval by the OCS of the transactions contemplated
hereunder and (B) the consent or waiver of the Company's lenders
under the Current Debt Facility with respect to the issuance of
the Notes and the granting of a second priority security interest
in the Collateral, together with such other agreements as the
Buyers shall reasonably require to ensure that the Buyers enjoy
full rights with respect to the Collateral (subject to the rights
of the OCS under the R&D Law), evidence of which shall have been
provided to the Buyers.
(x) The Company shall have delivered to such Buyer Schedule
3(r), in form and substance satisfactory to the Buyers.
(xi) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before ten (10) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, this if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. Except for matters that
are inherently governed by the corporate laws of the State of Israel, all
questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address for such notices to
it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in
any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
26
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were
an original, not a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the holders of at least a majority of the
aggregate number of Registrable Securities issued and issuable hereunder,
and any amendment to this Agreement made in conformity with the provisions
of this Section 9(e) shall be binding on all Buyers and holders of
Securities, as applicable. No provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies
to less than all of the holders of the applicable Securities then
outstanding. No consideration shall be offered or paid to any Person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration also is offered to all
of the parties to the Transaction Documents, holders of Notes, holders of
the Warrants or holders of the Additional Investment Rights, as the case
may be. The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the
Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) three Business
Days after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
27
If to the Company:
RADA Electronic Industries Ltd.
7 Giborei Israel Street
Netanya 42504
Israel
Telephone: (011) 972-9-892-1129
Facsimile: (011) 972-9-885-5885
Attention: Elan Sigal, Chief Financial Officer
Copy to:
Carter Ledyard & Milburn LLP
2 Wall Street
New York, New York 10005
Telephone: (212) 732-3200
Facsimile: (212) 732-3232
Attention: Steven J. Glusband, Esq.
and
S. Friedman & Co, Advocates and Notaries
The Trade Tower
25 Hamered Street
P.O.B. 50222
Tel Aviv 61500, Israel
Telephone: (011) 972-3-796-1501
Facsimile: (011) 972-3-796-1500
Attention: Sarit Molcho, Adv.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, New York 10038
Telephone: (718) 921-8275
Facsimile: (718) 921-8331
Attention: Paula Caropoli
If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set
forth on the Schedule of Buyers, or to such other address and/or facsimile
number and/or to the attention of such other Person as the recipient party
has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and
an image of the first page of such transmission or (C) provided by an
overnight courier service shall
28
be rebuttable evidence of personal service, receipt by facsimile or receipt
from an overnight courier service in accordance with clause (i), (ii) or
(iii) above, respectively.
The Company hereby irrevocably appoints Puglisi & Associates at 850
Library Avenue, Suite 204, Newark, Delaware 19711, Telephone: (302)
738-6680, Facsimile: (302) 738-7210, Attention: Mr. Donald J. Puglisi,
Managing Director, as its agent for the receipt of service of process in
connection with any action pursuant to any Transaction Document in the
United States. The Company agrees that any document may be effectively
served on it in connection with any action, suit or proceeding in the
United States by service on its agents.
Any document shall be deemed to have been duly served if marked for
the attention of the agent at its address (as set out above) or such other
address in the United States as may be notified to the party wishing to
serve the document and delivered in accordance with the notice provisions
set forth in this Section 9(f).
If the Company's agent at any time ceases for any reason to act as
such, the Company shall appoint a replacement agent having an address for
service in the United States and shall notify each Buyer in writing of the
name and address of the replacement agent. Failing such appointment and
notification, each Buyer shall be entitled by notice to the Company to
appoint a replacement agent to act on the Company's behalf. The provisions
of this Section 9(f) applying to service on an agent apply equally to
service on a replacement agent.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes, the Warrants or the
Additional Investment Rights. The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of
the holders of at least a majority of the aggregate number of Registrable
Securities issued and issuable hereunder, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes, the
Warrants and the Additional Investment Rights). A Buyer may assign some or
all of its rights hereunder without the consent of the Company, in which
event such assignee shall be deemed to be a Buyer hereunder with respect to
such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4,
5 and 9 shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request
29
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and
hold harmless each Buyer and each other holder of the Securities and all of
their shareholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons' agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by any
Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction
Documents or any other certificate, instrument or document contemplated
hereby or thereby or (c) any cause of action, suit or claim brought or made
against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, (iii) any disclosure made by such Buyer
pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(k) shall be the
same as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
(m) Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically
(without posting a bond or other security), to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other
rights granted by law. Furthermore, the Company recognizes that in the
event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to
be inadequate
30
relief to the Buyers. The Company therefore agrees that the Buyers shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages and without posting a bond
or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, foreign,
state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff
had not occurred.
(o) Tax Adjustments.
(i) All payments by the Company to the Buyers and any of their
respective assignees in regard or in connection with this Agreement,
the other Transaction Documents or any of the Securities shall be made
in freely transferable United States Dollars and free and clear of and
without deduction for any present or future income, excise, stamp,
documentary, property or franchise taxes and other taxes, levies,
fees, duties, withholdings or other charges of any nature whatsoever
("Taxes"), whether of any governmental agency or authority in Israel
or otherwise, and including any stamp taxes or any other similar taxes
which may be required in Israel for enforcement purposes or any stamp
tax due upon issuance of the Purchased Shares or the Ordinary Shares
issuable upon conversion or exercise, as the case may be, of the
Notes, the Warrants and the Additional Investment Rights. In the event
that any withholding or deduction from any interest, distribution or
payment to be made by the Company hereunder, the other Transaction
Documents or any of the Securities is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then the Company
shall promptly:
(1) pay directly or caused to be paid directly to the
relevant authority the full amount required to be so withheld or
deducted;
(2) forward to the applicable Buyer an official receipt or
other documentation satisfactory to such Buyer evidencing such
payment to such authority; and
(3) pay to the applicable Buyer such additional amount or
amounts as is necessary to ensure that the net amount actually
received by such Buyer will equal the full amount such Buyer
would have received had no such withholding or deduction been
required.
(ii) The Company further agrees that if any present or future
taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, including franchise taxes
and taxes imposed on or measured by any Buyer's net
31
income or receipts ("Further Taxes") are directly or indirectly
asserted against such Buyer with respect to any payment of any
additional amount described in paragraph (iii) and received by such
Buyer hereunder, such Buyer may pay such Further Taxes and the Company
will promptly pay to such Buyer such additional amounts (including all
penalties, interest or expenses) that such Buyer specifies as
necessary to preserve the after-tax return that such Buyer would have
received if such Taxes or Further Taxes had not been imposed.
(iii) If the Company fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the applicable Buyer
the required receipts or other required documentary evidence, the
Company shall indemnify such Buyer for any incremental Taxes,
interest, penalties, expenses and costs that may become payable or are
incurred by such Buyer as a result of any such failure. In addition to
the foregoing, the Company hereby indemnifies and holds each Buyer
harmless for any and all payments made by any Buyer of any Taxes and
Further Taxes and for any liabilities (including penalties, interest,
legal costs and expenses) incurred by any Buyer or which may be
imposed on any Buyer in connection therewith or any delays in their
payment.
(p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and
not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Buyer pursuant
hereto or thereto, shall be deemed to constitute the Buyers as a
partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Buyers are in any way acting in concert or
as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Buyer confirms that it has
independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each
Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or
out of any other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for
such purpose.
[Signature Page Follows]
32
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
RADA ELECTRONIC INDUSTRIES
LTD.
By: /s/Adar Azancort /s/Elan Sigal
----------------------------------
Name: Adar Azancort Elan Sigal
Title: CEO CFO
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By: /s/Adam J. Chill
----------------
Name: Adam J. Chill
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
OMICRON MASTER TRUST
By: /s/Bruce Bernstein
------------------
Name: Bruce Bernstein
Title: Managing Partner
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
IROQUOIS CAPITAL LP
By: /s/Joshua Silverman
-------------------
Name: Joshua Silverman
Title: Partner
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
By: /s/ Jeffrey Smith
-----------------
Name: Jeffrey Smith
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
SCOT J. COHEN
/s/Scot J. Cohen
----------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
RICHARD ABBE
/s/Richard Abbe
---------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BL CUBED LLC
10 E 40th Street 22nd Floor
New York, N.Y. 10016
By: /s/Mel Lifshitz
---------------
Name: Mel Lifshitz
Title: Member
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
FREDERICK BERDON
/s/Frederick Berdon
-------------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
By: /s/John Kaufman
-------------------
Name: John Kaufman
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
PAUL MASTERS
/s/Paul Masters
---------------
SCHEDULE OF BUYERS
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
(1) (2) (3) (4) (5) (6) (7)
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
Aggregate Number of
Number of Principal Additional
Purchased Amount of Number of Investment Purchase
Buyer Address and Facsimile Number Shares Notes Warrant Shares Right Shares Price
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
Smithfield Fiduciary LLC c/o Highbridge Capital 375,000 $ 1,280,000 400,000 229,125 $ 1,880,000
Management, LLC
9 West 57th Street, 27th Floor
New York, New York 10019
Attention: Ari J. Storch
Adam J. Chill
Facsimile: (212) 751-0755
Telephone: (212) 287-4720
Residence: Cayman Islands
Omicron Master Trust c/o Omicron Capital 306,250 $ 510,000 159,375 187,118 $1,000,000
810 Seventh Avenue
39th Floor
New York, New York 10019
Attention: Brian Daly
Facsimile: (212) 803-5263
Telephone: (212) 803-5269
Residence: Bermuda
Iroquois Capital LP c/o Vertical Ventures, LLC 500,000 $ 700,000 218,750 305,705 $1,500,000
900 Third Avenue,
26th Floor
New York, New York 10022
Facsimile: (646) 274-1728
Telephone: (212) 974-3070
Attention: Joshua Silverman
Residence: New York
Portside Growth and c/o Ramius Capital Group, 306,250 $ 510,000 159,375 187,118 $1,000,000
Opportunity Fund L.L.C.
666 Third Avenue,
26th Floor
New York, New York 10017
Attention: Jeffrey Smith
Roger Anscher
Facsimile: (212) 845-7999
Telephone: (212) 845-7955
Residence: Cayman Islands
Scot J. Cohen 641 Lexington Avenue, 31,250 $ 0 0 19,093 $ 50,000
------------------------ --------------------------
(1) (8)
------------------------ --------------------------
Legal Representative's
Address and Facsimile
Buyer Number
------------------------- --------------------------
Smithfield Fiduciary LLC Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Eleazer
Klein, Esq.
Facsimile: (212) 593-5955
Telephone: (212)
756-2376
Omicron Master Trust
Iroquois Capital LP
Portside Growth and
Opportunity Fund
Scot J. Cohen
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
(1) (2) (3) (4) (5) (6) (7)
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
Aggregate Number of
Number of Principal Additional
Purchased Amount of Number of Investment Purchase
Buyer Address and Facsimile Number Shares Notes Warrant Shares Right Shares Price
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
26th Floor
New York, New York 10022
Facsimile: (212) 207-3452
Telephone: (212) 974-3070
Residence: New York
Richard J. Abbe 641 Lexington Avenue, 31,250 $ 0 0 19,093 $ 50,000
26th Floor
New York, New York 10022
Facsimile: (212) 207-3452
Telephone: (212) 974-3070
Residence: New York
BL Cubed LLC 10 E. 40th Street, 22nd Floor 125,000 $ 0 0 76,375 $ 200,000
New York, New York 10016
Attention: Mel Lifshitz
Facsimile: (212) 779-3218
Telephone: (212) 779-1414
Residence: New York
Frederick Berdon 171 Post Road #105 62,500 $ 0 0 38,187 $ 100,000
Scarsdale, New York 10583
Facsimile: (914) 694-6335
Telephone: (914) 694-5857
Residence: New York
John Kaufman c/o Intesec Group 31,250 $ 0 0 19,093 $ 50,000
P.O. Box 681
Ridgewood, New Jersey 07451
Facsimile: (201) 612-8989
Telephone: (201) 612-8585
Residence: New Jersey
Paul Masters c/o OTA Ltd. Partners 31,250 $ 0 0 19,093 $ 50,000
1 Manhattanville Road
Purchase, New York 10577
Facsimile: (914) 694-6335
Telephone: (914) 694-5857
------------------------- --------------------------
(1) (8)
------------------------- --------------------------
Legal Representative's
Address and Facsimile
Buyer Number
-------------------------- --------------------------
Richard J. Abbe
BL Cubed LLC
Frederick Berdon
John Kaufman
Paul Masters
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
(1) (2) (3) (4) (5) (6) (7)
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
Aggregate Number of
Number of Principal Additional
Purchased Amount of Number of Investment Purchase
Buyer Address and Facsimile Number Shares Notes Warrant Shares Right Shares Price
------------------------- -------------------------------- ----------- --------------- --------------- ----------------- -----------
Residence: New York
------------------------- --------------------------
(1) (8)
------------------------- --------------------------
Legal Representative's
Address and Facsimile
Buyer Number
-------------------------- --------------------------
EXHIBITS
--------
Exhibit A Form of Notes
Exhibit B Form of Warrants
Exhibit C Form of Additional Investment Rights
Exhibit D Registration Rights Agreement
Exhibit E Form of Debenture
Exhibit F Irrevocable Transfer Agent Instructions
Exhibit G-1 Form of US Company Counsel Opinion
Exhibit G-2 Form of Israeli Company Counsel Opinion
Exhibit H Form of Officer's Certificate
Exhibit I Form of OCS Undertaking
SCHEDULES
---------
Schedule 3(a) Subsidiaries
Schedule 3(e) Consents
Schedule 3(l) Absence of Certain Changes
Schedule 3(n) Conduct of Business; Regulatory Permits
Schedule 3(r) Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(w) Title
Schedule 3(x) Intellectual Property
Schedule 3(z) Subsidiary Rights
Schedule 3(cc) Taxes
Schedule 3(ee) Ranking of Notes
ITEM 2
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
July 9, 2004, by and among RADA Electronic Industries Ltd., a corporation
organized under the laws of the State of Israel, with headquarters located at 7
Giborei Israel Street, Netanya 42504, Israel (the "Company"), and the
undersigned buyers (each, a "Buyer", and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions set forth in the Securities Purchase Agreement, to issue and sell to
each Buyer (i) 1,800,000 of the Company's ordinary shares (the "Purchased
Shares"), NIS 0.005 nominal value per share (the "Ordinary Shares"), (ii) senior
secured convertible notes of the Company (the "Notes"), which will be
convertible into Ordinary Shares, (as converted, the "Conversion Shares") in
accordance with the terms of the Notes, (iii) warrants (the "Warrants"), which
will be exercisable to purchase Ordinary Shares (as exercised collectively, the
"Warrant Shares") and (iv) certain additional investment rights (the "Additional
Investment Rights") which will be exercisable to purchase additional Ordinary
Shares (as exercised, the "Additional Investment Right Shares") in accordance
with the terms of the Additional Investment Rights.
B. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
a. "Business Day" means any day other than Saturday, Sunday or any other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
b. "Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
c. "Effective Date" means the date the Registration Statement has been
declared effective by the SEC.
d. "Effectiveness Deadline" means the date which is 90 days after the
Closing Date, or if there is an SEC review, 120 days after the Closing Date.
e. "Filing Deadline" means 30 days after the Closing Date.
f. "Investor" means a Buyer or any transferee or assignee thereof to whom a
Buyer assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with Section 9 and any transferee
or assignee thereof to whom a transferee or assignee assigns its rights under
this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
g. "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
h. "register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.
i. "Registrable Securities" means (i) the Purchased Shares, (ii) the
Conversion Shares issued or issuable upon conversion of the Notes, (iii) the
Warrant Shares issued or issuable upon exercise of the Warrants (iv) the
Additional Investment Right Shares issued or issuable upon exercise of the
Additional Investment Rights and (v) any share capital of the Company issued or
issuable with respect to the Purchased Shares, the Conversion Shares, the Notes,
the Warrant Shares, the Warrants, the Additional Investment Right Shares or the
Additional Investment Rights as a result of any share split, share dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of the Notes or exercises of the Warrants and
Additional Investment Rights.
j. "Registration Statement" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.
k. "Required Holders" means the holders of at least a majority of the
Registrable Securities.
l. "Required Registration Amount" means the sum of (i) the number of
Purchased Shares and (ii) 130% of the sum of (x) the number of Conversion Shares
issued and issuable pursuant to the Notes as of the trading day immediately
preceding the date the Registration Statement is initially filed with the SEC,
(y) the number of Warrant Shares issued and issuable pursuant to the Warrants as
of the trading day immediately preceding the date the Registration Statement is
initially filed with the SEC and (z) the number of Additional Investment Right
Shares issued and issuable pursuant to the Additional Investment Rights as of
the trading day immediately preceding the date the Registration Statement is
initially filed with the SEC, all subject to adjustment as provided in Section
2(e).
m. "Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.
n. "SEC" means the United States Securities and Exchange Commission.
2. Registration.
a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form F-3 covering the resale of all of the
Registrable Securities. In the event that Form F-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). The Registration
Statement prepared pursuant hereto shall register for resale at least the number
of Ordinary Shares equal to the Required Registration Amount. The Registration
Statement shall contain (except if otherwise directed by the Required Holders)
the "Selling Shareholders" and "Plan of Distribution" sections in substantially
the form attached hereto as Exhibit B. The Company shall use its reasonable best
efforts to have the Registration Statement declared effective by the SEC as soon
as practicable, but in no event later than the Effectiveness Deadline.
b. Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number
of Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor's Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any Ordinary Shares included in a Registration
Statement and which remain allocated to any Person which ceases to hold any
Registrable Securities covered by such Registration Statement shall be allocated
to the remaining Investors, pro rata based on the number of Registrable
Securities then held by such Investors which are covered by such Registration
Statement. In no event shall the Company include any securities other than
Registrable Securities on any Registration Statement without the prior written
consent of the Required Holders.
c. Legal Counsel. Subject to Section 5 hereof, the Required Holders shall
have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 ("Legal Counsel"), which shall be
Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.
d. Ineligibility for Form F-3. In the event that Form F-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form F-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness of
the Registration Statement then in effect until such time as a Registration
Statement on Form F-3 covering the Registrable Securities has been declared
effective by the SEC.
e. Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the trading day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued and issuable upon conversion of
the Notes and upon exercise of the Warrants and the Additional Investment Rights
covered by such Registration Statement is greater than 110% of the number of
Ordinary Shares available for resale under such Registration Statement. The
calculation set forth in the foregoing sentence shall be made without regard to
any limitations on the conversion of the Notes or the exercise of the Warrants
or the Additional Investment Rights and such calculation shall assume that the
Notes are then convertible into Ordinary Shares at the then prevailing
Conversion Rate (as defined in the Notes) and that the Warrants and Additional
Investment Rights are then exercisable for Ordinary Shares at the then
prevailing Exercise Price (as defined in the Warrants and Additional Investment
Rights, respectively).
f. Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) a Registration Statement covering all of the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the respective Filing Deadline (a "Filing Failure") or (B) not declared
effective by the SEC on or before the respective Effectiveness Deadline (an
"Effectiveness Failure") or (ii) on any day after the Effective Date sales of
all of the Registrable Securities required to be included on such Registration
Statement cannot be made (other than during an Allowable Grace Period (as
defined in Section 3(r)) pursuant to such Registration Statement (including,
without limitation, because of a failure to keep such Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement or to register a sufficient number of
Ordinary Shares) (a "Maintenance Failure") then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying Ordinary Shares (which remedy shall not be exclusive of
any other remedies available at law or in equity), the Company shall pay to each
holder of Registrable Securities relating to such Registration Statement an
amount in cash equal to one and one half percent (1 1/2%) of the aggregate
Purchase Price (as such term is defined in the Securities Purchase Agreement) of
such Investor's Registrable Securities included in such Registration Statement
on each of the following dates: (i) the day of a Filing Failure and on every
thirtieth day (pro rated for periods totaling less than thirty days) thereafter
until such Filing Failure is cured; (ii) the day of an Effectiveness Failure
(pro rated for periods totaling less than thirty days) and on every thirtieth
day thereafter until such Effectiveness Failure is cured; (iii) the initial day
of a Maintenance Failure and on every thirtieth day (pro rated for periods
totaling less than thirty days) thereafter until such Maintenance Failure is
cured. The payments to which a holder shall be entitled pursuant to this Section
2(g) are referred to herein as "Registration Delay Payments." Registration Delay
Payments shall be paid on the earlier of (I) the last day of the calendar month
during which such Registration Delay Payments are incurred and (II) the third
Business Day after the event or failure giving rise to the Registration Delay
Payments is cured. In the event the Company fails to make Registration Delay
Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.
3. Related Obligations.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will
use its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall submit to the SEC, within three (3) Business Days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on a particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request. The Company shall
keep each Registration Statement effective pursuant to Rule 415 at all times
until the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the "Registration
Period"). The Company shall ensure that each Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein
(in the case of prospectuses, in the light of the circumstances in which they
were made) not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 6-K, Form 20-F or any analogous
report under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Company shall have incorporated such
report by reference into such Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement such Registration Statement.
c. The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least five (5) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 20-F, and Reports on Form 6-K and
any similar or successor reports) within a reasonable number of days prior to
their filing with the SEC, and (B) not file any Registration Statement or
amendment or supplement thereto in a form to which Legal Counsel reasonably
objects. The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement thereto
without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without
charge, (i) copies of any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, and all exhibits and (iii) upon the effectiveness of
any Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company's
obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) promptly after
the same is prepared and filed with the SEC, at least one copy of such
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor and not otherwise available on the EDGAR System, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall use its reasonable best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of all applicable
jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation
in any such jurisdiction, or (z) file a general consent to service of process in
any such jurisdiction. The Company shall promptly notify Legal Counsel and each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.
f. The Company shall notify Legal Counsel and each Investor in writing of
the happening of any event, as promptly as practicable after becoming aware of
such event, as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (provided that in no event shall such notice contain
any material, nonpublic information), and, subject to Section 3(r), promptly
prepare a supplement or amendment to such Registration Statement to correct such
untrue statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness and
by overnight mail), (ii) of any request by the SEC for amendments or supplements
to a Registration Statement or related prospectus or related information, and
(iii) of the Company's reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.
g. The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of any Investor, the Company shall furnish to
such Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the Investors, and (ii) an opinion, dated as of such date, from
each of the U.S. and Israeli counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the Investors.
i. The Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel and (iii) one firm of accountants or other agents retained by
the Investors (collectively, the "Inspectors"), all pertinent financial and
other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree to
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge. Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein (or in any
other confidentiality agreement between the Company and any Investor) shall be
deemed to limit the Investors' ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and regulations.
j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its reasonable best efforts either to (i) cause
all of the Registrable Securities covered by a Registration Statement to be
listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities
covered by a Registration Statement on the Nasdaq SmallCapMarket. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(k).
l. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.
m. If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.
n. The Company shall use its reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
o. The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of a Registration Statement.
p. The Company shall otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
q. Within two (2) Business Days after a Registration Statement which covers
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.
r. Notwithstanding anything to the contrary herein, at any time after the
Registration Statement has been declared effective by the SEC, the Company may
delay the disclosure of material, non-public information concerning the Company
the disclosure of which at the time is not, in the good faith opinion of the
Board of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a
"Grace Period"); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material, non-public information giving
rise to a Grace Period (provided that in each notice the Company will not
disclose the content of such material, non-public information to the Investors)
and the date on which the Grace Period will begin, and (ii) notify the Investors
in writing of the date on which the Grace Period ends; and, provided further,
that no Grace Period shall exceed ten (10) consecutive days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of twenty (20) business days and the first day of any Grace Period
must be at least two (2) trading days
after the last day of any prior Grace Period (each, an "Allowable Grace
Period"). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the Investors receive the
notice referred to in clause (i) and shall end on and include the later of the
date the Investors receive the notice referred to in clause (ii) and the date
referred to in such notice. The provisions of Section 3(g) hereof shall not be
applicable during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of
Section 3(f) with respect to the information giving rise thereto unless such
material, non-public information is no longer applicable. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended Ordinary Shares to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale, and delivered a copy of the prospectus included as part of
the applicable Registration Statement, prior to the Investor's receipt of the
notice of a Grace Period and for which the Investor has not yet settled.
4. Obligations of the Investors.
a. At least five (5) Business Days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended Ordinary Shares to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.
d. Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the standard fees and
disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 2 and 3 of this Agreement which amount shall
be limited to $10,000.
6. Indemnification.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). Subject to Section 6(c), the Company shall
reimburse the
Indemnified Persons, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person for such Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment thereof
or supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(d); (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such Person from whom the
Person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any Person controlling such Person) if
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(d), and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice, used it or failed to deliver
the correct prospectus as required by the 1933 Act and such correct prospectus
was timely made available pursuant to Section 3(d); (iii) shall not be available
to the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d); and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Party"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor will
reimburse any legal or other expenses reasonably incurred by an Indemnified
Party in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided, further, however, that the Investor
shall be liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
d. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements and the filing of such reports and
other documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of such Investor's
Registrable Securities if: (i)
the Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Required Holders. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. Miscellaneous.
a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) three Business Days after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
RADA Electronic Industries Ltd.
7 Giborei Israel Street
Netanya 42504
Israel
Telephone: (011) 972-9-892-1129
Facsimile: (011) 972-9-885-5885
Attention: Elan Sigal, Chief Financial
Officer
Copy to:
Carter Ledyard & Milburn LLP
2 Wall Street
New York, New York 10005
Telephone: 212-732-3200
Facsimile: 212-732-3232
Attention: Steven J. Glusband, Esq.
and
S. Friedman
The Trade Tower
25 Hamered Street
P.O.B. 50222 Tel Aviv 61500, Israel Telephone: (011)
972-3-796-1501 Facsimile: (011) 972-3-796-1500 Attention:
Sarit Molcho, Adv.
If to Legal Counsel:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer Klein, Esq.
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
The Company hereby irrevocably appoints Puglisi & Associates at 850
Library Avenue, Suite 204, Newark, Delaware 19711, Telephone: (302) 738-6680,
Facsimile: (302) 738-7210, Attention: Mr. Donald J. Puglisi, Managing Director,
as its agent for the receipt of service of process in connection with any action
pursuant to any Transaction Document in the United States. The Company agrees
that any document may be effectively served on it in connection with any action,
suit or proceeding in the United States by service on its agents.
Any document shall be deemed to have been duly served if marked
for the attention of the agent at its address (as set out above) or such other
address in the United States as may be notified to the party wishing to serve
the document and delivered in accordance with the notice provisions set forth in
this Section 11(b).
If the Company's agent at any time ceases for any reason to act
as such, the Company shall appoint a replacement agent having an address for
service in the United States and shall notify each Buyer in writing of the name
and address of the replacement agent. Failing such appointment and notification,
each Buyer shall be entitled by notice to the Company to appoint a replacement
agent to act on the Company's behalf. The provisions of this Section 11(b)
applying to service on an agent apply equally to service on a replacement agent.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.
g. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.
k. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
COMPANY:
RADA ELECTRONIC INDUSTRIES LTD.
By: /s/Adar Azancort /s/Elan Sigal
----------------------------------
Name: Adar Azancort Elan Sigal
Title: CEO CFO
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By: /s/ Adam J. Chill
------------------
Name: Adam J. Chill
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
OMICRON MASTER TRUST
By: /s/Bruce Bernstein
------------------
Name: Bruce Bernstein
Title: Managing Partner
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
IROQUOIS CAPITAL LP
By: /s/Joshua Silverman
-------------------
Name: Joshua Silverman
Title: Partner
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
PORTSIDE GROWTH
AND OPPORTUNITY FUND
By: /s/ Jeffrey Smith
-----------------
Name: Jeffrey Smith
Title: Authorized Signatory
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
SCOT J. COHEN
/s/ Scot J. Cohen
-----------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
RICHARD ABBE
By: /s/ Richard Abbe
----------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
BL CUBED LLC
10 E 40th Street 22nd Floor
New York, N.Y. 10016
By: /s/Mel Lifshitz
---------------
Name: Mel Lifshitz
Title: Member
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
FREDERICK BERDON
/s/ Frederick Berdon
--------------------
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
By: /s/John Kaufman
---------------
Name: John Kaufman
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.
PAUL MASTERS
/s/ Paul Masters
----------------
SCHEDULE OF BUYERS
Buyer's Address Buyer's Representative's Address
--------------- --------------------------------
Buyer and Facsimile Number and Facsimile Number
----- -------------------- --------------------
Smithfield Fiduciary LLC c/o Highbridge Capital Schulte Roth & Zabel LLP
Management, LLC 919 Third Avenue
9 West 57th Street, 27th Floor New York, New York 10022
New York, New York 10019 Attn: Eleazer Klein, Esq.
Attention: Ari J. Storch Facsimile: (212) 593-5955
Adam J. Chill Telephone: (212) 756-2000
Facsimile: (212) 751-0755
Telephone: (212) 287-4720
Omicron Master Fund c/o Omicron Capital
810 Seventh Avenue
39th Floor
New York, New York 10019
Attention: Brian Daly
Facsimile: (212) 803-5263
Telephone: (212) 803-5269
Iroquois Capital LP c/o Vertical Ventures, LLC
900 Third Avenue, 26th Floor
New York, New York 10022
Facsimile: (646) 274-1728
Telephone: (212) 974-3070
Attention: Joshua Silverman
Portside Growth and c/o Ramius Capital Group, L.L.C.
Opportunity Fund 666 Third Avenue, 26th Floor
New York, New York 10017
Attention: Jeffrey Smith
Roger Anscher
Facsimile: (212) 845-7999
Telephone: (212) 845-7955
Scot J. Cohen 641 Lexington Avenue,
26th Floor
New York, New York 10022
Facsimile: (212) 207-3452
Telephone: (212) 974-3070
Richard Abbe 641 Lexington Avenue,
26th Floor
New York, New York 10022
Facsimile: (212) 207-3452
Telephone: (212) 974-3070
BL Cubed LLC 10 E. 40th Street, 22nd Floor
New York, New York 10016
Attention: Mel Lifshitz
Facsimile: (212) 779-3218
Telephone: (212) 779-1414
Frederick Berdon c/o F. Berdon & Company
171 Post Road #105
Scarsdale, New York 10583
Facsimile: (914) 692-6335
Telephone: (914) 694-5857
John Kaufman c/o Intesec Group
P.O. Box 681
Ridgewood, New Jersey 07451
Facsimile: (201) 612-8989
Telephone: (201) 612-8585
Residence: New Jersey
Paul Masters c/o OTA Ltd. Partners
1 Manhattanville Road
Purchase, New York 10577
Facsimile: (914) 694-6335
Telephone: (914) 694-5857
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
-------------------------------
OF REGISTRATION STATEMENT
-------------------------
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, New York 10038
Attention: Paula Caroppoli
Re: RADA Electronic Industries Ltd.
Ladies and Gentlemen:
[We are][I am] counsel to RADA Electronic Industries Ltd., a
corporation organized under the laws of the State of Israel (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "Securities Purchase Agreement") entered into by and among the
Company and the buyers named therein (collectively, the "Holders") pursuant to
which the Company issued to the Holders the Company's ordinary shares, NIS 0.005
nominal value per share (the "Ordinary Shares"), senior secured convertible
notes (the "Notes") convertible into Ordinary Shares, warrants exercisable for
Ordinary Shares (the "Warrants") and additional investment rights exercisable
for Ordinary Shares (the "Additional Investment Rights"). Pursuant to the
Securities Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant
to which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
Ordinary Shares issued pursuant to the Securities Purchase Agreement, the
Ordinary Shares issuable upon conversion of the Notes and the Ordinary Shares
issuable upon exercise of the Warrants and the Additional Investment Rights,
under the Securities Act of 1933, as amended (the "1933 Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on
____________ ___, 200_, the Company filed a Registration Statement on Form F-3
(File No. 333-_____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling shareholder thereunder.
In connection with the foregoing, [we][I] advise you that a
member of the SEC's staff has advised [us][me] by telephone that the SEC has
entered an order declaring the Registration Statement effective under the 1933
Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and
[we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
This letter shall serve as our standing opinion to you that the
Ordinary Shares are freely transferable by the Holders pursuant to the
Registration Statement, assuming the
compliance with any applicable prospectus delivery requirements of the 1933 Act
by the Holders in connection with their disposition of the Ordinary Shares. You
need not require further letters from us to effect any future legend-free
issuance or reissuance of Ordinary Shares to the Holders as contemplated by the
Company's Irrevocable Transfer Agent Instructions dated July __, 2004. This
letter shall serve as our standing opinion with regard to this matter.
Very truly yours,
[ISSUER'S COUNSEL]
By:_____________________
CC: [LIST NAMES OF HOLDERS]
EXHIBIT B
SELLING SHAREHOLDERS
The ordinary shares being offered by the selling shareholders were
issued pursuant to a Securities Purchase Agreement, dated as of July 9, 2004,
and are issuable upon conversion of the convertible notes and upon exercise of
the warrants and additional investment rights. For additional information
regarding the issuance of those shares, convertible notes, warrants and
additional investment rights, see "Private Placement of Ordinary Shares,
Convertible Notes, Warrants and Additional Investment Rights" above. We are
registering the ordinary shares in order to permit the selling shareholders to
offer the shares for resale from time to time. Except for the ownership of the
Ordinary Shares, the Convertible Notes, the Warrants and the Additional
Investment Rights issued pursuant to the Securities Purchase Agreement, the
selling shareholders have not had any material relationship with us within the
past three years.
The table below lists the selling shareholders and other information
regarding the beneficial ownership of the ordinary shares by each of the selling
shareholders. The second column lists the number of ordinary shares beneficially
owned by each selling shareholder, based on its ownership of the ordinary
shares, convertible notes, warrants and additional investment rights, as of
________, 200_, assuming conversion of all convertible notes and exercise of the
warrants and additional investment rights held by the selling shareholders on
that date, without regard to any limitations on conversions or exercise.
The third column lists the ordinary shares being offered by this
prospectus by the selling shareholders.
In accordance with the terms of registration rights agreements with the
selling shareholders, this prospectus generally covers the resale of at least
sum of (i) the number of ordinary shares initially issued pursuant to the
Securities Purchase Agreement and (ii) 130% of the sum of (x) the number of
ordinary shares issuable upon conversion of the convertible notes as of the
trading day immediately preceding the date the registration statement is
initially filed with the SEC, (y) the number of ordinary shares issuable upon
exercise of the related warrants and additional investment rights as of the
trading day immediately preceding the date the registration statement is
initially filed with the SEC. Because the conversion price of the convertible
notes and the exercise price of the warrants and the additional investment
rights may be adjusted, the number of shares that will actually be issued may be
more or less than the number of shares being offered by this prospectus. The
fourth column assumes the sale of all of the shares offered by the selling
shareholders pursuant to this prospectus.
Under the terms of the convertible notes, the warrants and the
additional investment rights, a selling shareholder may not convert the
convertible notes, or exercise the warrants or additional investment rights, to
the extent such conversion or exercise would cause such selling shareholder,
together with its affiliates, to beneficially own a number of ordinary shares
which would exceed 4.99% of our then outstanding ordinary shares following such
conversion or exercise, excluding for purposes of such determination ordinary
shares issuable upon conversion of the convertible notes which have not been
converted and upon exercise of the warrants and
additional investment rights which have not been exercised. The number of shares
in the second column does not reflect this limitation. The selling shareholders
may sell all, some or none of their shares in this offering. See "Plan of
Distribution."
Maximum Number of
Number of Shares Shares to be Sold Number of Shares
Owned Prior to Pursuant to this Owned After
Name of Selling Shareholder Offering Prospectus Offering
--------------------------- -------- ---------- --------
Smithfield Fiduciary LLC (1) 0
Omicron Master Trust (2)
Iroquois Capital LP (3)
Portside Growth and Opportunity
Fund (4)
Scot J. Cohen
Richard Abbe
BL Cubed LLC (5)
Frederick Berdon
John Kaufman
Paul Masters
(1) Highbridge Capital Management, LLC ("Highbridge"), is the trading
manager of Smithfield Fiduciary LLC ("Smithfield") and consequently has voting
control and investment discretion over the ordinary shares held by Smithfield.
Glenn Dubin and Henry Swieca control Highbridge. Each of Highbridge and Messrs.
Dubin and Swieca disclaims beneficial ownership of the shares held by
Smithfield.
(2) Omicron Capital, L.P., a Delaware limited partnership ("Omicron
Capital"), serves as investment manager to Omicron Master Trust, a trust formed
under the laws of Bermuda ("Omicron"), Omicron Capital, Inc., a Delaware
corporation ("OCI"), serves as general partner of Omicron Capital, and
Winchester Global Trust Company Limited ("Winchester") serves as the trustee of
Omicron. By reason of such relationships, Omicron Capital and OCI may be deemed
to share dispositive power over the shares of our common stock owned by Omicron,
and Winchester may be deemed to share voting and dispositive power over the
shares of our common stock owned by Omicron. Omicron Capital, OCI and Winchester
disclaim beneficial ownership of such shares of our common stock. Omicron
Capital has delegated authority from the board of directors of Winchester
regarding the portfolio management decisions with respect to the shares of
common stock owned by Omicron and, as of April 21, 2003, Mr. Olivier H. Morali
and Mr. Bruce T. Bernstein, officers of OCI, have delegated authority from the
board of directors of OCI regarding the portfolio management decisions of
Omicron Capital with respect to the shares of common stock owned by Omicron. By
reason of such delegated authority,
Messrs. Morali and Bernstein may be deemed to share dispositive power over the
shares of our common stock owned by Omicron. Messrs. Morali and Bernstein
disclaim beneficial ownership of such shares of our common stock and neither of
such persons has any legal right to maintain such delegated authority. No other
person has sole or shared voting or dispositive power with respect to the shares
of our common stock being offered by Omicron, as those terms are used for
purposes under Regulation 13D-G of the Securities Exchange Act of 1934, as
amended. Omicron and Winchester are not "affiliates" of one another, as that
term is used for purposes of the Securities Exchange Act of 1934, as amended, or
of any other person named in this prospectus as a selling stockholder. No person
or "group" (as that term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended, or the SEC's Regulation 13D-G) controls Omicron and
Winchester.
(3)
(4) Ramius Capital Group, LLC ("Ramius Capital") is the investment
adviser of Portside Growth & Opportunity Fund ("Portside") and consequently has
voting control and investment discretion over securities held by Portside.
Ramius Capital disclaims beneficial ownership of the shares held by Portside.
Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon are
the sole managing members of C4S& Co., LLC, the sole managing member of Ramius
Capital. As a result, Messrs. Cohen, Stark, Strauss and Solomon may be
considered beneficial owners of any shares deemed to be beneficially owned by
Ramius Capital. Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial
ownership of these shares.
(5)
PLAN OF DISTRIBUTION
We are registering the ordinary shares issued and issuable upon
conversion of the convertible notes and upon exercise of the warrants and
additional investment rights to permit the resale of these ordinary shares by
the holders of the ordinary shares, convertible notes, warrants and additional
investment notes from time to time after the date of this prospectus. We will
not receive any of the proceeds from the sale by the selling shareholders of the
ordinary shares. We will bear all fees and expenses incident to our obligation
to register the ordinary shares.
The selling shareholders may sell all or a portion of the ordinary
shares beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the ordinary
shares are sold through underwriters or broker-dealers, the selling shareholders
will be responsible for underwriting discounts or commissions or agent's
commissions. The ordinary shares may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions,
o on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or
in the over-the-counter market;
o through the writing of options, whether such options are listed
on an options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o sales pursuant to Rule 144;
o broker-dealers may agree with the selling securityholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
If the selling shareholders effect such transactions by selling ordinary
shares to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the ordinary shares for whom they may act as agent or to whom they
may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the ordinary shares or otherwise, the selling shareholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the ordinary shares in the course of hedging in positions they assume.
The selling shareholders may also sell ordinary shares short and deliver
ordinary shares covered by this prospectus to close out short positions. The
selling shareholders may also loan or pledge ordinary shares to broker-dealers
that in turn may sell such shares.
The selling shareholders may pledge or grant a security interest in some
or all of the convertible notes, warrants, additional investment rights or
ordinary shares owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
ordinary shares from time to time pursuant to this prospectus or any amendment
to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933, as amended, amending, if necessary, the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus. The selling shareholders also may
transfer and donate the ordinary shares in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
The selling shareholders and any broker-dealer participating in the
distribution of the ordinary shares may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the ordinary shares is made, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of ordinary shares
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the ordinary shares may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the ordinary shares may not be sold unless such shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
There can be no assurance that any selling shareholder will sell any or
all of the ordinary shares registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
The selling shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the ordinary shares by the selling shareholders
and any other participating person. Regulation M may also restrict the ability
of any person engaged in the distribution of the ordinary shares to engage in
market-making activities with respect to the ordinary shares. All of the
foregoing may affect the marketability of the ordinary shares and the ability of
any person or entity to engage in market-making activities with respect to the
ordinary shares.
We will pay all expenses of the registration of the ordinary shares
pursuant to the registration rights agreement, estimated to be $[ ] in total,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that a selling shareholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling shareholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling shareholders will be
entitled to contribution. We may be indemnified by the selling shareholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
shareholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to contribution.
Once sold under the shelf registration statement, of which this
prospectus forms a part, the ordinary shares will be freely tradable in the
hands of persons other than our affiliates.
ITEM 3
[FORM OF CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS
3(c)(iii) AND 19(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
RADA ELECTRONIC INDUSTRIES LTD.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: July __, 2004 Principal: U.S. $_____________
FOR VALUE RECEIVED, RADA Electronic Industries Ltd., a
corporation organized under the laws of the State of Israel (the "Company"),
hereby promises to pay to the order of [SMITHFIELD FIDUCIARY LLC][OTHER BUYERS]
or registered assigns ("Holder") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "Principal") when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest ("Interest") on any outstanding Principal
at a rate per annum equal to the Interest Rate (as defined below), from the date
set out above as the Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof). This Senior Secured Convertible Note
(including all Senior Secured Convertible Notes issued in exchange, transfer or
replacement hereof, this "Note") is one of an issue of Senior Secured
Convertible Notes (collectively, the "Notes" and such other Senior Secured
Convertible Notes, the "Other Notes") issued on the Issuance Date pursuant to
the Securities Purchase Agreement (as defined below). Certain capitalized terms
are defined in Section 29.
(1) MATURITY. On the Maturity Date, the Holder shall surrender this Note to
the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any. The "Maturity Date" shall be July 12, 2007, as
may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing or any event shall have occurred and be continuing which with
the passage of time and the failure to cure would result in an Event of Default
and (ii) through the date that is ten days after the consummation of a Change of
Control in the event that a Change of Control is publicly announced or a Change
of Control Notice (as defined in Section 5) is delivered prior to the Maturity
Date.
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall be payable in arrears on the first day of each
Calendar Quarter during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an "Interest Date") with the first
Interest Date being October 1, 2004. Interest shall be payable on each Interest
Date in cash. Prior to the payment of Interest on an Interest Date, Interest on
this Note shall accrue at the Interest Rate and be payable by way of inclusion
of the Interest in the Conversion Amount in accordance with Section 3(b)(i).
From and after the occurrence of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15%) In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated at such increased rate during the continuance of such Event of
Default shall continue to apply to the extent relating to the days after the
occurrence of such Event of Default through and including the date of cure of
such Event of Default.
(3) CONVERSION OF NOTES. This Note shall be convertible into Ordinary
Shares of the Company, NIS 0.005 nominal value per share (the "Ordinary
Shares"), on the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable Ordinary Shares in accordance with
Section 3(c), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of an Ordinary Share upon any conversion. If the issuance
would result in the issuance of a fraction of an Ordinary Share, the Company
shall round such fraction of an Ordinary Share up to the nearest whole share.
The Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Ordinary Shares upon conversion of any Conversion
Amount.
(b) Conversion Rate. The number of Ordinary Shares issuable upon conversion
of any Conversion Amount pursuant to Section 3(a) shall be determined by
dividing (x) such Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").
(i) "Conversion Amount" means the sum of (A) the portion of the
Principal to be converted, redeemed or otherwise with respect to which this
determination
2
is being made, (B) accrued and unpaid Interest with respect to such
Principal and (C) accrued and unpaid Late Charges with respect to such
Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date (as defined
below) or other date of determination, and subject to adjustment as
provided herein, U.S. $2.10.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into
Ordinary Shares on any date (a "Conversion Date"), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to
11:59 p.m., New York Time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion
Notice") to the Company and (B) if required by Section 3(c)(iii), surrender
this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking
with respect to this Note in the case of its loss, theft or destruction).
On or before the first Business Day following the date of receipt of a
Conversion Notice, the Company shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Holder and the Company's
transfer agent (the "Transfer Agent"). On or before the second Business Day
following the date of receipt of a Conversion Notice (the "Share Delivery
Date"), the Company shall (X) provided the Transfer Agent is participating
in the Depository Trust Company ("DTC") and the Ordinary Shares do not
require any legends. Fast Automated Securities Transfer Program credit such
aggregate number of Ordinary Shares to which the Holder shall be entitled
to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program,
issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the share register of the Company in the name of
the Holder or its designee, for the number of Ordinary Shares to which the
Holder shall be entitled. If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal
of this Note is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in no
event later than three Business Days after receipt of this Note and at its
own expense, issue and deliver to the holder a new Note (in accordance with
Section 19(d)) representing the outstanding Principal not converted. The
Person or Persons entitled to receive the Ordinary Shares issuable upon a
conversion of this Note shall be treated for all purposes as the record
holder or holders of such Ordinary Shares on the Conversion Date.
(ii) Company's Failure to Timely Convert. If the Company shall fail to
register in the Company's share registry and issue a certificate to the
Holder or credit the Holder's balance account with DTC for the number of
Ordinary Shares to which the Holder is entitled upon conversion of any
Conversion Amount on or prior to the date which is five Business Days after
the Conversion Date (a "Conversion Failure"), then (A) the Company shall
pay damages to the Holder for each date of such Conversion Failure in an
amount equal to 1.0% of the product of (I) the sum of the number of
Ordinary Shares not issued to the Holder on or prior to the Share Delivery
Date and to which the Holder is entitled, and (II) the Closing Sale Price
of the Ordinary Shares on the Share Delivery Date and (B) the Holder, upon
written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as
3
the case may be, any portion of this Note that has not been converted
pursuant to such Conversion Notice; provided that the voiding of a
Conversion Notice shall not affect the Company's obligations to make any
payments which have accrued prior to the date of such notice pursuant to
this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company's receipt of the facsimile copy of
a Conversion Notice the Company shall fail to issue and deliver a
certificate to the Holder or credit the Holder's balance account with DTC
for the number of Ordinary Shares to which the Holder is entitled upon such
holder's conversion of any Conversion Amount, and if on or after such
Trading Day the Holder purchases (in an open market transaction or
otherwise) Ordinary Shares to deliver in satisfaction of a sale by the
Holder of Ordinary Shares issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three Business Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal
to the Holder's total purchase price (including brokerage commissions, if
any) for the Ordinary Shares so purchased (the "Buy-In Price"), at which
point the Company's obligation to deliver such certificate (and to issue
such Ordinary Shares) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates
representing such Ordinary Shares and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of Ordinary Shares, times (B) the Closing Bid Price on the
Conversion Date.
(iii) Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless (A) the full Conversion Amount represented by
this Note is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion
Notice) requesting physical surrender and reissue of this Note. The Holder
and the Company shall maintain records showing the Principal, Interest and
Late Charges converted and the dates of such conversions or shall use such
other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to
Section 3(d), shall convert from each holder of Notes electing to have
Notes converted on such date a pro rata amount of such holder's portion of
its Notes submitted for conversion based on the principal amount of Notes
submitted for conversion on such date by such holder relative to the
aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of Ordinary Shares
issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of Ordinary Shares not in
dispute and resolve such dispute in accordance with Section 24.
(d) Limitations on Conversions.
(i) Beneficial Ownership. The Company shall not effect any conversion
of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to Section 3(a), to the extent
that after giving effect to such
4
conversion, the Holder (together with the Holder's affiliates) would
beneficially own in excess of 4.99% of the number of Ordinary Shares
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of Ordinary Shares
beneficially owned by the Holder and its affiliates shall include the
number of Ordinary Shares issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but
shall exclude the number of Ordinary Shares which would be issuable upon
(A) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the 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 Notes
or warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the Holder or any of
its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 3(d)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Section 3(d)(i), in determining the number of
outstanding Ordinary Shares, the Holder may rely on the number of
outstanding Ordinary Shares as reflected in (x) the Company's most recent
Form 20-F or Form 6-K, (y) a more recent public announcement by the Company
or (z) any other notice by the Company or the Transfer Agent setting forth
the number of Ordinary Shares outstanding. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one
Business Day confirm orally and in writing to the Holder the number of
Ordinary Shares then outstanding. In any case, the number of outstanding
Ordinary Shares shall be determined after giving effect to the conversion
or exercise of securities of the Company, including this Note, by the
Holder or its affiliates since the date as of which such number of
outstanding Ordinary Shares was reported.
(ii) Principal Market Regulation. The Company shall not be obligated
to issue any Ordinary Shares upon conversion of this Note if the issuance
of such Ordinary Shares would exceed that number of Ordinary Shares which
the Company may issue upon conversion of the Notes without breaching the
Company's obligations under the rules or regulations of the Principal
Market (the "Exchange Cap"), except that such limitation shall not apply in
the event that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market for issuances of
Ordinary Shares in excess of such amount (the "Shareholder Approval") or
(B) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to
the Required Holders. Until such approval or written opinion is obtained,
no purchaser of the Notes pursuant to the Securities Purchase Agreement
(the "Purchasers") shall be issued, upon conversion or exercise, as
applicable, of Notes, Warrants or Additional Investment Rights, Ordinary
Shares in an amount greater than the product of the Exchange Cap multiplied
by a fraction, the numerator of which is the total number of Ordinary
Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement on the Closing Date and the denominator of which is the aggregate
number of Ordinary Shares issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Closing Date (with respect to each
Purchaser, the "Exchange Cap Allocation"). In the event that any Purchaser
shall sell or otherwise transfer any of such Purchaser's Notes, the
transferee shall be allocated a pro rata portion of such Purchaser's
Exchange Cap Allocation, and the restrictions of the prior sentence shall
apply to such transferee with respect to the portion of the Exchange Cap
Allocation allocated to such transferee. In the event that any holder of
Notes shall convert all of such holder's Notes into a number of Ordinary
Shares which, in the aggregate, is less than such holder's Exchange Cap
5
Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of Ordinary Shares actually issued to such holder
shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of Notes on a pro rata basis in proportion to the
aggregate principal amount of the Notes then held by each such holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute an
"Event of Default":
(i) the failure of the applicable Registration Statement required to
be filed pursuant to the Registration Rights Agreement to be declared
effective by the SEC on or prior to the date that is 75 days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement), or, while the applicable Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the applicable Registration Statement
lapses for any reason (including, without limitation, the issuance of a
stop order) or is unavailable to any holder of the Notes for sale of all of
such holder's Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of 10
consecutive days or for more than an aggregate of 30 days in any 365-day
period (other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement));
(ii) the suspension from trading or failure of the Ordinary Shares to
be listed on an Eligible Market for a period of five consecutive days or
for more than an aggregate of 10 days in any 365-day period;
(iii) the Company's (A) failure to cure a Conversion Failure by
delivery of the required number of Ordinary Shares within ten (10) Business
Days after the applicable Conversion Date or (B) notice, written or oral,
to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with
a request for conversion of any Notes into Ordinary Shares that is tendered
in accordance with the provisions of the Notes;
(iv) at any time following the tenth consecutive Business Day that the
Holder's Authorized Share Allocation is less than the number of Ordinary
Shares that the Holder would be entitled to receive upon a conversion of
the full Conversion Amount of this Note (without regard to any limitations
on conversion set forth in Section 3(d) or otherwise);
(v) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under
this Note or any other Transaction Document (as defined in the Securities
Purchase Agreement) or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
hereby and thereby to which the Holder is a party, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case
only if such failure continues for a period of at least three Business
Days;
6
(vi) any default under, redemption of or acceleration prior to
maturity of any Indebtedness (as defined in Section 3(s) of the Securities
Purchase Agreement) of the Company or any of its Subsidiaries (as defined
in Section 3(a) of the Securities Purchase Agreement) other than with
respect to any Other Notes;
(vii) the Company or any of its Subsidiaries, pursuant to or within
the meaning of Title 11, U.S. Code, or any similar Federal, foreign,
Israeli or state law for the relief of debtors (collectively, "Bankruptcy
Law"), (A) commences a voluntary case, (B) consents to the entry of an
order for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar
official (a "Custodian"), (D) makes a general assignment for the benefit of
its creditors or (E) admits in writing that it is generally unable to pay
its debts as they become due;
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against the Company or any
of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders a stay of proceedings
against the Company or any of its Subsidiaries or the liquidation of the
Company or any of its Subsidiaries;
(ix) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within 60 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity
from a credit worthy party shall not be included in calculating the
$250,000 amount set forth above so long as the Company provides the Holder
a written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect
that such judgment is covered by insurance or an indemnity and the Company
will receive the proceeds of such insurance or indemnity within 30 days of
the issuance of such judgment;
(x) the Company breaches any material representation, warranty,
covenant or other term or condition of the Securities Purchase Agreement or
any other Transaction Document or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated thereby and hereby to which the Holder is a
party, except, in the case of a breach of a covenant which is curable, only
if such breach continues for a period of at least ten (10) consecutive
Business Days;
(xi) any breach or failure in any respect to comply with Section 15 of
this Note;
(xii) any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes; or
(xiii) the Company shall, directly or indirectly, repay, prepay,
redeem, defease or otherwise make any payment on any Indebtedness existing
on the Subscription Date, other than this Note, the Other Notes or the
Current Debt Facility in cash or cash equivalents.
7
(b) Redemption Right. Promptly after the occurrence of an Event of Default
with respect to this Note or any Other Note, the Company shall deliver written
notice thereof via facsimile and overnight courier (an "Event of Default
Notice") to the Holder. At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the "Event of Default Redemption Notice") to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company pursuant to this Section 4(b) shall be redeemed by
the Company at a price equal to the greater of (i) the product of (x) the
Conversion Amount to be redeemed and (y) the Redemption Premium and (ii) the
product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the Closing Sale Price of the Ordinary Shares on the date immediately
preceding such Event of Default (the "Event of Default Redemption Price").
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 12.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption. The Company shall not enter into or be party to a
Fundamental Transaction, unless (i) the Person formed by or surviving any such
Fundamental Transaction (if other than the Company) or the Person to which such
Fundamental Transaction shall have been made assumes all the obligations of the
Company under this Note and the other Transaction Documents pursuant to written
agreements in form and substance satisfactory to the Required Holders and
approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange for such
Notes, a security of the Person formed by or surviving any such Fundamental
Transaction (if other than the Company) or the Person to which such Fundamental
Transaction shall have been made evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without limitation,
having a principal amount and interest rate equal to the principal amounts and
the interest rates of the Notes held by such holder and having similar ranking
to the Notes, and satisfactory to the Required Holders, and (ii) the Company or
the Person formed by or surviving any such Fundamental Transaction or to which
such Fundamental Transaction shall have been made is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon any Fundamental Transaction, the successor corporation to such
Fundamental Transaction shall succeed to, and be substituted for (so that from
and after the date of such Fundamental Transaction, the provisions of this Note
referring to such "Company" shall refer instead to the successor corporation or,
if so elected by the Required Holders, by the company or entity that, directly
or indirectly, controls such successor corporation), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Note with the same effect as if such successor Person had
been named as the Company herein; provided, however, that the predecessor
Company shall not be relieved from its obligations under the Transaction
Documents except in the case of a Fundamental Transaction that meets the
requirements of this section. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events.
8
(b) Redemption Right. No sooner than 15 days nor later than 10 days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier to the Holder (a "Change of Control
Notice"). At any time during the period beginning after the Holder's receipt of
a Change of Control Notice and ending on the date of the consummation of such
Change of Control (or, in the event a Change of Control Notice is not delivered
at least 10 days prior to a Change of Control, at any time on or after the date
which is 10 days prior to a Change of Control and ending 10 days after the
consummation of such Change of Control), the Holder may require the Company to
redeem all or any portion of this Note by delivering written notice thereof
("Change of Control Redemption Notice") to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing to
redeem. The portion of this Note subject to redemption pursuant to this Section
5 shall be redeemed by the Company at a price equal to the greater of (i) the
product of (x) the Conversion Amount being redeemed and (y) the quotient
determined by dividing (A) the Closing Sale Price of the Ordinary Shares
immediately following the public announcement of such proposed Change of Control
by (B) the Conversion Price and (ii) 125% of the Conversion Amount being
redeemed (the "Change of Control Redemption Price"). Redemptions required by
this Section 5 shall be made in accordance with the provisions of Section 12 and
shall have priority to payments to shareholders in connection with a Change of
Control.
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) Purchase Rights. If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Ordinary Shares (the "Purchase Rights"), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
Ordinary Shares acquirable upon complete conversion of this Note (without taking
into account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Ordinary Shares are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of Ordinary Shares are entitled to receive securities
or other assets with respect to or in exchange for Ordinary Shares (a "Corporate
Event"), the Company shall make appropriate provision to insure that the Holder
will thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the Ordinary Shares receivable upon such conversion, such securities
or other assets to which the Holder would have been entitled with respect to
such Ordinary Shares had such Ordinary Shares been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the Ordinary Shares otherwise receivable upon such conversion, such
securities or other assets received by the holders of Ordinary Shares in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such
9
consideration (as opposed to Ordinary Shares) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
Required Holders.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Ordinary Shares. If and
whenever on or after the Subscription Date, the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or sold, any Ordinary
Shares (including the issuance or sale of Ordinary Shares owned or held by or
for the account of the Company, but excluding Ordinary Shares deemed to have
been issued or sold by the Company in connection with any Excluded Security) for
a consideration per share less than a price (the "Applicable Price") equal to
the Conversion Price in effect immediately prior to such issue or sale (the
foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance,
the Conversion Price then in effect shall be reduced to an amount equal to the
product of (A) the Conversion Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Conversion Price in effect immediately prior
to such Dilutive Issuance and the number of Ordinary Shares Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Conversion Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Ordinary Shares Deemed Outstanding
immediately after such Dilutive Issuance. For purposes of determining the
adjusted Conversion Price under this Section 7(a), the following shall be
applicable:
(i) Issuance of Options. If the Company in any manner grants or sells
any Options and the lowest price per share for which one Ordinary Share is
issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon exercise
of such Option is less than the Applicable Price, then such Ordinary Share
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 7(a)(i), the "lowest price per
share for which one Ordinary Share is issuable upon the exercise of any
such Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one Ordinary Share upon granting or sale of
the Option, upon exercise of the Option and upon conversion or exchange or
exercise of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Conversion Price shall be made upon the actual
issuance of such Ordinary Share or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Ordinary Share
upon conversion or exchange or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one Ordinary Share is issuable upon such conversion or exchange
or exercise thereof is less than the Applicable Price, then such Ordinary
Share shall be deemed to be outstanding and to have been issued and sold by
the Company at the time of the issuance of sale of such Convertible
Securities
10
for such price per share. For the purposes of this Section 7(a)(ii), the
"price per share for which one Ordinary Shares is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company
with respect to any one Ordinary Share upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of
such Convertible Security. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Ordinary Share upon
conversion or exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of the Conversion Price had been or are
to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exchangeable or exercisable for Ordinary Shares changes at any
time, the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at such
time had such Options or Convertible Securities provided for such changed
purchase price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold. For purposes of
this Section 7(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the Issuance Date are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Ordinary Shares deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of
the date of such change. No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
If any Ordinary Shares, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Company therefor. If any Ordinary Shares, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the Closing Sale Price of such securities on the date of
receipt. If any Ordinary Shares, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is
attributable to such Ordinary Shares, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation
Event"), the fair value of such consideration will be determined within
five (5) Business Days after the tenth day following the
11
Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Required Holders. The determination of such appraiser
shall be deemed binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
Ordinary Shares for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Ordinary Shares, Options or in Convertible
Securities or (B) to subscribe for or purchase Ordinary Shares, Options or
Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Ordinary Shares deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(vi) Until such time as the Company receives the Shareholder Approval,
no adjustment pursuant to Section 2(a) shall cause the Exercise Price to be
less than $____1, as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction.
(b) Adjustment of Conversion Price upon Subdivision or Combination of
Ordinary Shares. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding Ordinary Shares into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding Ordinary Shares into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.
(8) COMPANY'S RIGHT OF MANDATORY CONVERSION.
(a) Mandatory Conversion. If at any time from and after the 18 month
anniversary of the day the Registration Statement relating to any Ordinary
Shares issuable in connection with this Note and the Other Notes is declared
effective by the SEC (the "Mandatory Conversion Eligibility Date"), (i) the
Weighted Average Price of the Ordinary Shares exceeds 150% of the Conversion
Price as of the Issuance Date (subject to appropriate adjustments for stock
splits, stock dividends, stock combinations and other similar transactions after
the Issuance Date) for each of any twenty (20) consecutive Trading Days
following the Mandatory
__________________
1 Insert price equal to the Closing Bid Price on the Closing Date.
12
Conversion Eligibility Date (the "Mandatory Conversion Measuring Period") and
(ii) the Equity Conditions shall have been satisfied or waived in writing by the
Holder as of both the Mandatory Conversion Notice Date and the Mandatory
Conversion Date (each, as defined below), the Company shall have the right to
require the Holder to convert all or any portion of the Conversion Amount then
remaining under this Note as designated in the Mandatory Conversion Notice into
fully paid, validly issued and nonassessable shares of Common Stock in
accordance with Section 3(c) hereof at the Conversion Rate as of the Mandatory
Conversion Date (as defined below) (a "Mandatory Conversion"). The Company may
exercise its right to require conversion under this Section 8(a) by delivering
within not more than two Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes and the Transfer
Agent (the "Mandatory Conversion Notice" and the date all of the holders
received such notice is referred to as the "Mandatory Conversion Notice Date").
The Mandatory Conversion Notice shall be irrevocable.
(b) Pro Rata Conversion Requirement. If the Company elects to cause a
conversion of all or any portion of the Conversion Amount of this Note pursuant
to Section 8(a), then it must simultaneously take the same action with respect
to the Other Notes. If the Company elects to cause the conversion of this Note
pursuant to Section 8(a) (or similar provisions under the Other Notes) with
respect to less than all of the Conversion Amounts of the Notes then
outstanding, then the Company shall require conversion of a Conversion Amount
from each of the holders of the Notes equal to the product of (I) the aggregate
Conversion Amount of Notes which the Company has elected to cause to be
converted pursuant to Section 8(a), multiplied by (II) the fraction, the
numerator of which is the sum of the aggregate principal amount of the Notes
purchased by such holder pursuant to the Securities Purchase Agreement and the
denominator of which is the sum of the aggregate principal amount of the Notes
purchased by all holders pursuant to the Securities Purchase Agreement (such
fraction with respect to each holder is referred to as its "Allocation
Percentage," and such amount with respect to each holder is referred to as its
"Pro Rata Conversion Amount"). In the event that the initial holder of any Notes
shall sell or otherwise transfer any of such holder's Notes, the transferee
shall be allocated a pro rata portion of such holder's Allocation Percentage.
The Mandatory Conversion Notice shall state (i) the Trading Day selected for the
Mandatory Conversion in accordance with Section 8(a), which Trading Day shall be
at least 20 Business Days but not more than 60 Business Days following the
Mandatory Conversion Notice Date (the "Mandatory Conversion Date"), (ii) the
aggregate Conversion Amount of the Notes which the Company has elected to be
subject to mandatory conversion from all of the holders of the Notes pursuant to
this Section 8 (and analogous provisions under the Other Notes), (iii) each
holder's Pro Rata Conversion Amount of the Conversion Amount of the Notes the
Company has elected to cause to be converted pursuant to this Section 8 (and
analogous provisions under the Other Notes) and (iv) the number of shares of
Common Stock to be issued to such Holder as of the Mandatory Conversion Date.
All Conversion Amounts converted by the Holder after the Mandatory Conversion
Notice Date shall reduce the Conversion Amount of this Note required to be
converted on the Mandatory Conversion Date. If the Company has elected a
Mandatory Conversion, the mechanics of conversion set forth in Section 3(c)
shall apply, to the extent applicable, as if the Company and the Transfer Agent
had received from the Holder on the
13
Mandatory Conversion Date a Conversion Notice with respect to the Conversion
Amount being converted pursuant to the Mandatory Conversion.
(9) SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Security Documents (as defined in the Securities
Purchase Agreement).
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Association, Memorandum of
Association or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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 Note, and will at all times in good faith carry out all
of the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company initially shall reserve out of its authorized
and unissued Ordinary Shares a number of Ordinary Shares for each of the Notes
equal to 130% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the Issuance Date. So long as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Ordinary Shares, solely for the
purpose of effecting the conversion of the Notes, 130% of the number of Ordinary
Shares as shall from time to time be necessary to effect the conversion of all
of the Notes then outstanding; provided that at no time shall the number of
Ordinary Shares so reserved be less than the number of shares required to be
reserved by the previous sentence (without regard to any limitations on
conversions) (the "Required Reserve Amount"). The initial number of Ordinary
Shares reserved for conversions of the Notes and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Notes
based on the principal amount of the Notes held by each holder at the time of
Issuance Date or increase in the number of reserved shares, as the case may be
(the "Authorized Share Allocation"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
Ordinary Shares reserved and allocated to any Person which ceases to hold any
Notes shall be allocated to the remaining holders of Notes, pro rata based on
the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved Ordinary Shares to satisfy its obligation to reserve for issuance
upon conversion of the Notes at least a number of Ordinary Shares equal to the
Required Reserve Amount (an "Authorized Share Failure"), then the Company shall
immediately take all action necessary to increase the Company's authorized
Ordinary Shares to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Notes then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than 60
days after the occurrence of such Authorized Share Failure, the Company shall
hold a meeting of its shareholders for the approval of an increase in
14
the number of authorized Ordinary Shares. In connection with such meeting, the
Company shall provide each shareholder with a proxy statement and shall use its
best efforts to solicit its shareholders' approval of such increase in
authorized Ordinary Shares and to cause its board of directors to recommend to
the shareholders that they approve such proposal.
(12) HOLDER'S REDEMPTIONS.
(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five Business Days after the Company's
receipt of the Holder's Event of Default Redemption Notice. If the Holder has
submitted a Change of Control Redemption Notice in accordance with Section 5(b),
the Company shall deliver the applicable Change of Control Redemption Price to
the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five Business Days after the Company's receipt of such notice otherwise.
In the event of a redemption of less than all of the Conversion Amount of this
Note, the Company shall promptly cause to be issued and delivered to the Holder
a new Note (in accordance with Section 19(d)) representing the outstanding
Principal which has not been redeemed. In the event that the Company does not
pay the Redemption Price to the Holder within the time period required, at any
time thereafter and until the Company pays such unpaid Redemption Price in full,
the Holder shall have the option, in lieu of redemption, to require the Company
to promptly return to the Holder all or any portion of this Note representing
the Conversion Amount that was submitted for redemption and for which the
applicable Redemption Price (together with any Late Charges thereon) has not
been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice
shall be null and void with respect to such Conversion Amount, (y) the Company
shall immediately return this Note, or issue a new Note (in accordance with
Section 19(d)) to the Holder representing such Conversion Amount and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Redemption
Notice is voided and (B) the lowest Closing Bid Price during the period
beginning on and including the date on which the Redemption Notice is delivered
to the Company and ending on and including the date on which the Redemption
Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments of Late Charges which have accrued prior to the
date of such notice with respect to the Conversion Amount subject to such
notice.
(b) Redemption by Other Holders. Upon the Company's receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(b) or Section 5(b) (each, an "Other Redemption Notice"),
the Company shall immediately forward to the Holder by facsimile a copy of such
notice. If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the period beginning on and including the date which
is three Business Days prior to the Company's receipt of the Holder's Redemption
Notice and ending on and including the date which is three Business Days after
the Company's receipt of the Holder's Redemption Notice and the Company is
unable to redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such seven
Business Day period, then the Company shall redeem a pro rata amount from each
holder of the Notes (including the Holder) based on the principal amount of
15
the Notes submitted for redemption pursuant to such Redemption Notice and such
Other Redemption Notices received by the Company during such seven Business Day
period.
(13) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the Notes
have been converted, redeemed or otherwise satisfied in accordance with their
terms, the Company shall not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on its capital stock without
the prior express written consent of the Required Holders.
(14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law, including but not limited to applicable
laws of the State of Israel, and as expressly provided in this Note.
(15) RANK; ADDITIONAL INDEBTEDNESS; LIENS.
(a) Rank. All payments due under this Note (i) shall rank pari passu with
all Other Notes and to the debt evidenced by the loan agreement, credit facility
and other credit and loan arrangements listed in Schedule 15(a) (the "Current
Debt Facility") and (ii) shall be senior to all other Indebtedness of the
Company.
(b) Incurrence of Indebtedness. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) Permitted Indebtedness. "Permitted Indebtedness" means (i)
Indebtedness of the Company (other than the Notes) in an aggregate amount not to
exceed $3,500,000 and (ii) Indebtedness of the Company represented by letters of
credit for the account of the Company in order to provide security for payment
obligations entered into in the ordinary course of business for the purposes of
facilitating the purchase, shipment or storage of inventory or goods.
(c) Existence of Liens. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted Liens and Liens
securing the Company's obligations under this Note and the Other Notes. For
purposes of this Note: (1) "Permitted Liens" means (i) the Liens securing the
Current Debt Facility as in effect on the date hereof or any Permitted
Refinancing Indebtedness; (ii) for taxes, assessments or similar charges and
assessments not yet delinquent; (iii) liens of mechanics, materialmen,
warehousemen, carriers or other like liens securing obligations incurred in the
ordinary course of business that are not yet due and payable or that are being
contested in good faith by appropriate proceedings; (iv) liens, encumbrances,
easements, rights of way, covenants and restrictions, in each case of record,
that will not, individually or in the aggregate, have a Material Adverse Effect;
and (v) Liens supporting letters of credit permitted under clause (ii) of the
definition of Permitted Indebtedness and (2) "Permitted Refinancing
Indebtedness" means any Indebtedness issued in exchange for, or used to extend,
refinance, renew, or replace the Current Debt Facility; provided that: (A) the
principal amount of such Permitted Refinancing
16
Indebtedness does not exceed the principal amount as of the date hereof of the
Current Debt Facility (plus all accrued interest thereon and the amount of all
expenses and premiums incurred in connection therewith); (B) such Permitted
Refinancing Indebtedness does not have a final maturity date later that the
final maturity date of the Current Debt Facility as of the date hereof; (C) such
Permitted Refinancing Indebtedness is extended, refinanced, renewed or replaced
on terms no more favorable than those contained in the documentation governing
the Current Debt Facility as in effect on the date hereof.
(d) Restricted Payments. The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness (other than the Current Debt Facility), whether by way of
payment in respect of principal of (or premium, if any) or interest on, such
Indebtedness if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.
(16) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to such dividends paid and distributions made to the holders of
Ordinary Shares to the same extent as if the Holder had converted this Note into
Ordinary Shares (without regard to any limitations on conversion herein or
elsewhere) and had held such Ordinary Shares on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Ordinary
Shares.
(17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment to this
Note or the Other Notes.
(18) TRANSFER. This Note may be offered, sold, assigned or transferred by
the Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.
(19) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 19(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 19(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) and this Section 19(a),
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
17
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 19(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 19(a) or Section 19(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest and
Late Charges on the Principal and Interest of this Note, from the Issuance Date.
(20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting
18
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys' fees
and disbursements.
(22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers (as defined in the Securities
Purchase Agreement) and shall not be construed against any person as the drafter
hereof. The headings of this Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note.
(23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(24) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or the Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one Business Day of receipt of the Conversion Notice or
Redemption Notice or other event giving rise to such dispute, as the case may
be, to the Holder. If the Holder and the Company are unable to agree upon such
determination or calculation within one Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within one Business Day submit via facsimile (a) the disputed
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Conversion Rate or the Redemption Price to the Company's independent,
outside accountant. The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
(25) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty days prior to the date
on which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the Ordinary Shares, (B) with respect to any pro
rata subscription offer to holders of Ordinary Shares or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
19
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.
(b) Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, such payment shall be made in lawful money of
the United States of America by a check drawn on the account of the Company and
sent via overnight courier service to such Person at such address as previously
provided to the Company in writing (which address, in the case of each of the
Purchasers, shall initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder's wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date. Any amount
of Principal or other amounts due under the Transaction Documents, other than
Interest, which is not paid when due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of 18% per annum from the date such amount was due until the
same is paid in full ("Late Charge").
(26) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note has been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(27) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
(28) GOVERNING LAW. Except for matters that are inherently governed by the
corporate laws of the State of Israel, this Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.
(29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Additional Investment Rights" has the meaning ascribed to such term in
the Securities Purchase Agreement and shall include additional investment rights
issued in exchange therefor.
(b) "Approved Stock Plan" means any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's
20
securities may be issued to any employee, officer or director for services
provided to the Company.
(c) "Bloomberg" means Bloomberg Financial Markets.
(d) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(e) "Calendar Quarter" means each of: the period beginning on and including
January 1 and ending on and including March 31; the period beginning on and
including April 1 and ending on and including June 30; the period beginning on
and including July 1 and ending on and including September 30; and the period
beginning on and including October 1 and ending on and including December 31.
(f) "Change of Control" means any Fundamental Transaction other than (A) a
Fundamental Transaction in which holders of the Company's voting power
immediately prior to the Fundamental Transaction continue after the Fundamental
Transaction to hold publicly traded securities and, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect a majority
of the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company.
(g) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00 00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 24. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
21
(h) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Ordinary Shares.
(i) "Eligible Market" means the Principal Market, the Nasdaq National
Market or The New York Stock Exchange, Inc.
(j) "Equity Conditions" means: (i) on each day during the period beginning
six months prior to the applicable date of determination and ending on and
including the applicable date of determination (the "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement and there shall not have been any Grace Periods
(as defined in the Registration Rights Agreement) or (y) all Ordinary Shares
issuable upon conversion of the Notes and exercise of the Warrants and the
Additional Investment Rights shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws; (ii) on each day during the Equity Conditions Measuring Period,
the Ordinary Shares are designated for quotation on the Principal Market and
shall not have been suspended from trading on such exchange or market (other
than suspensions of not more than two days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by such exchange or market been threatened or pending
either (A) in writing by such exchange or market or (B) by falling below the
minimum listing maintenance requirements of such exchange or market; (iii)
during the one year period ending on and including the date immediately
preceding the applicable date of determination, the Company shall have delivered
Conversion Shares upon conversion of the Notes, Warrant Shares upon exercise of
the Warrants and the Additional Investment Right Shares (as defined in the
Securities Purchase Agreement) upon exercise of he Additional Investment Rights
to the holders on a timely basis as set forth in Section 2(c)(ii) hereof and
Sections 2(a) and 2(b) of the Warrants and the Additional Investment Rights,
respectively; (iv) any applicable Ordinary Shares to be issued in connection
with the event requiring determination may be issued in full without violating
Section 3(d) hereof and the rules or regulations of the Principal Market; (v)
during the Equity Conditions Measuring Period, the Company shall not have failed
to timely make any payments within five (5) Business Days of when such payment
is due pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated or (B) an Event of Default or
an event that with the passage of time or giving of notice would constitute an
Event of Default; (vii) the Company shall have no knowledge of any fact that
would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any Ordinary Shares issuable upon
conversion of the Notes and Ordinary Shares issuable upon exercise of the
Warrants and the Additional Investment Rights not to be eligible for sale
without restriction pursuant to Rule 144(k) and any applicable state securities
laws; and (viii) the Company otherwise shall have been in material compliance
with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document.
22
(k) "Excluded Securities" means any Ordinary Shares issued or issuable: (i)
in connection with any Approved Stock Plan; (ii) upon conversion of the Notes or
the exercise of the Warrants or the Additional Investment Rights; (iii) pursuant
to a bona fide firm commitment underwritten public offering with a nationally
recognized underwriter which generates gross proceeds to the Company in excess
of $25,000,000 (other than an "at-the-market offering" as defined in Rule
415(a)(4) under the 1933 Act and "equity lines"); and (iv) upon conversion of
any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Subscription Date.
(l) "Fundamental Transaction" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow a purchase, tender or exchange offer to be made to and accepted
by the holders of more than the 50% of the outstanding Ordinary Shares (not
including any Ordinary Shares held by the Person or Persons making or party to,
or associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) enter into a stock purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person.
(m) "Interest Rate" means the applicable LIBOR plus two and one-half
percent (2.5%), subject to periodic adjustment pursuant to Section 2.
(n) "LIBOR" means, on each Interest Date or, if prior to the first Interest
Date hereunder, the Issuance Date, (i) the six-month London Interbank Offered
Rate for deposits in U.S. dollars, as shown on such date in The Wall Street
Journal (Eastern Edition) under the caption "Money Rates - London Interbank
Offered Rates (LIBOR)"; or (ii) if The Wall Street Journal does not publish such
rate, the offered one-month rate for deposits in U.S. dollars which appears on
the Reuters Screen LIBO Page as of 10:00 a.m., New York time, each day, provided
that if at least two rates appear on the Reuters Screen LIBO Page on any day,
the "LIBOR" for such day shall be the arithmetic mean of such rates.
(o) "Options" means any rights, warrants or options to subscribe for or
purchase Ordinary Shares or Convertible Securities
(p) "Ordinary Shares Deemed Outstanding" means, at any given time, the
number of Ordinary Shares actually outstanding at such time, plus the number of
Ordinary Shares deemed to be outstanding pursuant to Sections 7(a)(i) and
7(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Ordinary Shares owned or
held by or for the account of the Company or issuable upon conversion or
exercise, as applicable, of the Notes, the Warrants and the Additional
Investment Rights.
(q) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
23
(r) "Principal Market" means The Nasdaq SmallCap Market.
(s) "Redemption Premium" means (i) in the case of the Events of Default
described in Section 4(a)(i) - (vi) and (ix) - (iii), 125% or (ii) in the case
of the Events of Default described in Section 4(a)(vii) - (viii), 100%.
(t) "Registration Rights Agreement" means that certain registration rights
agreement between the Company and the initial holders of the Notes relating to,
among other things, the registration of the resale of the Ordinary Shares
issuable upon conversion of the Notes.
(u) "Required Holders" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "Securities Purchase Agreement" means that certain securities purchase
agreement dated the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.
(x) "Subscription Date" means July 12, 2004.
(y) "Trading Day" means any day on which the Ordinary Shares are traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Ordinary Shares, then on the principal securities exchange or
securities market on which the Ordinary Shares are then traded; provided that
"Trading Day" shall not include any day on which the Ordinary Shares are
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Ordinary Shares are suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York Time).
(z) "Warrants" has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.
(aa) "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its "Volume at Price" functions, or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the
24
average of the highest closing bid price and the lowest closing ask price of any
of the market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section
24. All such determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
[Signature Page Follows]
25
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.
RADA ELECTRONIC INDUSTRIES LTD.
By:_______________________________
Name:
Title:
EXHIBIT I
RADA ELECTRONIC INDUSTRIES LTD.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by RADA Electronic Industries Ltd. (the "Company"). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into Ordinary Shares of the Company, NIS 0.005 nominal value per share
(the "Ordinary Shares"), as of the date specified below.
Date of Conversion:
-------------------------------------------------
Aggregate Conversion Amount to be converted:
----------------------
Please confirm the following information:
Conversion Price:
--------------------------------------------------
Number of Ordinary Shares to be issued:
----------------------------
Please issue the Ordinary Shares into which the Note is being converted in the
following name and to the following address:
Issue to:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Facsimile Number:
-------------------------------------------------
Authorization:
------------------------------------------------------
By:
---------------------------------------------------------
Title:
---------------------------------------------------
Dated:
---------------------------------------------------------------------
Account Number:
--------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
------------------------------------------
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs American Stock Transfer & Trust Co. to issue the above indicated number
of Ordinary Shares in accordance with the Transfer Agent Instructions dated July
__, 2004 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Co.
RADA ELECTRONIC INDUSTRIES LTD.
By:___________________________
Name:
Title:
ITEM 4
FORM OF WARRANT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
RADA ELECTRONIC INDUSTRIES LTD.
WARRANT TO PURCHASE ORDINARY SHARES
Warrant No.:____
Number of Ordinary Shares:_____________
Date of Issuance: July ___, 2004 ("Issuance Date")
RADA Electronic Industries Ltd., a corporation organized under
the laws of the State of Israel (the "Company"), hereby certifies that, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, [SMITHFIELD FIDUCIARY LLC] [OTHER BUYERS], the registered holder
hereof or its permitted assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Ordinary Shares (including any Warrants to Purchase Ordinary Shares issued in
exchange, transfer or replacement hereof, the "Warrant"), at any time or times
on or after January 12, 2005, but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), ______________ (_____________)1 fully paid
nonassessable Ordinary Shares (as defined below) (the "Warrant Shares"). Except
as otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Ordinary Shares (the "SPA Warrants") issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of July 9, 2004 (the
"Subscription Date"), by and among the Company and the investors (the "Buyers")
referred to therein (the "Securities Purchase Agreement").
--------
1 Insert number of shares determined by dividing (a) one-half of the principal
amount of Notes purchased by the Holder on the Issuance Date by (b) US $1.60.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after January 12, 2005,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "Exercise Notice"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the "Aggregate Exercise Price") in cash
or wire transfer of immediately available funds or (B) by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 1(d)). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant Shares.
On or before the first Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "Exercise Delivery Documents"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"Transfer Agent"). On or before the third Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the
"Share Delivery Date"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Ordinary Shares to which the Holder is entitled pursuant to
such exercise to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the share register of the Company in the
name of the Holder or its designee, for the number of Ordinary Shares to which
the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the Holder shall be deemed for all corporate purposes to have become the holder
of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three Business Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
Ordinary Shares are to be issued upon the exercise of this Warrant, but rather
the number of Ordinary Shares to be issued shall be rounded up to the nearest
whole number. The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.
2
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means US
$2.50, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
Holder within three (3) Business Days of receipt of the Exercise Delivery
Documents, a certificate for the number of Ordinary Shares to which the Holder
is entitled or in the event of a sale of the Ordinary Shares to credit the
Holder's balance account with DTC for such number of Ordinary Shares to which
the Holder is entitled upon the Holder's exercise of this Warrant, then, in
addition to all other remedies available to the Holder, the Company shall pay in
cash to the Holder on each day after such third Business Day that the issuance
of such Ordinary Shares is not timely effected an amount equal to 1.0% of the
product of (A) the sum of the number of Ordinary Shares not issued to the Holder
on a timely basis and to which the Holder is entitled and (B) the Closing Sale
Price of the Ordinary Shares on the trading day immediately preceding the last
possible date which the Company could have issued such Ordinary Shares to the
Holder without violating Section 1(a). In addition to the foregoing, if within
three (3) Trading Days (as defined in the Notes) after the Company's receipt of
the facsimile copy of a Exercise Notice the Company shall fail to issue and
deliver a certificate to the Holder or credit the Holder's balance account with
DTC for the number of Ordinary Shares to which the Holder is entitled upon such
holder's exercise hereunder, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Ordinary Shares to
deliver in satisfaction of a sale by the Holder of Ordinary Shares issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"Buy-In"), then the Company shall, within three Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions, if any) for the Ordinary Shares so purchased (the "Buy-In Price"),
at which point the Company's obligation to deliver such certificate (and to
issue such Ordinary Shares) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such Ordinary Shares and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of Ordinary
Shares, times (B) the Closing Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise
Notice (the "Unavailable Warrant Shares") is not available for the resale of
such Unavailable Warrant Shares, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of Ordinary Shares determined according to the
following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
B
For purposes of the foregoing formula:
3
A= the total number of shares with respect to which this Warrant
is then being exercised.
B= the Closing Sale Price of the Ordinary Shares (as reported by
Bloomberg) on the date immediately preceding the date ofv
Warrant Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
(f) Limitations on Exercises.
(i) Beneficial Ownership. The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own
in excess of 4.99% of the Ordinary Shares outstanding immediately
after giving effect to such exercise. For purposes of the foregoing
sentence, the aggregate number of Ordinary Shares beneficially owned
by such Person and its affiliates shall include the number of Ordinary
Shares issuable upon exercise of this Warrant with respect to which
the determination of such sentence is being made, but shall exclude
Ordinary Shares which would be issuable upon (i) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by
such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein. Except as set
forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Warrant, in determining the number of outstanding Ordinary
Shares, the Holder may rely on the number of outstanding Ordinary
Shares as reflected in (1) the Company's most recent Form 20-F, Form
6-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement
by the Company or (3) any other notice by the Company or the Transfer
Agent setting forth the number of Ordinary Shares outstanding. For any
reason at any
4
time, upon the written or oral request of the Holder, the Company
shall within one Business Day confirm orally and in writing to the
Holder the number of Ordinary Shares then outstanding. In any case,
the number of outstanding Ordinary Shares shall be determined after
giving effect to the conversion or exercise of securities of the
Company, including the SPA Securities and the SPA Warrants, by the
Holder and its affiliates since the date as of which such number of
outstanding Ordinary Shares was reported.
(ii) Principal Market Regulation. The Company shall not be obligated
to issue any Ordinary Shares upon exercise of this Warrant if the
issuance of such Ordinary Shares would exceed that number of Ordinary
Shares which the Company may issue upon exercise of this Warrant
(including, as applicable, any Ordinary Shares issued upon conversion
or exercise of the SPA Securities) without breaching the Company's
obligations under the rules or regulations of the Principal Market
(the "Exchange Cap"), except that such limitation shall not apply in
the event that the Company (A) obtains the approval of its
shareholders as required by the applicable rules of the Principal
Market for issuances of Ordinary Shares in excess of such amount (the
"Shareholder Approval") or (B) obtains a written opinion from outside
counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.
Until such approval or written opinion is obtained, no Buyer shall be
issued, upon exercise or conversion, as applicable, of any SPA
Warrants or SPA Securities, Ordinary Shares in an amount greater than
the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of Ordinary Shares issued to
such Buyer pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the aggregate number of
Ordinary Shares issued to the Buyers pursuant to the Securities
Purchase Agreement on the Issuance Date (with respect to each Buyer,
the "Exchange Cap Allocation"). In the event that any Buyer shall sell
or otherwise transfer any of such Buyer's SPA Warrants, the transferee
shall be allocated a pro rata portion of such Buyer's Exchange Cap
Allocation, and the restrictions of the prior sentence shall apply to
such transferee with respect to the portion of the Exchange Cap
Allocation allocated to such transferee. In the event that any holder
of SPA Warrants shall exercise all of such holder's SPA Warrants into
a number of Ordinary Shares which, in the aggregate, is less than such
holder's Exchange Cap Allocation, then the difference between such
holder's Exchange Cap Allocation and the number of Ordinary Shares
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of
5
SPA Warrants on a pro rata basis in proportion to the Ordinary Shares
underlying the SPA Warrants then held by each such holder. In the
event that the Company is prohibited from issuing any Warrant Shares
for which an Exercise Notice has been received as a result of the
operation of this Section 1(f)(ii), the Company shall pay cash in
exchange for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the Closing Sale Price
and the Exercise Price as of the date of the attempted exercise.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant Shares shall be adjusted from time to time as
follows:
(a) Adjustment upon Issuance of Ordinary Shares. If and whenever on or
after the Subscription Date the Company issues or sells, or in accordance with
this Section 2 is deemed to have issued or sold, any Ordinary Shares (including
the issuance or sale of Ordinary Shares owned or held by or for the account of
the Company, but excluding Ordinary Shares deemed to have been issued by the
Company in connection with any Excluded Securities (as defined in the Notes))
for a consideration per share less than a price (the "Applicable Price") equal
to the Exercise Price in effect immediately prior to such issue or sale or
deemed issuance or sale (the foregoing a "Dilutive Issuance"), then immediately
after such Dilutive Issuance, the Exercise Price then in effect shall be reduced
to an amount equal to the product of (A) the Exercise Price in effect
immediately prior to such Dilutive Issuance and (B) the quotient determined by
dividing (1) the sum of (I) the product derived by multiplying the Exercise
Price in effect immediately prior to such Dilutive Issuance and the number of
Ordinary Shares Deemed Outstanding immediately prior to such Dilutive Issuance
plus (II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Exercise Price in
effect immediately prior to such Dilutive Issuance by (II) the number of
Ordinary Shares Deemed Outstanding immediately after such Dilutive Issuance.
Upon each such adjustment of the Exercise Price hereunder, the number of Warrant
Shares shall be adjusted to the number of Ordinary Shares determined by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. For purposes of determining the
adjusted Exercise Price under this Section 2(a), the following shall be
applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Ordinary
Shares is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities
issuable upon exercise of any such Option is less than the Applicable
Price, then such share of Ordinary Shares shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.
For purposes of this Section 2(a)(i), the "lowest price per share for
which one share of Ordinary Shares is issuable upon exercise of such
Options or upon conversion, exercise or
6
exchange of such Convertible Securities" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Ordinary Shares upon the
granting or sale of the Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Exercise
Price or number of Warrant Shares shall be made upon the actual
issuance of such Ordinary Shares or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such
Ordinary Shares upon conversion, exercise or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per
share for which one share of Ordinary Shares is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable
Price, then such share of Ordinary Shares shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section 2(a)(ii), the
"lowest price per share for which one share of Ordinary Shares is
issuable upon the conversion, exercise or exchange" shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Ordinary Shares
upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No
further adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such Ordinary Shares upon
conversion, exercise or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of this Warrant has been
or is to be made pursuant to other provisions of this Section 2(a), no
further adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exercisable or exchangeable for
Ordinary Shares increases or decreases at any time, the Exercise Price
and the number of Warrant Shares in effect at the time of such
increase or decrease shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such time
had such Options or Convertible Securities provided for such increased
or decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 2(a)(iii), if
the terms of any Option or Convertible Security
7
that was outstanding as of the date of issuance of this Warrant are
increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the
Ordinary Shares deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such
increase or decrease. No adjustment pursuant to this Section 2(a)
shall be made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of Warrant
Shares.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a
consideration of $0.01. If any Ordinary Shares, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the
net amount received by the Company therefor. If any Ordinary Shares,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case
the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt. If any
Ordinary Shares, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is attributable
to such Ordinary Shares, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth day following
the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of
such appraiser shall be final and binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be
borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
Ordinary Shares for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Ordinary Shares, Options or
in Convertible Securities or (B) to subscribe for or purchase Ordinary
Shares, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the Ordinary Shares
deemed to have been issued or
8
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(vi) Until such time as the Company receives the Shareholder Approval,
no adjustment pursuant to Section 2(a) shall cause the Exercise Price
to be less than $____2, as adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction.
(b) Adjustment upon Subdivision or Combination of Ordinary Shares. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding Ordinary Shares into a greater number of shares, the Exercise Price
in effect immediately prior to such subdivision will be proportionately reduced
and the number of Warrant Shares will be proportionately increased. If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding
Ordinary Shares into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(b) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Ordinary Shares, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of this
Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of Ordinary Shares
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the Ordinary Shares on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
------
2 Insert price equal to the Closing Bid Price on the Closing Date.
9
the Company's Board of Directors) applicable to one share of Ordinary Shares,
and (ii) the denominator shall be the Closing Bid Price of the Ordinary Shares
on the trading day immediately preceding such record date; and
(b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of Ordinary Shares obtainable immediately prior to the close
of business on the record date fixed for the determination of holders of
Ordinary Shares entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of Ordinary Shares (or
common stock) ("Other Ordinary Shares") of a company whose Ordinary Shares (or
common stock) are traded on a national securities exchange or a national
automated quotation system, then the Holder may elect to receive a warrant to
purchase Other Ordinary Shares in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other
Ordinary Shares that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Ordinary Shares
(the "Purchase Rights"), then the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
the Holder could have acquired if the Holder had held the number of Ordinary
Shares acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Ordinary Shares are to be determined for the grant, issue or sale of such
Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction (a defined in the Notes), unless (i) the Person
formed by or surviving any such Fundamental Transaction (if other than the
Company) or the Person to which such Fundamental Transaction shall have been
made assumes all the obligations of the Company under this Warrant and the other
Transaction Documents (as defined in the Securities Purchase Agreement) pursuant
to written agreements in form and substance satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction, and
including agreements to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Person formed by or surviving any such Fundamental
Transaction (if other than the Company) or the Person to which such Fundamental
Transaction shall have been made evidenced by a written instrument substantially
similar in form and substance to the Warrants,
10
including, without limitation, an adjusted exercise price equal to the value for
the Ordinary Shares reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of Ordinary Shares acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant), if the value so reflected is less than the
Exercise Price in effect immediately prior to such Fundamental Transaction, and
(ii) the Company or the Person formed by or surviving any such Fundamental
Transaction or to which such Fundamental Transaction shall have been made is a
publicly traded entity whose common stock or equivalent equity security is
quoted on or listed for trading on an Eligible Market (as defined in the Notes.
Upon any Fundamental Transaction, the successor entity to such Fundamental
Transaction shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Warrant referring
to such "Company" shall refer instead to the successor entity or, if so elected
by the Required Holders, by the entity that, directly or indirectly, controls
such successor entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Warrant with
the same effect as if such successor Person had been named as the Company
herein; provided, however, that the predecessor Company shall not be relieved
from its obligations under the Transaction Documents except in the case of a
Fundamental Transaction that meets the requirements of this section. In addition
to and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of
Ordinary Shares are entitled to receive securities or other assets with respect
to or in exchange for Ordinary Shares (a "Corporate Event"), the Company shall
make appropriate provision to insure that the Holder will thereafter have the
right to receive upon an exercise of this Warrant, (i) in addition to the
Ordinary Shares receivable upon such exercise, such securities or other assets
to which the Holder would have been entitled with respect to such Ordinary
Shares had such Ordinary Shares been held by the Holder upon the consummation of
such Corporate Event (without regard to any limitations on the exercise of this
Warrant) or (ii) in lieu of the Ordinary Shares otherwise receivable upon such
exercise, such securities or other assets received by the holders of Ordinary
Shares in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Warrant
initially been issued with exercise rights for the form of such consideration
(as opposed to Ordinary Shares) at an exercise price for such consideration
commensurate with the Exercise Price. Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required Holders.
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Association, Memorandum of
Association or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the nominal value of any Ordinary
Shares receivable upon the exercise of this Warrant above the Exercise Price
then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Ordinary Shares upon the exercise of this Warrant, and (iii)
shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out
11
of its authorized and unissued Ordinary Shares, solely for the purpose of
effecting the exercise of the SPA Warrants, 130% of the number of Ordinary
Shares as shall from time to time be necessary to effect the exercise of the SPA
Warrants then outstanding (without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is
12
designated by the Holder at the time of such surrender; provided, however, that
no Warrants for fractional Ordinary Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of Ordinary Shares underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.
13
8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen days prior to the date
on which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the Ordinary Shares, (B) with respect to any
grants, issues or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property to holders of Ordinary
Shares or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. GOVERNING LAW. Except for matters that are inherently governed by the
corporate laws of the State of Israel, this Warrant shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two Business Days of receipt of the Exercise Notice giving rise
to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Warrant Shares to the
14
Company's independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.
15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:
(a) "Bloomberg" means Bloomberg Financial Markets.
(b) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(c) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot
15
be calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.
(d) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Ordinary Shares.
(e) "Expiration Date" means the date sixty-six months after the Issuance
Date or, if such date falls on a day other than a Business Day or on which
trading does not take place on the Principal Market (a "Holiday"), the next date
that is not a Holiday.
(f) "Notes" means the senior secured convertible notes issues pursuant to
the Securities Purchase Agreement.
(g) "Options" means any rights, warrants or options to subscribe for or
purchase Ordinary Shares or Convertible Securities.
(h) "Ordinary Shares" means (i) the Company's Ordinary Shares, NIS 0.005
nominal value per share, and (ii) any share capital into which such Ordinary
Shares shall have been changed or any share capital resulting from a
reclassification of such Ordinary Shares.
(i) "Ordinary Shares Deemed Outstanding" means, at any given time, the
number of Ordinary Shares actually outstanding at such time, plus the number of
Ordinary Shares deemed to be outstanding pursuant to Sections 2(a)(i) and
2(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Ordinary Shares owned or
held by or for the account of the Company or issuable upon conversion and
exercise, as applicable, of the SPA Securities and the Warrants.
(j) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(k) "Principal Market" means The Nasdaq SmallCap Market.
(l) "Registration Rights Agreement" means that certain registration rights
agreement by and among the Company and the Buyers.
(m) "Required Holders" means the holders of the SPA Warrants representing
at least a majority of Ordinary Shares underlying the SPA Warrants then
outstanding.
16
(n) "SPA Securities" means the Notes and the additional investment rights
issued pursuant to the Securities Purchase Agreement.
[Signature Page Follows]
17
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Ordinary Shares to be duly executed as of the Issuance Date set out above.
RADA ELECTRONIC INDUSTRIES LTD.
By:
---------------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE ORDINARY SHARES
RADA ELECTRONIC INDUSTRIES LTD.
The undersigned holder hereby exercises the right to purchase
_________________ of the Ordinary Shares ("Warrant Shares") of RADA Electronic
Industries Ltd., a corporation organized under the laws of the State of Israel
(the "Company"), evidenced by the attached Warrant to Purchase Ordinary Shares
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
_______ a "Cash Exercise" with respect to __________ Warrant
Shares; and/or
_______ a "Cashless Exercise" with respect to ________ Warrant
Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
________________________________
Name of Registered Holder
By:
----------------------------
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
Ordinary Shares in accordance with the Transfer Agent Instructions dated July
__, 2004 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Co.
RADA ELECTRONIC INDUSTRIES LTD.
By:
----------------------------
Name:
Title:
ITEM 5
FORM OF ADDITIONAL INVESTMENT RIGHT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
RADA ELECTRONIC INDUSTRIES LTD.
ADDITIONAL INVESTMENT RIGHT TO PURCHASE ORDINARY SHARES
Additional Investment Right No.: _________
Number of Ordinary Shares:_____________
Date of Issuance: July __, 2004 ("Issuance Date")
RADA Electronic Industries Ltd., a corporation organized under the laws of the
State of Israel (the "Company"), hereby certifies that, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
[SMITHFIELD FIDUCIARY LLC][OTHER BUYERS], the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Additional Investment Right to Purchase
Ordinary Shares (including any Additional Investment Right to Purchase Ordinary
Shares issued in exchange, transfer or replacement hereof, the "Additional
Investment Right"), at any time or times on or after January __, 2005, but not
after 11:59 p.m., New York Time, on the Expiration Date (as defined below),
_____________1 fully paid nonassessable Ordinary Shares (as defined below) (the
"Additional Investment Right Shares"). Except as otherwise defined herein,
capitalized terms in this Additional Investment Right shall have the meanings
set forth in Section 15. This Additional Investment Right is one of the
Additional Investment Rights to Purchase Ordinary Shares (the "AIRs") issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
July 9, 2004 (the "Subscription Date"), by and among the Company and the
investors (the "Buyers") referred to therein (the "Securities Purchase
Agreement").
--------
1 Insert Holder's Pro Rata portion of 1,100,000 Ordinary Shares
1. EXERCISE OF ADDITIONAL INVESTMENT RIGHT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Additional Investment Right may be exercised by the Holder on any day on or
after January __, 2005, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of the
Holder's election to exercise this Additional Investment Right and (ii) (A)
payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the number of Additional Investment Right Shares as to which this
Additional Investment Right is being exercised (the "Aggregate Exercise Price")
in cash or wire transfer of immediately available funds or (B) by notifying the
Company that this Additional Investment Right is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Additional Investment Right in order to effect an
exercise hereunder. Execution and delivery of the Exercise Notice with respect
to less than all of the Additional Investment Right Shares shall have the same
effect as cancellation of the original Additional Investment Right and issuance
of a new Additional Investment Right evidencing the right to purchase the
remaining number of Additional Investment Right Shares. On or before the first
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise Delivery Documents"), the Company shall transmit by
facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery
Documents to the Holder and the Company's transfer agent (the "Transfer Agent").
On or before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "Share Delivery Date"), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of Ordinary Shares
to which the Holder is entitled pursuant to such exercise to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system and the Ordinary Shares do not require any legend or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the share
register of the Company in the name of the Holder or its designee, for the
number of Ordinary Shares to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a Cashless
Exercise referred to in Section 1(d), the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Additional
Investment Right Shares with respect to which this Additional Investment Right
has been exercised, irrespective of the date of delivery of the certificates
evidencing such Additional Investment Right Shares. If this Additional
Investment Right is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Additional Investment Right Shares represented by
this Additional Investment Right submitted for exercise is greater than the
number of Additional Investment Right Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Additional
Investment Right (in accordance with Section 7(d)) representing the right to
purchase the number of Additional Investment Right Shares purchasable
immediately prior to such exercise under this Additional Investment Right, less
the number of Additional Investment Right Shares with respect to which this
Additional Investment Right is exercised. No fractional Ordinary Shares
2
are to be issued upon the exercise of this Additional Investment Right, but
rather the number of Ordinary Shares to be issued shall be rounded up to the
nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Additional Investment Right
Shares upon exercise of this Additional Investment Right.
(b) Exercise Price. For purposes of this Additional Investment Right,
"Exercise Price" means US $2.10, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
Holder within three (3) Business Days of receipt of the Exercise Delivery
Documents, a certificate for the number of Ordinary Shares to which the Holder
is entitled or in the event of the sale of the Ordinary Shares to credit the
Holder's balance account with DTC for such number of Ordinary Shares to which
the Holder is entitled upon the Holder's exercise of this Additional Investment
Right, then, in addition to all other remedies available to the Holder, the
Company shall pay in cash to the Holder on each day after such third Business
Day that the issuance of such Ordinary Shares is not timely effected an amount
equal to 1.0% of the product of (A) the sum of the number of Ordinary Shares not
issued to the Holder on a timely basis and to which the Holder is entitled and
(B) the Closing Sale Price of the Ordinary Shares on the trading day immediately
preceding the last possible date which the Company could have issued such
Ordinary Shares to the Holder without violating Section 1(a). In addition to the
foregoing, if within three (3) Trading Days (as defined in the Notes) after the
Company's receipt of the facsimile copy of a Exercise Notice the Company shall
fail to issue and deliver a certificate to the Holder or in the event of the
sale of the Ordinary Shares credit the Holder's balance account with DTC for the
number of Ordinary Shares to which the Holder is entitled upon such holder's
exercise hereunder, and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) Ordinary Shares to deliver in
satisfaction of a sale by the Holder of Ordinary Shares issuable upon such
exercise that the Holder anticipated receiving from the Company (a "Buy-In"),
then the Company shall, within three Business Days after the Holder's request
and in the Holder's discretion, either (i) pay cash to the Holder in an amount
equal to the Holder's total purchase price (including brokerage commissions, if
any) for the Ordinary Shares so purchased (the "Buy-In Price"), at which point
the Company's obligation to deliver such certificate (and to issue such Ordinary
Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Ordinary Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of Ordinary Shares, times (B) the Closing
Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a Registration Statement (as defined in the Registration Rights
Agreement) covering the Additional Investment Right Shares that are the subject
of the Exercise Notice (the "Unavailable Additional Investment Right Shares") is
not available for the resale of such Unavailable Additional Investment Right
Shares, the Holder may, in its sole discretion, exercise this Additional
Investment Right in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise in payment
of the Aggregate Exercise Price, elect instead to receive upon such exercise the
"Net Number" of Ordinary Shares determined according to the following formula (a
"Cashless Exercise"):
3
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this
Additional Investment Right is then being exercised.
B= the Closing Sale Price of the Ordinary Shares (as
reported by Bloomberg) on the date immediately preceding
the date of the Exercise Notice.
C= the Exercise Price then in effect for the applicable
Additional Investment Right Shares at the time of such
exercise.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Additional Investment Right
Shares, the Company shall promptly issue to the Holder the number of Additional
Investment Right Shares that are not disputed and resolve such dispute in
accordance with Section 12.
(f) Limitations on Exercises.
(i) Beneficial Ownership. The Company shall not effect the exercise of
this Additional Investment Right, and the Holder shall not have the right
to exercise this Additional Investment Right, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own in excess of 4.99% of the Ordinary
Shares outstanding immediately after giving effect to such exercise. For
purposes of the foregoing sentence, the aggregate number of Ordinary Shares
beneficially owned by such Person and its affiliates shall include the
number of Ordinary Shares issuable upon exercise of this Additional
Investment Right with respect to which the determination of such sentence
is being made, but shall exclude Ordinary Shares which would be issuable
upon (i) exercise of the remaining, unexercised portion of this Additional
Investment Right beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company beneficially owned by such Person and
its affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except
as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended. For purposes of this
Additional Investment Right, in determining the number of outstanding
Ordinary Shares, the Holder may rely on the number of outstanding Ordinary
Shares as reflected in (1) the Company's most recent Form 20-F, Form 6-K or
other public filing with the Securities and Exchange Commission, as the
case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or the Transfer Agent setting forth the
number of Ordinary Shares outstanding. For any reason at any time, upon the
4
written or oral request of the Holder, the Company shall within one
Business Day confirm orally and in writing to the Holder the number of
Ordinary Shares then outstanding. In any case, the number of outstanding
Ordinary Shares shall be determined after giving effect to the conversion
or exercise of securities of the Company, including the SPA Securities and
the AIRs, by the Holder and its affiliates since the date as of which such
number of outstanding Ordinary Shares was reported.
(ii) Principal Market Regulation. The Company shall not be obligated
to issue any Ordinary Shares upon exercise of this Additional Investment
Right if the issuance of such Ordinary Shares would exceed that number of
Ordinary Shares which the Company may issue upon exercise of this
Additional Investment Right (including, as applicable, any Ordinary Shares
issued upon exercise or conversion, as applicable, of the SPA Securities)
without breaching the Company's obligations under the rules or regulations
of the Principal Market (the "Exchange Cap"), except that such limitation
shall not apply in the event that the Company (A) obtains the approval of
its shareholders as required by the applicable rules of the Principal
Market for issuances of Ordinary Shares in excess of such amount (the
"Shareholder Approval") or (B) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders. Until such
approval or written opinion is obtained, no Buyer shall be issued, upon
exercise or conversion, as applicable, of any AIRs or SPA Securities,
Ordinary Shares in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the total number of
Ordinary Shares issued to such Buyer pursuant to the Securities Purchase
Agreement on the Closing Date (as defined in the Securities Purchase
Agreement) and the denominator of which is the aggregate number of Ordinary
Shares issued to the Buyers pursuant to the Securities Purchase Agreement
on the Closing Date (with respect to each Buyer, the "Exchange Cap
Allocation"). In the event that any Buyer shall sell or otherwise transfer
any of such Buyer's AIRs, the transferee shall be allocated a pro rata
portion of such Buyer's Exchange Cap Allocation, and the restrictions of
the prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such transferee. In the
event that any holder of AIRs shall exercise all of such holder's AIRs into
a number of Ordinary Shares which, in the aggregate, is less than such
holder's Exchange Cap Allocation, then the difference between such holder's
Exchange Cap Allocation and the number of Ordinary Shares actually issued
to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of AIRs on a pro rata basis in
proportion to the Ordinary Shares underlying the AIRs then held by each
such holder. In the event that the Company is prohibited from issuing any
Additional Investment Right Shares for which an Exercise Notice has been
received as a result of the operation of this Section 1(f)(ii), the Company
shall pay cash in exchange for cancellation of such Additional Investment
Right Shares, at a price per Additional Investment Right Share equal to the
difference between the Closing Sale Price and the Exercise Price as of the
date of the attempted exercise.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF ADDITIONAL INVESTMENT RIGHT
SHARES. The Exercise Price and the number of Additional Investment Right Shares
shall be adjusted from time to time as follows:
(a) Adjustment upon Issuance of Ordinary Shares. If and whenever on or
after the Subscription Date the Company issues or sells, or in accordance with
this Section 2 is deemed to have issued or sold, any Ordinary Shares (including
the issuance or sale of Ordinary
5
Shares owned or held by or for the account of the Company, but excluding
Ordinary Shares deemed to have been issued by the Company in connection with any
Excluded Securities (as defined in the Securities Purchase Agreement)) for a
consideration per share less than a price (the "Applicable Price") equal to the
Exercise Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a "Dilutive Issuance"), then immediately after
such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the product of (A) the Exercise Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of Ordinary Shares
Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Ordinary
Shares Deemed Outstanding immediately after such Dilutive Issuance. Upon each
such adjustment of the Exercise Price hereunder, the number of Additional
Investment Right Shares shall be adjusted to the number of Ordinary Shares
determined by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Additional Investment Right Shares acquirable upon
exercise of this Additional Investment Right immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. For purposes of determining the adjusted Exercise Price under
this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Ordinary
Shares is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option is less than the Applicable Price, then such share of
Ordinary Shares shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the granting or sale of such Option
for such price per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Ordinary Shares is issuable upon
exercise of such Options or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one share of Ordinary Shares upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Exercise Price or number of Additional
Investment Right Shares shall be made upon the actual issuance of such
Ordinary Shares or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Ordinary Shares upon
conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one share of Ordinary Shares is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Ordinary Shares shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(a)(ii), the "lowest price per share for which one share of
Ordinary Shares is issuable upon the conversion, exercise or exchange"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Ordinary
Shares upon the
6
issuance or sale of the Convertible Security and upon conversion, exercise
or exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Additional Investment Right Shares shall be
made upon the actual issuance of such Ordinary Shares upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue
or sale of such Convertible Securities is made upon exercise of any Options
for which adjustment of this Additional Investment Right has been or is to
be made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Additional Investment Right
Shares shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exercisable or exchangeable for Ordinary Shares increases or
decreases at any time, the Exercise Price and the number of Additional
Investment Right Shares in effect at the time of such increase or decrease
shall be adjusted to the Exercise Price and the number of Additional
Investment Right Shares which would have been in effect at such time had
such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 2(a)(iii), if the
terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Additional Investment Right are increased or
decreased in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Ordinary Shares deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to
have been issued as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment would result
in an increase of the Exercise Price then in effect or a decrease in the
number of Additional Investment Right Shares.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of
$0.01. If any Ordinary Shares, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Company therefor. If any Ordinary Shares, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt. If any Ordinary
Shares, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Ordinary Shares, Options or
Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by
the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration
will be determined within five (5) Business Days after the tenth day
following the Valuation Event by an
7
independent, reputable appraiser jointly selected by the Company and the
Required Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
Ordinary Shares for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Ordinary Shares, Options or in Convertible
Securities or (B) to subscribe for or purchase Ordinary Shares, Options or
Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Ordinary Shares deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(vi) Until such time as the Company receives the Shareholder Approval,
no adjustment pursuant to Section 2(a) shall cause the Exercise Price to be
less than $______, as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction.
(b) Adjustment upon Subdivision or Combination of Ordinary Shares. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding Ordinary Shares into a greater number of shares, the Exercise Price
in effect immediately prior to such subdivision will be proportionately reduced
and the number of Additional Investment Right Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding Ordinary Shares into a smaller number of shares, the Exercise Price
in effect immediately prior to such combination will be proportionately
increased and the number of Additional Investment Right Shares will be
proportionately decreased. Any adjustment under this Section 2(b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Additional Investment Right Shares so as to protect the rights of
the Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Additional Investment
Right Shares as otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Ordinary Shares, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of this
Additional Investment Right, then, in each such case:
8
(a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of Ordinary Shares
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the Ordinary Shares on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Ordinary Shares,
and (ii) the denominator shall be the Closing Bid Price of the Ordinary Shares
on the trading day immediately preceding such record date; and
(b) the number of Additional Investment Right Shares shall be increased to
a number of shares equal to the number of Ordinary Shares obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of Ordinary Shares entitled to receive the Distribution multiplied by
the reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of Ordinary Shares (or
common stock) ("Other Ordinary Shares") of a company whose Ordinary Shares (or
common stock) are traded on a national securities exchange or a national
automated quotation system, then the Holder may elect to receive an additional
investment right to purchase Other Ordinary Shares in lieu of an increase in the
number of Additional Investment Right Shares, the terms of which shall be
identical to those of this Additional Investment Right, except that such
additional investment right shall be exercisable into the number of shares of
Other Ordinary Shares that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Additional Investment Right
immediately prior to such record date and with an aggregate exercise price equal
to the product of the amount by which the exercise price of this Additional
Investment Right was decreased with respect to the Distribution pursuant to the
terms of the immediately preceding paragraph (a) and the number of Additional
Investment Right Shares calculated in accordance with the first part of this
paragraph (b).
4. PURCHASE RIGHTS; ORGANIC CHANGE.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Ordinary Shares
(the "Purchase Rights"), then the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
the Holder could have acquired if the Holder had held the number of Ordinary
Shares acquirable upon complete exercise of this Additional Investment Right
(without regard to any limitations on the exercise of this Additional Investment
Right) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Ordinary Shares are to be determined for
the grant, issue or sale of such Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction (as defined in the Notes), unless (i) the Person
formed by or surviving any such Fundamental Transaction (if other than the
Company) or the Person to which such Fundamental Transaction shall have been
made assumes all the obligations of the
9
Company under this Additional Investment Right and the other Transaction
Documents (as defined in the Securities Purchase Agreement) pursuant to written
agreements in form and substance satisfactory to the Required Holders and
approved by the Required Holders prior to such Fundamental Transaction, and
including agreements to deliver to each holder of AIRs in exchange for such
AIRs, a security of the Person formed by or surviving any such Fundamental
Transaction (if other than the Company) or the Person to which such Fundamental
Transaction shall have been made evidenced by a written instrument substantially
similar in form and substance to the AIRs, including, without limitation, an
adjusted exercise price equal to the value for the Ordinary Shares reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of Ordinary Shares acquirable and receivable upon exercise of this
Additional Investment Right (without regard to any limitations on the exercise
of this Additional Investment Right), if the value so reflected is less than the
Exercise Price in effect immediately prior to such Fundamental Transaction, and
(ii) the Company or the Person formed by or surviving any such Fundamental
Transaction or to which such Fundamental Transaction shall have been made is a
publicly traded entity whose common stock or equivalent equity security is
quoted on or listed for trading on an Eligible Market (as defined in the Notes).
Upon any Fundamental Transaction, the successor entity to such Fundamental
Transaction shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Additional
Investment Right referring to such "Company" shall refer instead to the
successor entity or, if so elected by the Required Holders, by the entity that,
directly or indirectly, controls such successor entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Additional Investment Right with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from its obligations under the
Transaction Documents except in the case of a Fundamental Transaction that meets
the requirements of this section. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of Ordinary Shares are entitled to receive securities
or other assets with respect to or in exchange for Ordinary Shares (a "Corporate
Event"), the Company shall make appropriate provision to insure that the Holder
will thereafter have the right to receive upon an exercise of this Additional
Investment Right, (i) in addition to the Ordinary Shares receivable upon such
exercise, such securities or other assets to which the Holder would have been
entitled with respect to such Ordinary Shares had such Ordinary Shares been held
by the Holder upon the consummation of such Corporate Event (without regard to
any limitations on the exercise of this Additional Investment Right) or (ii) in
lieu of the Ordinary Shares otherwise receivable upon such exercise, such
securities or other assets received by the holders of Ordinary Shares in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Additional Investment Right
initially been issued with exercise rights for the form of such consideration
(as opposed to Ordinary Shares) at an exercise price for such consideration
commensurate with the Exercise Price. Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required Holders.
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Association, Memorandum of
10
Association or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, 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 Additional Investment Right, and will at all times in
good faith carry out all the provisions of this Additional Investment Right and
take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not increase the
nominal value of any Ordinary Shares receivable upon the exercise of this
Additional Investment Right above the Exercise Price then in effect, (ii) shall
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Ordinary
Shares upon the exercise of this Additional Investment Right, and (iii) shall,
so long as any of the AIRs are outstanding, take all action necessary to reserve
and keep available out of its authorized and unissued Ordinary Shares, solely
for the purpose of effecting the exercise of the AIRs, 130% of the number of
Ordinary Shares as shall from time to time be necessary to effect the exercise
of the AIRs then outstanding (without regard to any limitations on exercise).
6. ADDITIONAL INVESTMENT RIGHT HOLDER NOT DEEMED A STOCKHOLDER. Except as
otherwise specifically provided herein, the Holder, solely in such Person's
capacity as a holder of this Additional Investment Right, shall not be entitled
to vote or receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this Additional
Investment Right be construed to confer upon the Holder, solely in such Person's
capacity as the Holder of this Additional Investment Right, any of the rights of
a shareholder of the Company or any right to vote, give or withhold consent to
any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Additional Investment
Right Shares which such Person is then entitled to receive upon the due exercise
of this Additional Investment Right. In addition, nothing contained in this
Additional Investment Right shall be construed as imposing any liabilities on
the Holder to purchase any securities (upon exercise of this Additional
Investment Right or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.
7. REISSUANCE OF ADDITIONAL INVESTMENT RIGHTS.
(a) Transfer of Additional Investment Right. If this Additional Investment
Right is to be transferred, the Holder shall surrender this Additional
Investment Right to the Company, whereupon the Company will forthwith issue and
deliver upon the order of the Holder a new Additional Investment Right (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Additional Investment Right
Shares being transferred by the Holder and, if less then the total number of
Additional Investment Right Shares then underlying this Additional Investment
Right is being transferred, a new Additional Investment Right (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Additional Investment Right Shares not being transferred.
11
(b) Lost, Stolen or Mutilated Additional Investment Right. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Additional Investment Right, and, in
the case of loss, theft or destruction, of any indemnification undertaking by
the Holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this Additional Investment Right, the Company
shall execute and deliver to the Holder a new Additional Investment Right (in
accordance with Section 7(d)) representing the right to purchase the Additional
Investment Right Shares then underlying this Additional Investment Right.
(c) Additional Investment Right Exchangeable for Multiple Additional
Investment Rights. This Additional Investment Right is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Additional Investment Right or Additional Investment Rights (in accordance with
Section 7(d)) representing in the aggregate the right to purchase the number of
Additional Investment Right Shares then underlying this Additional Investment
Right, and each such new Additional Investment Right will represent the right to
purchase such portion of such Additional Investment Right Shares as is
designated by the Holder at the time of such surrender; provided, however, that
no Additional Investment Rights for fractional Ordinary Shares shall be given.
(d) Issuance of New Additional Investment Right. Whenever the Company is
required to issue a new Additional Investment Right pursuant to the terms of
this Additional Investment Right, such new Additional Investment Right (i) shall
be of like tenor with this Additional Investment Right, (ii) shall represent, as
indicated on the face of such new Additional Investment Right, the right to
purchase the Additional Investment Right Shares then underlying this Additional
Investment Right (or in the case of a new Additional Investment Right being
issued pursuant to Section 7(a) or Section 7(c), the Additional Investment Right
Shares designated by the Holder which, when added to the number of Ordinary
Shares underlying the other new Additional Investment Rights issued in
connection with such issuance, does not exceed the number of Additional
Investment Right Shares then underlying this Additional Investment Right), (iii)
shall have an issuance date, as indicated on the face of such new Additional
Investment Right which is the same as the Issuance Date, and (iv) shall have the
same rights and conditions as this Additional Investment Right.
8. NOTICES. Whenever notice is required to be given under this Additional
Investment Right, unless otherwise provided herein, such notice shall be given
in accordance with Section 9(f) of the Securities Purchase Agreement. The
Company shall provide the Holder with prompt written notice of all actions taken
pursuant to this Additional Investment Right, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the
Ordinary Shares, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Ordinary Shares or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
12
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Additional Investment Right may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Required Holders; provided that no such action may increase the
exercise price of any AIRs or decrease the number of shares or class of stock
obtainable upon exercise of any AIRs without the written consent of the Holder.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the AIRs then outstanding.
10. GOVERNING LAW. Except for matters that are inherently governed by the
corporate laws of the State of Israel, this Additional Investment Right shall be
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Additional
Investment Right shall be governed by, the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York.
11. CONSTRUCTION; HEADINGS. This Additional Investment Right shall be
deemed to be jointly drafted by the Company and all the Buyers and shall not be
construed against any person as the drafter hereof. The headings of this
Additional Investment Right are for convenience of reference and shall not form
part of, or affect the interpretation of, this Additional Investment Right.
12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Exercise Price or the arithmetic calculation of the Additional Investment
Right Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Additional Investment Right Shares
within three Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within two
Business Days submit via facsimile (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Additional Investment Right Shares to the Company's independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Additional Investment Right shall be cumulative and in
addition to all other remedies available under this Additional Investment Right
and the other Transaction Documents, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall
limit the right of the Holder right to pursue actual damages for any failure by
the Company to comply with the terms of this Additional Investment Right. The
Company acknowledges that a breach by it of its obligations hereunder
13
will cause irreparable harm to the Holder and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in the event
of any such breach or threatened breach, the holder of this Additional
Investment Right shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.
14. TRANSFER. This Additional Investment Right may be offered for sale,
sold, transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.
15. CERTAIN DEFINITIONS. For purposes of this Additional Investment Right,
the following terms shall have the following meanings:
(a) "Bloomberg" means Bloomberg Financial Markets.
(b) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(c) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(d) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Ordinary Shares.
14
(e) "Effective Date" means the date on which the Registration Statement (as
defined in the Registration Rights Agreement) is first declared effective by the
Securities and Exchange Commission.
(f) "Expiration Date" means the date that is the 24 month anniversary of
the Effective Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a "Holiday"), the
next date that is not a Holiday; provided, however, if, at any time after the
Effective Date and prior to the original Expiration Date the Registration
Statement (as defined in the Registration Rights Agreement) is not effective and
available for the resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) (including during an Allowable Grace Period (as
defined in the Registration Rights Agreement)), such original Expiration Date
shall automatically be extended by such number of days after the Effective Date
and prior to the original Expiration Date that the Registration Statement was
not effective and available for the resale of all of the Registrable Securities.
(g) "Notes" means the senior secured convertible notes issued pursuant to
the Securities Purchase Agreement.
(h) "Options" means any rights, warrants or options to subscribe for or
purchase Ordinary Shares or Convertible Securities.
(i) "Ordinary Shares" means (i) the Company's Ordinary Shares, NIS 0.005
nominal value per share, and (ii) any share capita into which such Ordinary
Shares shall have been changed or any share capital resulting from a
reclassification of such Ordinary Shares.
(j) "Ordinary Shares Deemed Outstanding" means, at any given time, the
number of Ordinary Shares actually outstanding at such time, plus the number of
Ordinary Shares deemed to be outstanding pursuant to Sections 2(a)(i) and
2(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Ordinary Shares owned or
held by or for the account of the Company or issuable upon conversion or
exercise, as applicable, of the AIRs and the SPA Securities.
(k) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(l) "Principal Market" means The Nasdaq Small Cap Market.
(m) "Registration Rights Agreement" means that certain registration rights
agreement by and among the Company and the Buyers.
(n) "Required Holders" means the holders of the AIRs representing at least
a majority of Ordinary Shares underlying the AIRs then outstanding.
(o) "SPA Securities" means the Notes and the Warrants.
15
(p) "Warrants" means the Warrants issued pursuant to the Securities
Purchase Agreement.
[Signature Page Follows]
16
IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to Purchase Ordinary Shares to be duly executed as of the Issuance Date
set out above.
RADA ELECTRONIC INDUSTRIES LTD.
By:
-----------------------------
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
ADDITIONAL INVESTMENT RIGHT TO PURCHASE ORDINARY SHARES
RADA ELECTRONIC INDUSTRIES LTD.
The undersigned holder hereby exercises the right to purchase
_________________ of the Ordinary Shares ("Additional Investment Right Shares")
of RADA Electronic Industries Ltd., a corporation organized under the laws of
the State of Israel (the "Company"), evidenced by the attached Additional
Investment Right to Purchase Ordinary Shares (the "Additional Investment
Right"). Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Additional Investment Right.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
_____ a "Cash Exercise" with respect to ______________ Additional
Investment Right Shares; and/or
_____ a "Cashless Exercise" with respect to ___________
Additional Investment Right Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Additional Investment Right
Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise
Price in the sum of $___________________ to the Company in accordance with the
terms of the Additional Investment Right.
3. Delivery of Additional Investment Right Shares. The Company shall
deliver to the holder __________ Additional Investment Right Shares in
accordance with the terms of the Additional Investment Right.
Date: _______________ __, ______
__________________________
Name of Registered Holder
By:
----------------------------
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
Ordinary Shares in accordance with the Transfer Agent Instructions dated July
__, 2004 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Co.
RADA ELECTRONIC INDUSTRIES LTD.
By:
-----------------------------
Name:
Title:
ITEM 6
DEBENTURE
(Unlimited in Amount)
This DEBENTURE dated as of July 12, 2004, is made by RADA Electronic
Industries Ltd., an Israeli company (the "Grantor"), in favor of Smithfield
Fiduciary LLC, a Cayman Island limited liability company, in its capacity as
agent (in such capacity, the "Collateral Agent") on behalf of the Buyers
referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Grantor has issued on July 12, 2004 to each party listed as a
"Buyer" on the Schedule of Buyers attached to the Securities Purchase Agreement
(as defined below) by and between the Grantor and such Buyers a Convertible Note
(collectively, the "Notes"); and
WHEREAS, it is a condition precedent to the Buyers purchase of the Notes,
that the Grantor shall have executed and delivered to the Collateral Agent for
the benefit of the Buyers a floating charge over all the assets of the Grantor;
and
WHEREAS, the Grantor has determined that the execution, delivery and
performance of this Debenture directly benefits, and are in the best interest
of, the Grantor;
NOW, THEREFORE, in consideration of the premises and the agreements herein,
the Grantor agrees with the Collateral Agent, for the benefit of the Buyers, as
follows:
Section 1. Definitions.
Reference is hereby made to the Securities Purchase Agreement and the senior
secured convertible notes executed in connection therewith (the "Notes") for a
statement of the terms thereof. All terms used in this Debenture and the
recitals hereto which are defined in the Securities Purchase Agreement and the
Notes and which are not otherwise defined herein shall have the same meanings
herein as set forth therein. As used in this Debenture, the following terms
shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Account" means all present and future rights of the Grantor to payment of
a monetary obligation, whether or not earned by performance, which is not
evidenced by chattel paper or an instrument, (a) for property that has been or
is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for
services rendered or to be rendered, (c) for a secondary obligation incurred or
to be incurred, or (d) arising out of the use of a credit or charge card or
information contained in or for use with the card.
"Copyright Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming the Grantor as licensee or licensor and
providing for the grant of any right to use or sell any works covered by any
copyright.
"Copyrights" means all domestic and foreign copyrights, whether registered
or not, without limitation, all copyright rights throughout the universe
(whether now or hereafter arising) in any and all media (whether now or
hereafter developed), in and to all original works of authorship fixed in any
tangible medium of expression, acquired or used by the Grantor, all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.
"Event of Default" shall have the meaning set forth in the Notes.
"Governmental Authority" means any government, any state, city, town,
municipality, local or other political subdivision thereof or thereto and any
department, commission, board, bureau, instrumentality, agency or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government, including,
but not limited to, the Investment Center and the OCS.
"Intellectual Property" means the Copyrights, Trademarks and Patents.
"Registrar" means Israeli Companies Registrar.
"Licenses" means the Copyright Licenses, the Trademark Licenses and the
Patent Licenses.
"OCS" means the Office of the Chief Scientist, Israeli Ministry of Industry
and Trade.
"Patent Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming the Grantor as licensee or licensor and
providing for the grant of any right to manufacture, use or sell any invention
covered by any Patent.
"Patents" means all domestic and foreign letters patent, design patents,
utility patents, industrial designs, inventions, trade secrets, ideas, concepts,
methods, techniques, processes, proprietary information, technology, know-how,
formulae, rights of publicity and other general intangibles of like nature, now
existing or hereafter acquired, all applications, registrations and recordings
thereof (including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office, or in any similar
office or agency of the United States or any other country or any political
subdivision thereof), and all reissues, divisions, continuations, continuations
in part and extensions or renewals thereof.
"Securities Purchase Agreement" means the Securities Purchase Agreement
entered into between the Grantor and each party listed as a "Buyer" on the
Schedule of Buyers attached thereto, dated as of July 9, 2004 (such agreement,
as amended, restated or otherwise modified from time to time.
"Trademark Licenses" means all licenses, contracts or other agreements,
whether written or oral, naming the Grantor as licensor or licensee and
providing for the grant of any right concerning any Trademark, together with any
goodwill connected with and symbolized by
2
any such trademark licenses, contracts or agreements and the right to prepare
for sale or lease and sell or lease any and all inventory now or hereafter owned
by the Grantor and now or hereafter covered by such licenses.
"Trademarks" means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a's,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by the Grantor (including, without limitation, all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a's, Internet domain names, trade
styles, designs, logos and other source or business identifiers described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state thereof or any other country or any political
subdivision thereof), and all reissues, extensions or renewals thereof, together
with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other records of the Grantor relating to the distribution of
products and services in connection with which any of such marks are used.
Section 2. Grant of Charge. As collateral security for all of the
Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and
assigns to the Collateral Agent, and grants to the Collateral Agent for the
benefit of the Buyers:
A first ranking floating charge, second in rank only to the floating
charges listed on Schedule 2 hereto made in favor of Bank Hapoalim B.M. and Bank
Leumi Le-Israel B.M., (collectively the "Banks" and such charges, the "Banks'
Liens") to secure the Current Debt Facility, over all assets of the Grantor,
wherever located and whether now or hereafter existing and whether now owned or
hereafter acquired, of every kind and description, tangible or intangible (the
"Collateral" and such charge, the "Floating Charge"), including, without
limitation, the following:
(a) all the assets, monies, property and rights of any kind whatsoever
without exception, whether now or hereafter at any time in the future owned by
or in the possession of the Grantor in any manner or way whatsoever, including,
without limitation, any intangible assets;
(b) all the current assets, without exception, now or hereafter at any time
in the future owned by or in the possession of the Grantor in any manner or way
whatsoever, the expression "current assets" meaning all the assets, monies,
property and rights of any kind with the exception of land, buildings and
fixtures;
(c) all the fixed assets now or hereafter at any time in the future owned
by or in possession of the Grantor in any manner or way whatsoever, the
expression "fixed assets" to include, inter alia, land, buildings and fixtures;
3
(d) all the securities and other documents or instruments owned by the
Grantor now and at any time in the future held by Grantor and/or any rights in
respect thereof; and
(e) all other tangible and intangible personal property of the Grantor,
including, without limitation, all bank and other accounts and all cash and all
investments therein, all proceeds, products, offspring, accessions, rents,
profits, income, benefits, substitutions and replacements of and to any of the
property of the Grantor described in the preceding clauses of this Section 2
(including, without limitation, any proceeds of insurance thereon and all causes
of action, claims and warranties now or hereafter held by the Grantor in respect
of any of the items listed above), and all books, correspondence, files and
other records, including, without limitation, all tapes, desks, cards, software,
data and computer programs in the possession or under the control of the Grantor
or any other Person from time to time acting for the Grantor that at any time
evidence or contain information relating to any of the property described in the
preceding clauses of this Section 2 or are otherwise necessary or helpful in the
collection or realization thereof.
in each case howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
Section 3. Security for Obligations. The charge created hereby over the
Collateral constitutes continuing collateral security for the Grantor's payment
and performance of its obligations under the Notes (the "Obligations").
Section 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) Schedule I hereto sets forth (i) the exact legal name of the Grantor
and (ii) the organizational identification number of the Grantor.
(b) The Grantor (i) is a company validly existing under the laws of the
state of Israel and (ii) has all requisite power and authority to execute,
deliver and perform this Debenture and to consummate the transactions
contemplated hereby.
(c) The execution, delivery and performance by the Grantor of this
Debenture (i) have been duly authorized by all necessary action, (ii) do not
and, based on current applicable law, will not contravene its memorandum or
articles of association or any applicable law or any contractual restriction
binding on or otherwise affecting the Grantor or its properties, (iii) do not
and, based on current applicable law, will not result in or require the creation
of any Lien upon or with respect to any of its properties and (iv) do not result
in any default, noncompliance, suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to it
or its operations or any of its properties, which, in the case of this clause
(iv), is reasonably expected to have a Material Adverse Effect.
4
(d) This Debenture is, , when executed and delivered pursuant hereto, will
be, a legal, valid and binding obligation of the Grantor, enforceable against
the Grantor in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws and
principles of equity.
(e) Except as detailed in The Securities Purchase Agreement, there is no
pending or, written notice threatening any, action, suit, proceeding or claim
affecting the Grantor, before any Governmental Authority or any arbitrator, or
any order, judgment or award by any Governmental Authority or arbitrator, that
may adversely affect the grant by the Grantor, or the recordation, of the
charges purported to be created hereby in the Collateral, or the exercise by the
Collateral Agent of any of its rights or remedies hereunder. The Grantor has
received the approval of the OCS (the "OCS Approval") to any change in the
ownership of its assets which may occur as a result of the enforcement by Agent
and its assigns of the security interests created hereunder. The Collateral
Agent acknowledges that it is aware that the OCS Approval is subject to certain
conditions listed in such Approval.
(f) Except as detailed in the Securities Purchase Agreement, all tax
returns and other reports required by applicable law to be filed by the Grantor
have been filed, or extensions have been obtained, and all taxes, assessments
and other governmental charges imposed upon the Grantor or any property of the
Grantor (including, without limitation, all income and other taxes on employees'
wages) and which have become due and payable on or prior to the date hereof have
been paid, except to the extent contested in good faith by proper proceedings
which stay the imposition of any penalty, fine or lien resulting from the
non-payment thereof and with respect to which adequate reserves have been set
aside for the payment thereof on the Financial Statements in accordance with
general accepted accounting principles.
(g) All equipment, fixtures, goods and inventory now existing are, and all
equipment, fixtures, goods and inventory hereafter existing will be, located
and/or based at the addresses specified therefor in Schedule III hereto, except
that the Grantor will give the Collateral Agent not less than five days' prior
written notice of any change of the location of any such Collateral, other than
to locations set forth on Schedule III. The Grantor's chief place of business
and chief executive office, the place where the Grantor keeps its records and
all originals of all chattel paper are located at the addresses specified
therefor in Schedule III hereto. Set forth in Schedule IV hereto is a complete
and accurate list, as of the date of this Debenture, of each deposit account,
securities account and commodities account of the Grantor, together with the
name and address of each institution at which each such account is maintained,
the account number for each such account. Set forth in Schedule II hereto is a
complete and correct list of each trade name used by the Grantor and the name
of, and each trade name used by, each person from which the Grantor has acquired
any substantial part of the Collateral.
(h) [Intentionally left blank]
(i) The Grantor owns and controls, or otherwise possesses adequate rights
to use, all Trademarks, Patents and Copyrights, (if any) which are the only
trademarks, patents, copyrights, inventions, trade secrets, proprietary
information and technology, know-how, formulae, rights of publicity necessary to
conduct its business in substantially the same manner as conducted as of the
date hereof. Schedule II hereto sets forth a true and complete list of all
5
Intellectual Property and Licenses owned or used by the Grantor as of the date
hereof. All such Intellectual Property is subsisting and in full force and
effect, has not been adjudged invalid or unenforceable, is valid and enforceable
and has not been abandoned in whole or in part. Except as set forth in Schedule
II, no such Intellectual Property is the subject of any licensing or franchising
agreement. The Grantor has no knowledge of any conflict with the rights of
others to any Intellectual Property and, to the best knowledge of the Grantor,
the Grantor is not now infringing or in conflict with any such rights of others
in any material respect, and to the best knowledge of the Grantor, no other
Person is now infringing or in conflict in any material respect with any such
properties, assets and rights owned or used by the Grantor. The Grantor has not
received any notice that it is violating or has violated the trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, rights of publicity or other intellectual
property rights of any third party.
(j) The Grantor is and will be at all times the sole and exclusive owner
of, or otherwise have and will have adequate rights in, the Collateral free and
clear of any lien except for Permitted Liens (as defined in the Notes). No
effective financing statement, recordation of charge or other instrument similar
in effect covering all or any part of the Collateral is on file in any recording
or filing office except (A) such as may have been filed in favor of the
Collateral Agent relating to this Debenture and (B) such as may have been, or
will be, filed to perfect or protect any security interests or liens permitted
by the Securities Purchase Agreement or Notes (including the Banks' Liens).
(k) Subject to conditions to the transfer of ownership of assets contained
or referenced in the OCS Approval and any applicable conditions contained in the
consents of the Banks to the creation of the Floating Charge hereunder (the
"Banks' Consents"), the exercise by the Collateral Agent of any of its rights
and remedies hereunder will not contravene any current law or any contractual
restriction binding on or otherwise affecting the Grantor or any of its
properties and will not result in or require the creation of any lien, upon or
with respect to any of its properties.
(l) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or other regulatory body, or any other
Person, other than; (i) the Banks' Consents and any conditions therein relating
to the exercise of the rights of the Collateral Agent hereunder, as detailed in
the Banks' Consents and (ii) the OCS Approval and the fulfillment of any
conditions to the transfer of ownership of any or all of the Collateral
contained or referenced therein, is required for (1) the grant by the Grantor,
or the recordation, of the Floating Charge purported to be created hereby over
and in the Collateral or (2) the exercise by the Collateral Agent of any of its
rights and remedies hereunder, except for the filings under the Israeli
Companies Ordinance - 1983 (the "Companies Ordinance") described in Schedule V
hereto which filings shall be made no later than 21 days from the date hereof.
(m) This Debenture creates in favor of the Collateral Agent a first
priority, legal, valid and enforceable floating charge over the Collateral, as
security for the Obligations, subject only to the Permitted Liens. Such
recordings and all other action necessary or desirable to record such security
interests have been duly taken or will be taken within 21 days of the date
hereof.
6
Section 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing:
(a) Further Assurances. The Grantor will at its expense, at any time and
from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or that
the Collateral Agent may reasonably request in order to (i) protect the lien
purported to be created hereby; (ii) enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder in respect of the Collateral; or (iii)
otherwise effect the purposes of this Debenture.
(b) Location of Equipment and Inventory. The Grantor will keep all
equipment and inventory at the locations specified therefor in Section 4(g)
hereof or, upon not less than thirty (30) days' prior written notice to the
Collateral Agent accompanied by a new Schedule III hereto indicating each new
location of such equipment and inventory, at such other locations in the State
of Israel. Any inventory held by an authorized distributor or sales agent shall
be marked as subject to the Floating Charge created under this Debenture.
(c) Condition of Equipment. The Grantor will maintain or cause the
equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any equipment within
a commercially reasonable time after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection therewith
which are necessary or desirable, consistent with past practice, or which the
Collateral Agent may reasonably request to such end. The Grantor will promptly
furnish to the Collateral Agent a statement describing in reasonable detail any
loss or damage in excess of $250,000 to any equipment.
(d) Taxes, Etc. The Grantor agrees to pay promptly when due all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against, the
equipment and inventory, except to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with general accepted accounting
principles have been set aside for the payment thereof.
(e) Insurance.
(i) The Grantor will, at its own expense, maintain insurance
(including, without limitation, comprehensive general liability and
property insurance) with respect to the equipment and inventory in such
amounts, against such risks, in such form and with responsible and
reputable insurance companies or associations as is required by any
Governmental Authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice by companies
in similar businesses similarly situated and in any event, in amount,
adequacy and scope reasonably satisfactory to the Collateral Agent. Subject
to any applicable conditions in the Current Debt Facility, each policy for
liability insurance shall provide for all losses to be paid on behalf of
the Collateral Agent and the Grantor as their respective interests may
appear, and each policy for property damage insurance shall
7
provide for all losses to be adjusted with, and paid directly to, the
Collateral Agent. Each such policy shall, subject to any applicable
conditions in the Current Debt Facility, in addition, (A) contain an
agreement by the insurer that any loss thereunder shall be payable to the
Collateral Agent on its own account notwithstanding any action, inaction or
breach of representation or warranty by the Grantor, (B) provide that there
shall be no recourse against the Collateral Agent for payment of premiums
or other amounts with respect thereto and (C) provide that at least 10
days' prior written notice of cancellation, lapse, expiration or other
adverse change shall be given to the Collateral Agent by the insurer. The
Grantor will, if so requested by the Collateral Agent, deliver to the
Collateral Agent original or duplicate policies of such insurance. The
Grantor will also, at the request of the Collateral Agent and subject to
any applicable conditions in the Current Debt Facility, execute and deliver
instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment.
(ii) Reimbursement under any liability insurance maintained by the
Grantor pursuant to this Section 5(e) may be paid directly to the Person
who shall have incurred liability covered by such insurance. In the case of
any loss involving damage to equipment or inventory and subject to any
applicable conditions in the Current Debt Facility, any proceeds of
insurance maintained by the Grantor pursuant to this Section 5(e) shall be
paid to the Collateral Agent (except as to which paragraph (iii) of this
Section 5(e) is not applicable), the Grantor will make or cause to be made
the necessary repairs to or replacements of such equipment or inventory,
and any proceeds of insurance maintained by the Grantor pursuant to this
Section 5(e) shall be paid by the Collateral Agent to the Grantor as
reimbursement for the costs of such repairs or replacements.
(iii) Subject to any applicable conditions in the Current Debt
Facility, all insurance payments in respect of such equipment or inventory
shall be paid to the Collateral Agent and applied as specified in Section
7(b) hereof.
(f) Provisions Concerning the Accounts and the Licenses.
(i) The Grantor will (A) give the Collateral Agent at least five days'
notice any change in Grantor's name, identity or organizational structure,
(B) maintain its jurisdiction of incorporation as set forth in Section 4(b)
hereto, (C) immediately notify the Collateral Agent upon obtaining an
organizational identification number, if on the date hereof the Grantor did
not have such identification number, and (D) keep adequate records
concerning the accounts and chattel paper and permit representatives of the
Collateral Agent pursuant to the terms of the Securities Purchase Agreement
to inspect and make abstracts from such records and chattel paper.
(ii) The Grantor will, except as otherwise provided in this subsection
(f), continue to collect, at its own expense, all amounts due or to become
due under the accounts. In connection with such collections, the Grantor
may (and, at the Collateral Agent's direction, will) take such action as
the Grantor or the Collateral Agent may deem necessary or advisable to
enforce collection or performance of the accounts; provided, however, that
subject to any applicable conditions in the Banks' Consents and any
restrictions under applicable law, the Collateral Agent shall have the
right at any time, upon the occurrence and during the continuance of an
Event of Default, to notify the account debtors or obligors under
8
any Accounts of the assignment of such Accounts to the Collateral Agent and
to direct such account debtors or obligors to make payment of all amounts
due or to become due to the Grantor thereunder directly to the Collateral
Agent or its designated agent and, upon such notification and at the
expense of the Grantor and to the extent permitted by law, to enforce
collection of any such Accounts and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as the
Grantor might have done. After receipt by the Grantor of a notice from the
Collateral Agent that the Collateral Agent has notified, intends to notify,
or has enforced or intends to enforce the Grantor's rights against the
account debtors or obligors under any Accounts as referred to in the
proviso to the immediately preceding sentence, (A) all amounts and proceeds
(including instruments) received by the Grantor in respect of the Accounts
shall be received in trust for the benefit of the Collateral Agent
hereunder, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Collateral Agent in the same form as so received
(with any necessary endorsement) to be held as cash collateral and either
(i) credited to the loan account so long as no Event of Default shall have
occurred and be continuing or (ii) if an Event of Default shall have
occurred and be continuing, applied as specified in Section 7 hereof, and
(B) the Grantor will not adjust, settle or compromise the amount or payment
of any Account or release wholly or partly any account debtor or obligor
thereof or allow any credit or discount thereon. In addition, upon the
occurrence and during the continuance of an Event of Default, the
Collateral Agent may (in its sole and absolute discretion) direct any or
all of the banks and financial institutions with which the Grantor either
maintains a deposit account or a lockbox or deposits the proceeds of any
Accounts to send immediately to the Collateral Agent by wire transfer (to
such account as the Collateral Agent shall specify, or in such other manner
as the Collateral Agent shall direct) all or a portion of such securities,
cash, investments and other items held by such institution. Any such
securities, cash, investments and other items so received by the Collateral
Agent shall (in the sole and absolute discretion of the Collateral Agent)
be held as additional Collateral for the Obligations or distributed in
accordance with Section 7 hereof.
(iii) Upon the occurrence and during the continuance of any breach or
default under any material License referred to in Schedule II hereto by any
party thereto other than the Grantor, the Grantor will, promptly after
obtaining knowledge thereof, give the Collateral Agent written notice of
the nature and duration thereof, specifying what action, if any, it has
taken and proposes to take with respect thereto and thereafter will take
reasonable steps to protect and preserve its rights and remedies in respect
of such breach or default, or will obtain or acquire an appropriate
substitute License.
(iv) The Grantor will, at its expense, promptly deliver to the
Collateral Agent a copy of each notice or other communication received by
it by which any other party to any material License referred to in Schedule
II hereto purports to exercise any of its rights or affect any of its
obligations thereunder, together with a copy of any reply by the Grantor.
(v) The Grantor will exercise promptly and diligently each and every
right which it may have under each material License (other than any right
of termination) and will duly perform and observe in all respects all of
its obligations under each material License and will take all action
necessary to maintain such Licenses in full force and effect. The Grantor
will not, without the prior written consent of the Collateral Agent,
cancel, terminate, amend or
9
otherwise modify in any respect, or waive any provision of, any material
License referred to in Schedule II hereto.
(g) Transfers and Other liens.
(i) The Grantor will not sell, assign (by operation of law or
otherwise), lease, license, exchange or otherwise transfer or dispose of
any of the Collateral, except (a) for inventory and Intellectual Property
in the ordinary course of business; (b) worn out or obsolete assets not
necessary to the business, and; (c) as otherwise permitted by the
Transaction Documents.
(ii) The Grantor will not create, suffer to exist or grant any lien or
other charge, whether floating or fixed, upon or with respect to any
Collateral, other than a Permitted Lien.
(h) Intellectual Property.
(i) The Grantor (either itself or through licensees) will, and will
cause each licensee thereof to, take all action necessary to maintain all
of the Intellectual Property in full force and effect, including, without
limitation, using the proper statutory notices and markings and using the
Trademarks on each applicable trademark class of goods in order to so
maintain the Trademarks in full force free, from any claim of abandonment
for non-use, and the Grantor will not (nor permit any licensee thereof to)
do any act or knowingly omit to do any act whereby any Intellectual
Property may become invalidated; provided, however, that so long as no
Event of Default has occurred and is continuing, the Grantor shall not have
an obligation to use or to maintain any Intellectual Property (A) that
relates solely to any product or work, that has been, or is in the process
of being, discontinued, abandoned or terminated, (B) that is being replaced
with Intellectual Property substantially similar to the Intellectual
Property that may be abandoned or otherwise become invalid, so long as the
failure to use or maintain such Intellectual Property does not materially
adversely affect the validity of such replacement Intellectual Property and
so long as such replacement Intellectual Property is subject to the lien
created by this Debenture or (C) that is substantially the same as another
Intellectual Property that is in full force, so long the failure to use or
maintain such Intellectual Property does not materially adversely affect
the validity of such replacement Intellectual Property and so long as such
other Intellectual Property is subject to the lien and security interest
created by this Debenture. The Grantor will cause to be taken all necessary
steps in any proceeding before the United States Patent and Trademark
Office and the United States Copyright Office or any similar office or
agency in any other country or political subdivision thereof to maintain
each registration of the Intellectual Property (other than the Intellectual
Property described in the proviso to the immediately preceding sentence),
including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and
cancellation proceedings and payment of maintenance fees, filing fees,
taxes or other governmental fees. If any Intellectual Property (other than
Intellectual Property described in the proviso to the first sentence of
subsection (i) of this clause (h)) is infringed, misappropriated, diluted
or otherwise violated in any material respect by a third party, the Grantor
shall (x) upon learning of such infringement, misappropriation, dilution or
other violation, promptly notify the Collateral Agent and (y) to the extent
the Grantor shall deem appropriate under the circumstances, promptly sue
for infringement, misappropriation, dilution or other violation,
10
seek injunctive relief where appropriate and recover any and all damages
for such infringement, misappropriation, dilution or other violation, or
take such other actions as the Grantor shall deem appropriate under the
circumstances to protect such Intellectual Property. The Grantor shall
furnish to the Collateral Agent from time to time upon its request
statements and schedules further identifying and describing the
Intellectual Property and Licenses and such other reports in connection
with the Intellectual Property and Licenses as the Collateral Agent may
reasonably request, all in reasonable detail and promptly upon request of
the Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, the Grantor shall modify this Debenture
by amending Schedule II hereto, as the case may be, to include any
Intellectual Property or License, as the case may be, which becomes part of
the Collateral under this Debenture and shall execute and authenticate such
documents and do such acts as shall be necessary or, in the judgment of the
Collateral Agent, desirable to subject such Intellectual Property and
Licenses to the Floating Charge created by this Debenture. Notwithstanding
anything herein to the contrary, upon the occurrence and during the
continuance of an Event of Default, the Grantor may not abandon or
otherwise permit any Intellectual Property to become invalid without the
prior written consent of the Collateral Agent, and if any Intellectual
Property is infringed, misappropriated, diluted or otherwise violated in
any material respect by a third party, the Grantor will take such action as
the Collateral Agent shall deem appropriate under the circumstances to
protect such Intellectual Property.
(ii) In no event shall the Grantor, either itself or through any
agent, employee, licensee or designee, file an application for the
registration of any Trademark or Copyright or the issuance of any Patent
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, or in any similar office or agency of the
United States or any country or any political subdivision thereof unless it
gives the Collateral Agent prior written notice thereof. Upon request of
the Collateral Agent, the Grantor shall execute, authenticate and deliver
any and all assignments, agreements, instruments, documents and papers as
the Collateral Agent may reasonably request to evidence the Collateral
Agent's security interest hereunder in such Intellectual Property and the
general intangibles of the Grantor relating thereto or represented thereby,
and the Grantor hereby appoints the Collateral Agent its attorney-in-fact
to execute and/or authenticate and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed,
and such power (being coupled with an interest) shall be irrevocable until
the termination of all Commitments, the repayment of all of the Obligations
in full and the termination of each of the Transaction Documents.
(i) [Intentionally Left Blank].
(j) [Intentionally Left Blank]
(k) [Intentionally Left Blank]
(l) Inspection and Reporting. The Grantor shall permit the Collateral
Agent, or any agents or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate not more twice a year in the
absence of an Event of Default, upon prior notice and during reasonable business
hours (i) to examine and make copies of and abstracts from the Grantor's records
and books of account, (ii) to visit and inspect its properties, (iii) to verify
materials, leases, notes, accounts, inventory and other assets of the Grantor
from time to
11
time, (iii) to conduct audits, physical counts, appraisals and/or valuations.
The Grantor shall also permit the Collateral Agent, or any agent or
representatives thereof or such professionals or other Persons as the Collateral
Agent may designate to discuss the Grantor's affairs, finances and accounts with
any of its directors, officers, managerial employees, independent accountants or
any of its other representatives, during reasonable hours and subject to the
execution of customary confidentiality and non disclosure undertaking.
Section 6. Additional Provisions Concerning the Collateral.
(a) The Grantor hereby undertakes to make, within 21 days of the date
hereof, all required filings with the Registrar in order to record the Floating
Charge contemplated herein. In addition, the Grantor agrees to promptly pay the
Israeli stamp tax due in connection with the issuance of this Debenture prior to
its recordation.
(b) Subject to any applicable conditions in the Banks' Consents and any
restrictions under applicable law, the Grantor hereby irrevocably appoints the
Collateral Agent as its attorney-in-fact and proxy, with full authority in the
place and stead of the Grantor and in the name of the Grantor or otherwise, from
time to time in the Collateral Agent's discretion, to take any action and to
execute any instrument which the Collateral Agent may deem necessary or
advisable to accomplish the purposes of this Debenture (subject to the rights of
the Grantor under Section 5 hereof), including, without limitation, (i) to
obtain and adjust insurance required to be paid to the Collateral Agent pursuant
to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and to become
due under or in respect of any Collateral, (iii) to receive, endorse, and
collect any drafts or other instruments, documents and chattel paper in
connection with clause (i) or (ii) above, (iv) to file any claims or take any
action or institute any proceedings which the Collateral Agent may deem
necessary or desirable for the collection of any Collateral or otherwise to
enforce the rights of the Collateral Agent and the Buyers with respect to any
Collateral, and (v) to execute assignments, licenses and other documents to
enforce the rights of the Collateral Agent and the Buyers with respect to any
Collateral. This power is coupled with an interest and is irrevocable until all
of the Obligations are indefeasibly paid in cash.
(c) For the purpose of enabling the Collateral Agent to exercise rights and
remedies hereunder, at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, and for no other purpose, and
subject to any applicable conditions in the Banks' Consents and any restrictions
under applicable law, the Grantor hereby grants to the Collateral Agent, to the
extent assignable, an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to the Grantor) to use, assign, license
or sublicense any Intellectual Property now owned or hereafter acquired by the
Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to the
provisions of the Securities Purchase Agreement that limit the right of the
Grantor to dispose of its property and Section 5(h) hereof, so long as no Event
of Default shall have occurred and be continuing, the Grantor may exploit, use,
enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of its
business. In furtherance of the foregoing, unless an Event of Default shall
12
have occurred and be continuing, the Collateral Agent shall from time to time,
upon the request of the Grantor, execute and deliver any instruments,
certificates or other documents, in the form so requested, which the Grantor
shall have certified are appropriate (in the Grantor's judgment) to allow it to
take any action permitted above (including relinquishment of the license
provided pursuant to this clause (c) as to any Intellectual Property). Further,
upon the indefeasible payment in full in cash of all of the Obligations, the
Collateral Agent (subject to Section 10(e) hereof) shall release and reassign to
the Grantor all of the Collateral Agent's right, title and interest in and to
the Intellectual Property, and the Licenses, all without recourse,
representation or warranty whatsoever. The exercise of rights and remedies
hereunder by the Collateral Agent shall not terminate the rights of the holders
of any licenses or sublicenses theretofore granted by the Grantor in accordance
with the second sentence of this clause (c). The Grantor hereby releases the
Collateral Agent from any claims, causes of action and demands at any time
arising out of or with respect to any actions taken or omitted to be taken by
the Collateral Agent under the powers of attorney granted herein other than
actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.
(d) If the Grantor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of, such agreement or
obligation, in the name of the Grantor or the Collateral Agent, and the expenses
of the Collateral Agent incurred in connection therewith shall be payable by the
Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.
(e) The powers conferred on the Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Collateral Agent shall have no duty as to any Collateral or as to the taking of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
(f) Anything herein to the contrary notwithstanding (i) the Grantor shall
remain liable under the Licenses and otherwise with respect to any of the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Debenture had not been executed, (ii)
the exercise by the Collateral Agent of any of its rights hereunder shall not
release the Grantor from any of its obligations under the Licenses or otherwise
in respect of the Collateral, and (iii) the Collateral Agent shall not have any
obligation or liability by reason of this Debenture under the Licenses or with
respect to any of the other Collateral, nor shall the Collateral Agent be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
(g) The Grantor hereby releases the Collateral Agent in advance from all
liability should the Collateral Agent fail at all, in time or in an appropriate
manner, to utilize any of the powers conferred upon the Collateral Agent under
this Section 6 and, in particular, without prejudice to the generality of the
release aforesaid, in any case where the Collateral Agent does not obtain
insurance at all, in time or in the correct manner or, where upon the occurrence
of any damage or loss caused, the insurance company or companies insuring the
Collateral (the "Insurance Companies") shall not - as a result of any defect or
of a lack of sufficiency in
13
insurance or because of the absence of, or lateness in, delivery of any notice
or demand or as a result of any act or omission by the Collateral Agent - pay,
in whole or in part, the amount(s) claimed.
(h) The Grantor hereby waives in advance any claims or counter-claims
against the Collateral Agent on account of, or in connection with, any claim,
negotiations, compromise, arrangement, settlement or waiver of the Grantor's
rights, in whole or in part, made or to be made by the Collateral Agent with the
Insurance Companies in connection with insurance as aforesaid.
(i) The release and waiver referred to in paragraphs (g) and (h) of this
Section 6 shall apply with regard to matters pertaining to any insurance whether
such insurance was or will be effected by the Grantor or in its name by the
Collateral Agent pursuant to the power granted to it under this Section 6.
Section 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in
addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under law, and also may crystallize the Floating Charge and realize, at the
Grantor's expense, the Collateral by any means allowed by law, including,
without limitation, by the appointment of a receiver or receiver and manager or
by any other method the Collateral Agent shall see fit. The Grantor agrees that
any receiver or receiver and manager, appointed pursuant hereto (a "Receiver"),
shall be deemed to be the agent of the Grantor who shall be empowered, inter
alia, to do the following: (i) to access, call in and take possession of the
Collateral; (ii) to manage the Grantor's business or participate in the
management thereof as the Receiver may see fit; (iii) to sell or agree to the
sale of the Collateral, in whole or in part, or to transfer the same in any
other manner upon such conditions as the Receiver may see fit; (iv) to make any
other arrangement with respect to the Collateral or any part thereof as the
Receiver may see fit; (v) to do all such other acts and things as the Receiver
may consider incidental or conducive to any of the matters and powers aforesaid.
(b) The Collateral Agent may exercise in respect of the Collateral, in
addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under law, and also may crystallize the Floating Charge and realize, at the
Grantor's expense, the Collateral by any means allowed by law. Accordingly, the
Collateral Agent may, upon such crystallization (i) take absolute control of the
Collateral, including, without limitation, transfer into the Collateral Agent's
name or into the name of its nominee or nominees (to the extent the Collateral
Agent has not theretofore done so) and thereafter receive, for the benefit of
the Collateral Agent, all payments made thereon, give all consents, waivers and
ratifications in respect thereof and otherwise act with respect thereto as
though it were the outright owner thereof, (ii) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the
Collateral Agent forthwith, assemble all or part of the Collateral as directed
by the Collateral Agent and make it available to the Collateral Agent at a place
or places to be designated by the Collateral Agent that is reasonably convenient
to both parties, and the Collateral Agent may enter into and occupy any premises
14
owned or leased by the Grantor where the Collateral or any part thereof is
located or assembled for a reasonable period in order to effectuate the
Collateral Agent's rights and remedies hereunder or under law, without
obligation to the Grantor in respect of such occupation, and (iii) without
notice except as specified below and without any obligation to prepare or
process the Collateral for sale, (A) sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable and/or (B) lease, license or dispose of the Collateral
or any part thereof upon such terms as the Collateral Agent may deem
commercially reasonable. The Grantor agrees that, to the extent notice of sale
or any other disposition of the Collateral shall be required by law, at least
ten (10) days' notice to the Grantor of the time and place of any public sale or
the time after which any private sale or other disposition of the Collateral is
to be made shall constitute reasonable notification. The Collateral Agent shall
not be obligated to make any sale or other disposition of Collateral regardless
of notice of sale having been given. The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Grantor hereby waives any claims against
the Collateral Agent and the Buyers arising by reason of the fact that the price
at which the Collateral may have been sold at a private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Collateral Agent accepts the
first offer received and does not offer the Collateral to more than one offeree,
and waives all rights that the Grantor may have to require that all or any part
of the Collateral be marshaled upon any sale (public or private) thereof. The
Grantor hereby acknowledges that (i) any such sale of the Collateral by the
Collateral Agent shall be made without warranty, (ii) the Collateral Agent may
specifically disclaim any warranties of title, possession, quiet enjoyment or
the like, and (iii) such actions set forth in clauses (i) and (ii) above shall
not adversely effect the commercial reasonableness of any such sale of the
Collateral. In addition to the foregoing and subject to any applicable
conditions in the Banks' Consents and any restrictions under applicable law, (i)
upon written notice to the Grantor from the Collateral Agent, the Grantor shall
cease any use of the Intellectual Property or any trademark, patent or copyright
similar thereto for any purpose described in such notice; (ii) the Collateral
Agent may, at any time and from time to time, upon 10 days' prior notice to the
Grantor, license, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any of the Intellectual Property, throughout
the universe for such term or terms, on such conditions, and in such manner, as
the Collateral Agent shall in its sole discretion determine; and (iii) the
Collateral Agent may, at any time, pursuant to the authority granted in Section
6 hereof (such authority being effective upon the occurrence and during the
continuance of an Event of Default), execute and deliver on behalf of the
Grantor, one or more instruments of assignment of the Intellectual Property (or
any application or registration thereof), in form suitable for filing, recording
or registration in any country.
(c) All sums to be collected by the Collateral Agent upon a realization of
the Collateral and all amounts paid to the Collateral Agent, pursuant to this
Section 7, shall be applied for the purposes set out hereunder in the order in
which they appear or in such other order as the Collateral Agent shall select:
(i) in discharge of the expenses occasioned in consequence of such realization
as aforesaid (including the appointment of a Receiver); (ii) in discharge of all
other expenses, bank charges, interest and additional sums consequent upon the
15
linkage of interest, the due date for payment whereof has arrived and which have
not been paid to the Collateral Agent by the Grantor; (iii) in discharge of
principal and additional sums consequent upon the linkage of principal, the due
date for payment whereof has arrived and which have not been paid to the
Collateral Agent by the Grantor; and (iv) for depositing in a special or other
account in the name of the Collateral Agent, which shall serve as collateral for
the full discharge of the balance of the Obligations, where the due date for
payment of such amounts has not arrived, where such amounts are due or shall
become due to the Collateral Agent on account of any contingent liability or
obligation or on account of any other amounts.
(d) Unless and until agreed otherwise in writing between the Grantor and
the Collateral Agent, the Borrower shall not be entitled to withdraw the amounts
to be deposited in such special or other account as aforesaid, or to effect in
any manner whatsoever any disposition with respect thereto or in connection
therewith, save with respect to such portion thereof as exceeds the amount of
the Obligations.
(e) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Buyers are legally entitled, the Grantor shall be liable for the
deficiency, together with interest thereon at the highest rate specified in any
applicable Transaction Document for interest on overdue principal thereof or
such other rate as shall be fixed by applicable law, together with the costs of
collection and the reasonable fees, costs, expenses and other client charges of
any attorneys employed by the Collateral Agent to collect such deficiency.
(f) The Collateral Agent shall not be required to marshal any present or
future collateral security (including, but not limited to, this Debenture and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of the Collateral Agent's rights hereunder and
in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that the Grantor lawfully may, the Grantor hereby agrees that it will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Collateral Agent's rights under this
Debenture or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, the Grantor hereby irrevocably waives the
benefits of all such laws.
Section 8. Indemnity, Expenses and Set-Off.
(a) The Grantor agrees to defend, protect, indemnify and hold the
Collateral Agent harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable legal fees and reasonable costs, expenses, and
disbursements of Collateral Agent's counsel) to the extent that they arise out
of or otherwise result from this Debenture (including, without limitation,
enforcement of this Debenture), except claims, losses or liabilities resulting
solely and directly from the Collateral Agent's negligence or willful
misconduct, as determined by a final judgment of a court of competent
jurisdiction.
16
(b) The Grantor will upon demand pay to the Collateral Agent the amount of
any and all costs and expenses, including the reasonable fees, costs, expenses
and disbursements of counsel for the Collateral Agent and of any experts and
agents (including, without limitation, any collateral trustee which may act as
agent of the Collateral Agent), which the Collateral Agent may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any Collateral, (ii) the
exercise or enforcement of any of the rights of the Collateral Agent hereunder,
or (iii) the failure by the Grantor to perform or observe any of the provisions
hereof.
(c) Notwithstanding anything herein to the contrary, in the event that the
Grantor fails to observe its obligations under the Notes or hereunder, the
Collateral Agent shall be entitled (but not obliged) at all times without being
obliged to notify the Grantor in advance thereof to set-off the Obligations
against any sum whether in Israeli currency or in foreign currency, as the case
may be, to be due to the Grantor from the Collateral Agent in any account,
manner or circumstance whatsoever.
Section 9. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied or delivered, if to the
Grantor, to its address specified in the Securities Purchase Agreement, and if
to the Collateral Agent to it, at its address specified in the Securities
Purchase Agreement; or as to any such Person, at such other address as shall be
designated by such Person in a written notice to such other Person complying as
to delivery with the terms of this Section 9. All such notices and other
communications shall be effective (i) if sent by certified mail, return receipt
requested, when received or ten days after deposited in the mails, whichever
occurs first, (ii) if telecopied, when transmitted and confirmation is received,
or (iii) if delivered, upon delivery.
Section 10. Miscellaneous.
(a) No amendment of any provision of this Debenture shall be effective
unless it is in writing and signed by the Grantor and the Collateral Agent, and
no waiver of any provision of this Debenture, and no consent to any departure by
the Grantor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any other Transaction Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The rights and remedies of the Collateral Agent or any Buyer
provided herein and in the other Transaction Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The
rights of the Collateral Agent or any Buyer under any Transaction Document
against any party thereto are not conditional or contingent on any attempt by
such Person to exercise any of its rights under any other Transaction Document
against such party or against any other Person, including but not limited to,
the Grantor.
17
(c) Any provision of this Debenture which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
(d) This Debenture shall create a continuing lien over the Collateral and
shall (i) remain in full force and effect until indefeasible payment in full in
cash of the Obligations and (ii) be binding on the Grantor and all other Persons
who become bound as debtor to this Debenture and shall inure, together with all
rights and remedies of the Collateral Agent and the Buyers hereunder, to the
benefit of the Collateral Agent and the Buyers and their respective permitted
successors, transferees and assigns. Without limiting the generality of clause
(ii) of the immediately preceding sentence, subject to notice to the Grantor,
the Collateral Agent and the Buyers may assign or otherwise transfer their
rights and obligations under this Debenture, to any other Person and such other
Person shall thereupon become vested with all of the benefits in respect thereof
granted to the Collateral Agent and the Buyers herein or otherwise. Upon any
such assignment or transfer, all references in this Debenture to the Collateral
Agent or any such Buyer shall mean the assignee of the Collateral Agent or such
Buyer. None of the rights or obligations of the Grantor hereunder may be
assigned or otherwise transferred without the prior written consent of the
Collateral Agent, and any such assignment or transfer shall be null and void.
(e) Upon the indefeasible payment in full of the Obligations, (i) this
Debenture and the liens created hereby shall terminate and all rights to the
Collaterals shall revert to the Grantor (ii) the Collateral Agent will, upon the
Grantor's request and at the Grantor's expense, (A) return to the Grantor such
of the Collateral as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof and (B) execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination, all without any representation, warranty or recourse whatsoever.
(f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ISRAEL, EXCEPT AS REQUIRED BY MANDATORY
PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR
THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF
ISRAEL.
(g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF TEL AVIV, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW
18
OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
(h) [Intentionally Left Blank]
(i) The Grantor irrevocably and unconditionally waives any right it may
have to claim or recover in any legal action, suit or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.
(j) Section headings herein are included for convenience of reference only
and shall not constitute a part of this Debenture for any other purpose.
(k) This Debenture may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together constitute one in the same
Debenture.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
19
IN WITNESS WHEREOF, the Grantor has caused this Debenture to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
GRANTOR:
RADA ELECTRONIC INDUSTRIES LTD.
By: /s/Adar Azancort /s/Elan Sigal
----------------------------------
Name: Adarr Azancort Elan Sigal
Title: CEO CFO
Accepted by:
SMITHFILED FIDUCIARY LLC
By:/s/Adam J. Chill
----------------
Name: Adam J. Chill
Title: Authorized Signatory
SCHEDULE I
LEGAL NAME; ORGANIZATIONAL IDENTIFICATION NUMBER; STATE OR
JURISDICTION OF ORGANIZATION
RADA Electronic Industries Ltd., Registration #52-003532-0, a company
registered under the Laws of the State of Israel.
Sched. I-1
SCHEDULE II
INTELLECTUAL PROPERTY AND LICENSES
None
Sched. II-1
SCHEDULE III
LOCATIONS OF GRANTOR
LOCATION
-------- Description of Location (State if Location
(i) contains Equipment, Fixtures,
Goods or Inventory,
(ii) is chief place of business and
chief executive office, or
(iii) contains Records concerning Accounts
and originals of Chattel Paper)
(i)+(ii)+(iii):
---------------
Adar House
7Giborei Isreal St.
Poleg Industrial Zone
Netanya, Israel
(i):
----
Beit Shean Industrial Zone
Israel
Sched. III-1
SCHEDULE IV
DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS
Name and Address
of Institution
Maintaining Account Account Number Type of Account
------------------- -------------- ---------------
NOT APPLICABLE
Sched. IV-1
SCHEDULE V
ISRAELI COMPANIES REGISTRAR FILLINGS
Registration of this Debenture with the Israeli Companies
Registrar within 21 days of the date hereof pursuant to the Israeli Companies
Odinance - 1983
Sched. V-1
SCHEDULE VI
COMMERCIAL TORT CLAIMS
None
Sched. VI-1
SCHEDULE 2
BANK LIENS
A list of the floating charges over all of the Company's assets as registered
with the Israeli Companies Registrar in accordance with the a true extract from
the Companies Registrar database as of July 7, 2004:
o A floating charge over all of the Company's assets made in favor
of Bank Hapoalim Ltd. created on 21.4.83 (registered on 27.4.83);
o A floating charge over all of the Company's assets, made in favor
of Bank Hapoalim Ltd. created on 29.10.84 (registered on
12.11.84); and
o A floating charge over all of the Company's assets made in favor
of Bank Leumi LeIsrael Ltd. created on 15.2.90 (registered on
26.2.90);
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Rada Electronic Industries Ltd.
(Registrant)
By: /s/Herzle Bodinger
------------------
Herzle Bodinger, Chairman
Date: July 12, 2004