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Exhibit 10
Purchase Agreement
among
COGNIGEN NETWORKS, INC.,
STANFORD FINANCIAL GROUP COMPANY, INC.
and
STANFORD VENTURE CAPITAL HOLDINGS, INC.
dated
October 15, 2002
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Table of Contents
Recitals.....................................................................1
I. Definitions
II. Purchase and Sale of Company Interests, Preferred Stock and Closing
2.1 Purchase and Sale
2.2 Purchase Price
2.3 Preferred Stock Purchase
2.4 The Closing
2.5 Cognigen Stock
III. Representations and Warranties of Stanford and Venture
3.1 Title to Company Interests
3.2 Incorporation; Power and Authority
3.3 Valid and Binding Agreement
3.4 No Breach; Consents
3.5 Brokerage
3.6 Investment
IV. Representations and Warranties of Cognigen
4.1 Incorporation; Power and Authority
4.2 Valid and Binding Agreement
4.3 No Breach; Consents
4.4 Brokerage
4.5 Investment Intent
4.6 Securities
4.7 SEC Filings; Financial Statements
V. Registration Rights
5.1 Piggyback Registration Rights
5.2 Effectiveness of Registration Statement
5.3 Registration Procedures
5.4 Indemnification
VI. General
6.1 Press Releases and Announcements
6.2 Expenses
6.3 Further Assurances
6.4 Amendment and Waiver
6.5 Notices
6.6 Assignment
6.7 No Third Party Beneficiaries.
6.8 Severability
6.9 Complete Agreement
6.10 Signatures; Counterparts
6.11 Governing Law
6.12 Construction
6.13 Time of Essence
Signatures
Exhibit A - Articles of Amendment to Articles of Incorporation
Exhibit B - Form of Stock Purchase Warrant (150,000 shares)
Exhibit C - Form of Stock Purchase Warrant (350,000 shares)
PURCHASE AGREEMENT
This PURCHASE AGREEMENT ("Agreement") is made as of October 15, 2002, by
and between COGNIGEN NETWORKS, INC., a Colorado corporation ("Cognigen"),
STANFORD FINANCIAL GROUP COMPANY, INC. ("Stanford") and STANFORD VENTURE CAPITAL
HOLDINGS, INC. ("Venture").
Recitals
WHEREAS, Stanford owns 4,500,593 8% Series A Preferred Shares, (the "AIC
Preference Shares") 2,581,878 Investment Class Shares (the "AIC Investment
Shares") and Warrants to purchase 650,000 Investment Class Shares (the "AIC
Warrants") of, and a $300,000 12% convertible promissory note (the "Note") made
by, American Internet Communications, L.L.C., a Florida limited liability
company (the "Company").
WHEREAS, Stanford desires to sell, and Cognigen desires to buy, all of
Stanford's interests in the Company on the terms and subject to the conditions
set forth in this Agreement.
WHEREAS, Cognigen has agreed to sell, and Venture has agreed to purchase,
500,000 shares of Cognigen's 8% Convertible Series A Preferred Stock.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
I. Definitions
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Cognigen SEC Reports" has the meaning set forth in Section 4.7.
"Company" has the meaning set forth in the recitals of this Agreement.
"Consent" means any authorization, consent, approval, filing, waiver,
exemption or other action by or notice to any Person.
"Contract" means a contract, agreement, commitment or binding
understanding, whether oral or written, that is in effect as of the date of this
Agreement or any time after the date of this Agreement.
"8% Convertible Preferred Stock" means Cognigen's 8% Convertible Series A
Preferred Stock designated in the Articles of Amendment to Cognigen's Articles
of Incorporation that are attached hereto as Exhibit A.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, registration or other authorization issued, granted, given, made
available or otherwise required by any Governmental Entity or pursuant to Law.
"Governmental Entity" means any federal, state, local, foreign,
international or multinational entity or authority exercising executive,
legislative, judicial, regulatory, administrative or taxing functions of or
pertaining to government.
"Governmental Order" means any judgment, injunction, writ, order, ruling,
award or decree by any Governmental Entity or arbitrator.
"Law" means any constitution, law, ordinance, principle of common law,
regulation, statute or treaty of any Governmental Entity.
"Organizational Documents" means (i) the articles or certificate of
incorporation and the bylaws of a corporation, (ii) the partnership agreement
and any statement of partnership of a general partnership, (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (iv) the limited liability company agreement and articles or
certificate of formation of a limited liability company, (v) any charter or
similar document adopted or filed in connection with the creation, formation or
organization of a Person and (vi) any amendment to any of the foregoing.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Entity or other entity.
"Remedies Exception," when used with respect to any Person, means
performance of such Person's obligations except to the extent enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
The following terms not defined above are defined in the sections indicated
below:
Definition Defined
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AIC Investment Shares Recitals
AIC Preference Shares Recitals
AIC Warrants Recitals
Cognigen Common Stock 2.2
Cognigen Registrable Securities 5.1
Cognigen Securities 2.5
Closing 2.4
Closing Date 2.4
Company Interests 2.1
Holders 5.1
Note Recitals
Purchase Price 2.2
II. Purchase and Sale of Company Interests, Preferred Stock and Closing
2.1 Purchase and Sale
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On the terms and subject to the conditions set forth in this Agreement,
Stanford agrees to sell to Cognigen, and Cognigen agrees to purchase from
Stanford, the AIC Preferred Shares, the AIC Investment Shares, the AIC Warrants
and the Note, including accrued interest thereon (together, the "Company
Interests").
2.2 Purchase Price
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The aggregate consideration to be issued in exchange for the Company
Interests is (i) 400,000 shares of Cognigen's Common Stock, $0.001 par value per
share ("Cognigen Common Stock"), (ii) two year warrants to purchase 150,000
shares of Cognigen Common Stock at an exercise price of $0.50 per share in such
form as attached hereto as Exhibit B, and (iii) five year warrants to purchase
350,000 shares of Cognigen Common Stock at an exercise price of $0.75 per share
in such form attached hereto as Exhibit C (collectively, "Purchase Price").
2.3 Preferred Stock Purchase
------------------------
In addition to the consideration set forth in Sections 2.1 and 2.2 above
and as an integral part of this Agreement, Venture agrees to purchase from
Cognigen, and Cognigen agrees to sell to Venture, 500,000 shares of Cognigen's
8% Convertible Preferred Stock for a purchase price of $500,000.
2.4 The Closing
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(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place contemporaneously with the execution of
this Agreement (the "Closing Date").
(b) On the Closing Date:
(i) Stanford will deliver to Cognigen:
(A) certificates representing the AIC Preferred Shares, the AIC
Investment Shares, and the AIC Warrants held by Stanford, free and
clear of all Encumbrances, duly endorsed or accompanied by such
documentation as deemed necessary by counsel for Cognigen to
effectuate transfer to Cognigen; and
(B) the Note representing validly due indebtedness of the
Company, free and clear of all Encumbrances and validly assigned to
Cognigen;
(C) a copy of the text of the resolutions adopted by the board of
directors (or similar body) of Stanford authorizing the execution,
delivery and performance of this Agreement, certified by an
appropriate officer of Stanford; and
(D) such other certificates, documents and instruments that
Cognigen reasonably requests for the purpose of (1) evidencing the
accuracy of Stanford's representations and warranties, (2) evidencing
the performance and compliance by Stanford with agreements contained
in this Agreement, or (3) otherwise facilitating the consummation of
the transactions contemplated by this Agreement.
(ii) Venture will deliver to Cognigen:
(A) advice of a wire transfer of $500,000 to a bank account
designated by Cognigen or a cashier's check in the amount of $500,000
payable to Cognigen;
(A) a copy of the text of the resolutions adopted by the board of
directors (or similar body) of Venture authorizing the execution,
delivery and performance of this Agreement certified by an appropriate
officer of Venture; and
(B) such other certificates, documents and instruments that
Cognigen reasonably requests for the purpose of (1) evidencing the
accuracy of Venture's representations and warranties, (2) evidencing
the performance and compliance by Venture with agreements contained in
this Agreement, (3) otherwise facilitating the consummation of the
transactions contemplated by this Agreement.
All actions to be taken by Stanford and Venture in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated by this Agreement will be in form and substance
satisfactory to Cognigen.
(iii) Cognigen will deliver to Stanford:
(A) certificates evidencing the Cognigen Common Stock and the
Warrants comprising the Purchase Price; and
(B) a copy of the text of the resolutions adopted by the board of
directors of Cognigen authorizing the execution, delivery and
performance of this Agreement, including the issuance of the Cognigen
Common Stock and the Warrants comprising the Purchase Price, certified
by an appropriate officer of Cognigen.
(iv) Cognigen will deliver to Venture:
(A) a certificate representing 500,000 shares of Cognigen's 8%
Convertible Preferred Stock; and
(B) a copy of the text of the resolution adopted by the Board of
Directors of Cognigen authorizing the execution, delivery and
performance of this Agreement, including the issuance of 500,000
shares of Cognigen's 8% Convertible Preferred Stock, certified by an
appropriate officer of Cognigen.
(c) All items delivered by the parties at the Closing will be deemed to
have been delivered simultaneously, and no items will be deemed delivered or
waived until all have been delivered.
2.5 Cognigen Stock
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Each certificate representing the Cognigen Common Stock, Warrants and 8%
Convertible Preferred Stock (collectively, the "Cognigen Securities") will be
imprinted with a legend substantially in the following form:
The securities represented by this Certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act") or
pursuant to an exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the company.
Each holder desiring to transfer any portion of the Cognigen Securities
first must furnish Cognigen with (i) a written opinion reasonably satisfactory
to Cognigen in form and substance from counsel reasonably satisfactory to
Cognigen by reason of experience to the effect that the holder may transfer such
Cognigen Securities as desired without registration under the Securities Act and
(ii) a written undertaking executed by the desired transferee reasonably
satisfactory to Cognigen in form and substance agreeing to be bound by the
restrictions on transfer contained herein.
III. Representations and Warranties of Stanford and Venture
Stanford and Venture represent and warrant to Cognigen that as of the date
of this Agreement:
3.1 Title to Company Interests
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Stanford owns, of record and beneficially, the Company Interests, free and
clear of any Encumbrance. At Closing, Cognigen will obtain good and valid title
to such Company Interests, of record and beneficially, free and clear of any
Encumbrance.
3.2 Incorporation; Power and Authority
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Each of Stanford and Venture is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization. Stanford
and Venture each has all necessary power and authority to execute, deliver and
perform this Agreement.
3.3 Valid and Binding Agreement
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The execution, delivery and performance of this Agreement by Stanford and
Venture have been duly and validly authorized by all necessary corporate or
equivalent action. This Agreement has been duly executed and delivered by
Stanford and Venture and constitutes the valid and binding obligation of
Stanford and Venture, enforceable against each of them in accordance with its
terms, subject to the Remedies Exception.
3.4 No Breach; Consents
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The execution, delivery and performance of this Agreement by Stanford and
Venture will not (a) contravene any provision of the Organizational Documents,
of Stanford and Venture; (b) violate or conflict with any Law, Governmental
Order or Governmental Authorization; (c) conflict with, result in any breach of
any of the provisions of, constitute a default (or any event which would, with
the passage of time or the giving of notice or both, constitute a default)
under, result in a violation of, increase the burdens under, result in the
termination, amendment, suspension, modification, abandonment or acceleration of
payment (or any right to terminate) or require a Consent, including any Consent,
under any Contract or Governmental Authorization that is either binding upon or
enforceable against Stanford and Venture except for Consents which have been
obtained; (d) result in the creation of any Encumbrance upon the Company
Interests held by Stanford; or (e) require any Governmental Authorization.
3.5 Brokerage
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No Person will be entitled to receive any brokerage commission, finder's
fee, fee for financial advisory services or similar compensation in connection
with the transactions contemplated by this Agreement based on any Contract made
by or on behalf of Stanford and Venture for which Cognigen or the Company of
Stanford and Venture is or could become liable or obligated.
3.6 Investment
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Each of Stanford and Venture (a) understands that the Cognigen Securities
have not been, and will not be, registered under the Securities Act or under any
state securities laws, are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering and will
contain a legend restricting transfer; (b) is acquiring those Cognigen
Securities being acquired by it solely for its own account for investment
purposes, and not with a view to the distribution thereof; (c) is a
sophisticated investor with knowledge and experience in business and financial
matters; (d) has received certain information concerning Cognigen, has reviewed
Cognigen SEC Reports located on the website of the Securities and Exchange
Commission (xxxx://xxx.xxx.xxx) and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the Cognigen Securities; (e) is able to bear the economic risk and lack
of liquidity inherent in holding the Cognigen Securities; and (f) is an
"Accredited Investor" as that term is defined under Rule 501 of the Securities
Act. Notwithstanding the foregoing, Stanford may designate in writing to
Cognigen at least three business days prior to the Closing Date that the
warrants or a portion thereof included in the Purchase Price be issued to a
maximum of four persons who can represent as to (a) through (f) above.
IV. Representations and Warranties of Cognigen
Cognigen represents and warrants to Stanford and Venture that as of the
date of this Agreement:
4.1 Incorporation; Power and Authority
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Cognigen is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, with all necessary
power and authority to execute, deliver and perform this Agreement.
4.2 Valid and Binding Agreement
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The execution, delivery and performance of this Agreement by Cognigen have
been duly and validly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by Cognigen and constitutes the
valid and binding obligation of Cognigen, enforceable against it in accordance
with its terms, subject to the Remedies Exception.
4.3 No Breach; Consents
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The execution, delivery and performance of this Agreement by Cognigen will
not (a) contravene any provision of the Organizational Documents of Cognigen;
(b) violate or conflict with any Law, Governmental Order or Governmental
Authority; (c) conflict with, result in any breach of any of the provisions of,
constitute a default (or any event which would, with the passage of time or the
giving of notice or both, constitute a default) under, result in a violation of,
increase the burdens under, result in the termination, amendment, suspension,
modification, abandonment or acceleration of payment (or any right to terminate)
or require a Consent, including any Consent under any Contract or Governmental
Authorization that is either binding upon or enforceable against Cognigen; or
(d) require any Governmental Authorization.
4.4 Brokerage
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No Person will be entitled to receive any brokerage commission, finder's
fee, fee for financial advisory services or similar compensation in connection
with the transactions contemplated by this Agreement based on any Contract made
by or on behalf of Cognigen for which Stanford is or could become liable or
obligated.
4.5 Investment Intent
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Cognigen is purchasing the Company Interests for its own account for
investment purposes, and not with a view to the distribution thereof.
4.6 Securities
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The Securities will, when issued and delivered in accordance with this
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
4.7 SEC Filings; Financial Statements
---------------------------------
(a) Cognigen has filed all forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 2001 (collectively, as
supplemented and amended since the time of filing, the "Cognigen SEC Reports")
with the SEC. The Cognigen SEC Reports (i) were prepared in all material
respects in accordance with all applicable requirements of the Securities Act
and the Exchange Act, as applicable, and (ii) did not, at the time they were
filed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The representation in clause (ii) of the preceding sentence does
not apply to any misstatement or omission in any Cognigen SEC Report, which was
superseded by subsequent Cognigen SEC Reports.
(b) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Cognigen and its consolidated
Subsidiaries included or incorporated by reference in the Cognigen SEC Reports
have been prepared in accordance with GAAP consistently applied during the
periods indicated (except as may otherwise be indicated in the notes) and
present fairly the financial position, results of operations and cash flows of
Cognigen and its consolidated Subsidiaries on a consolidated basis at the
respective dates and for the respective periods indicated (except interim
financial statements may not contain all notes and are subject to year-end
adjustments).
V. Registration Rights
5.1 Piggyback Registration Rights
-----------------------------
(a) Notice of Registration. If at any time, the Cognigen Common Stock
issued hereunder or upon exercise of the warrants included in the Purchase Price
or upon conversion of the 8% Convertible Preferred Stock ("Cognigen Registrable
Securities") shall not be eligible for sale pursuant to Rule 144 of the
Securities Act, and Cognigen shall determine to register (which Cognigen
anticipates doing by January 31, 2003) any of its equity securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Rule 145 transaction, Cognigen will:
(i) promptly give to the holders of Cognigen Registrable Securities
notice thereof ("Holders"); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Cognigen Registrable Securities specified in a written
request or requests, made within twenty (20) days after receipt of such
written notice from Cognigen, by the Holders.
(b) Underwriting. If the registration of which Cognigen gives notice is for
a registered public offering involving an underwriting, Cognigen shall so advise
the Holders as a part of the written notice given pursuant to Section 5.1. In
such event, the right of the Holders to registration pursuant to this Section
5.1 shall be conditioned upon the Holders' participation in such underwriting,
and the inclusion of the Cognigen Securities in the underwriting shall be
limited to the extent provided herein.
In the event the Holders proposes to distribute its securities through such
underwriting, the Holders shall (together with Cognigen and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by Cognigen. Notwithstanding any other provisions of this
Section 5.1, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, then Cognigen
shall so advise the Holders and the Cognigen Securities held by the Holders that
may be included in the registration and underwriting shall be reduced in such
reasonable manner as is satisfactory to the managing underwriter, provided if
there are other selling shareholders, the Holders shall be entitled to include a
pro rata portion of Cognigen Registrable Securities in such registration
statement.
If the Holders disapprove of the terms of any such underwriting, the
Holders may elect to withdraw therefrom by written notice to Cognigen and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall continue to be
subject to the terms of this Agreement.
(c) Right to Terminate Registration. Cognigen shall have the right to
terminate or withdraw any registration initiated by it under this Section 5.1
prior to the effectiveness of such registration whether or the Holders have
elected to include any Cognigen Securities in such registration statement.
5.2 Effectiveness of Registration Statement
---------------------------------------
(a) Cognigen. Cognigen will maintain each registration statement or
post-effective amendment filed hereunder effective under the Securities Act
until the earlier of (i) the date that none of the Cognigen Registrable
Securities covered by such Registration Statement are or may become issued and
outstanding, (ii) the date that all of the Cognigen Registrable Securities have
been sold pursuant to such Registration Statement, (iii) the date all the
Holders receive an opinion of counsel to Cognigen that the Cognigen Registrable
Securities may be sold under the provisions of Rule 144 without limitation as to
volume, or (iv) all Cognigen Registrable Securities have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and Cognigen has delivered a new certificate or other evidence
of ownership for such securities not bearing a restrictive legend.
(b) Cost of Registration
--------------------
All fees, disbursements and out-of-pocket expenses and costs incurred by
Cognigen in connection with the preparation and filing of a registration
statement hereunder and in complying with applicable securities and blue-sky
laws (including, without limitation, all attorneys' fees of Cognigen) shall be
borne by Cognigen. The Holders shall bear the cost of underwriting and/or
brokerage discounts, fees and commissions, if any, applicable to the Cognigen
Registrable Securities being registered. The Holders and their counsel shall
have a reasonable period to review the proposed registration statement or any
amendment thereto, prior to filing with the SEC, and Cognigen shall provide the
holders with copies of any comment letters received from the SEC with respect
thereto upon receipt thereof. Cognigen shall qualify any of the Cognigen
Registrable Securities for sale in such states as the Holders reasonably
designate and shall furnish indemnification in the manner provided hereof.
However, Cognigen shall not be required to qualify in any state which will
require an escrow or other restriction relating to Cognigen and/or the Holders,
or which will require Cognigen to qualify to do business in such state or
require Cognigen to file therein any general consent to service of process.
Cognigen, at its expense, will supply each of the Holders with copies of the
applicable registration statement and the prospectus included therein and other
related documents in such quantities as may be reasonably requested by any of
the Holders.
5.3 Registration Procedures
-----------------------
If and whenever Cognigen is required by any of the provisions of this
Agreement to effect the registration of any of the Cognigen Registrable
Securities under the Securities Act, Cognigen shall (except as otherwise
provided in this Agreement), as expeditiously as possible, subject to the
Holders' assistance and cooperation as reasonably required with respect to each
registration statement:
(a) prepare and file with the SEC such amendments and supplements to the
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all Cognigen Registrable Securities covered by such registration statement
whenever any of the holder of Cognigen Registrable Securities shall desire to
sell or otherwise dispose of the same (including prospectus supplements with
respect to the sales of Cognigen Registrable Securities from time to time in
connection with a registration statement pursuant to Rule 415 promulgated under
the Securities Act) and (ii) take all lawful action such that each of (A) the
registration statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) the prospectus forming part of the registration statement,
and any amendment or supplement thereto, does not at any time while effective
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(b) prior to the filing with the SEC of any registration statement
(including any amendments thereto) and the distribution or delivery of any
prospectus (including any supplements thereto), provide draft copies thereof to
the Holders and reflect in such documents all such comments as the Holders (and
their counsel) reasonably may propose; (ii) furnish to each of the Holders such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements of the Securities Act, and such other documents, as any of the
Holders may reasonably request in order to facilitate the public sale or other
disposition of the Cognigen Registrable Securities owned by such holder; and
(iii) provide to the holders copies of any comments and communications from the
SEC relating to the registration statement, if lawful to do so;
(c) register and qualify the Cognigen Registrable Securities covered by the
registration statement under such other securities or blue sky laws of such
jurisdictions as any of the holders of Cognigen Registrable Securities shall
reasonably request (subject to the limitations set forth above), and do any and
all other acts and things which may be necessary or advisable to enable such
Holder to consummate the public sale or other disposition in such jurisdiction
of the Cognigen Registrable Securities owned by such holder;
(d) list the Cognigen Registrable Securities on the markets where the
Common Stock of Cognigen is listed as of the effective date of the registration
statement, if the listing of such Cognigen Registrable Securities is then
permitted under the rules of such markets;
(e) notify the Holders at any time when a prospectus relating thereto
covered by the registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in the registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and
Cognigen shall prepare and file a curative amendment as quickly as reasonably
possible and during such period, the holders shall not make any sales of
Cognigen Registrable Securities pursuant to the registration statement;
(f) after becoming aware of such event, notify each of the Holders who
holds Cognigen Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
any stop order or other suspension of the effectiveness of the registration
statement at the earliest possible time and take all lawful action to effect the
withdrawal, rescission or removal of such stop order or other suspension;
(g) cooperate with the holders to facilitate the timely preparation and
delivery of certificates for the Cognigen Registrable Securities to be offered
pursuant to the registration statement and enable such certificates for the
Cognigen Registrable Securities to be in such denominations or amounts, as the
case may be, as any of the holders reasonably may request and registered in such
names as any of the holders may request; and, within three business days after a
registration statement which includes Cognigen Registrable Securities is
declared effective by the SEC, deliver and cause legal counsel selected by
Cognigen to deliver to the transfer agent for the Registrable Securities (with
copies to the Holders) an appropriate instruction and, to the extent necessary,
an opinion of such counsel;
(h) such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Holders of their Cognigen Registrable
Securities in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the circumstances;
and
(i) maintain a transfer agent and registrar for the Common Stock
5.4 Indemnification
---------------
(a) Indemnification by Cognigen. To the maximum extent permitted by law,
Cognigen agrees to indemnify and hold harmless each of the Holders, each person,
if any, who controls any of the Holders within the meaning of the Securities
Act, and each director, officer, shareholder, employee, agent, representative,
accountant or attorney of the foregoing (each of such indemnified parties, a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that Cognigen will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to Cognigen by the Distributing
Investor, its counsel, or affiliates, specifically for use in the preparation
thereof or (ii) by such Distributing Investor's failure to deliver to the
purchaser a copy of the most recent prospectus (including any amendments or
supplements thereto). This indemnity agreement will be in addition to any
liability, which Cognigen may otherwise have.
(b) Contribution. In order to provide for just and equitable contribution
under the Securities Act in any case in which (i) a Distributing Investor makes
a claim for indemnification pursuant to Section 5.4 hereof but is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 5.3(a) hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of Cognigen, then Cognigen and the
applicable Distributing Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses), in either such case (after contribution from others) on the basis of
relative fault as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
Cognigen on the one hand or the applicable Distributing Investor on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Cognigen and the
Distributing Investor agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 5.4. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
5.3(b) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 5.4, in no event shall
(i) any of the Distributing Investors be required to undertake liability to any
person under this Section 5.3(b) for any amounts in excess of the dollar amount
of the proceeds received by such Distributing Investor from the sale of such
Distributing Investor's Cognigen Registrable Securities (after deducting any
fees, discounts and commissions applicable thereto) pursuant to any registration
statement under which such Cognigen Registrable Securities are registered under
the Securities Act and (ii) any underwriter be required to undertake liability
to any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Cognigen Registrable Securities underwritten by it and distributed pursuant to
such registration statement.
VI. General
6.1 Press Releases and Announcements
--------------------------------
Any public announcement, including any announcement to employees, customers
or suppliers and others having dealings with Cognigen, or similar publicity with
respect to this Agreement or the transactions contemplated by this Agreement,
will be issued, if at all, at such time and in such manner as Cognigen
determines and approves. Cognigen will have the right to be present for any
in-person announcement. Unless consented to by Cognigen or required by Law,
Stanford and Venture will keep this Agreement and the transactions contemplated
by this Agreement confidential.
6.2 Expenses
--------
Except as otherwise expressly provided for in this Agreement, Stanford and
Venture, on the one hand, and Cognigen, on the other hand, will each pay all
expenses incurred by each of them in connection with the transactions
contemplated by this Agreement, including legal, accounting, investment banking
and consulting fees and expenses incurred in negotiating, executing and
delivering this Agreement and the other agreements, exhibits, documents and
instruments contemplated by this Agreement (whether the transactions
contemplated by this Agreement are consummated or not). Stanford and Venture
agree that the Company has not borne and will not bear any of Stanford and
Venture expenses in connection with the transactions contemplated by this
Agreement.
6.3 Further Assurances
------------------
On and after the Closing Date, Stanford and Venture will take all
appropriate action and execute any documents, instruments or conveyances of any
kind that may be reasonably requested by Cognigen to carry out any of the
provisions of this Agreement.
6.4 Amendment and Waiver
--------------------
This Agreement may not be amended, nor may any provision of this Agreement
or any default, misrepresentation, or breach of warranty or agreement under this
Agreement be waived, except in a writing executed by the party against which
such amendment or waiver is sought to be enforced. Neither the failure nor any
delay by any Person in exercising any right, power or privilege under this
Agreement will operate as a waiver of such right, power or privilege, and no
single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. In addition, no course of dealing
between or among any Persons having any interest in this Agreement will be
deemed effective to modify or amend any part of this Agreement or any rights or
obligations of any Person under or by reason of this Agreement. The rights and
remedies of the parties to this Agreement are cumulative and not alternative.
6.5 Notices
-------
All notices, demands and other communications to be given or delivered
under or by reason of the provisions of this Agreement will be in writing and
will be deemed to have been given (i) when delivered if personally delivered by
hand (with written confirmation of receipt), (ii) when received if sent by a
nationally recognized overnight courier service (receipt requested), (iii) five
business days after being mailed, if sent by first class mail, return receipt
requested, or (iv) when receipt is acknowledged by an affirmative act of the
party receiving notice, if sent by facsimile, telecopy or other electronic
transmission device (provided that such an acknowledgement does not include an
acknowledgment generated automatically by a facsimile or telecopy machine or
other electronic transmission device). Notices, demands and communications to
Cognigen and Stanford and Venture will, unless another address is specified in
writing, be sent to the address indicated below:
If to Cognigen:
Cognigen Networks, Inc.
Attn: Xxxxxxx X. Xxxxxx, CEO
0000 Xxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
With a copy to:
Xxxxxx & Whitney LLP
Attn: Xxxxxx X. Xxxxx
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
If to Stanford or Venture:
Stanford Venture Capital Holdings, Inc.
Attn: Xxxxxxxx Xxxxxxxx, General Counsel
0000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000
With a copy to:
Broad and Xxxxxx
Attn: Xxxx X. Xxxxxxx
000 X. Xxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
6.6 Assignment
----------
Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any party to this Agreement without the prior
written consent of the other parties to this Agreement, except that Stanford may
assign part of the Cognigen Securities comprising the Purchase Price as provided
in Section 3.6. Subject to the foregoing, this Agreement and all of the
provisions of this Agreement will be binding upon and inure to the benefit of
the parties to this Agreement and their respective successors and permitted
assigns.
6.7 No Third Party Beneficiaries
----------------------------
Nothing expressed or referred to in this Agreement confers any rights or
remedies upon any Person that is not a party or permitted assign of a party to
this Agreement.
6.8 Severability
------------
Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable Law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable Law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
6.9 Complete Agreement
------------------
This Agreement contains the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral.
6.10 Signatures; Counterparts
------------------------
This Agreement may be executed in one or more counterparts, any one of
which need not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same instrument. A
facsimile signature will be considered an original signature.
6.11 GOVERNING LAW
-------------
THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, OF THE
STATE OF FLORIDA WILL GOVERN ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT AND THE PERFORMANCE OF THE OBLIGATIONS
IMPOSED BY THIS AGREEMENT.
6.12 Construction
------------
The parties and their respective counsel have participated jointly in the
negotiation and drafting of this Agreement. In addition, each of the parties
acknowledges that it is sophisticated and has been advised by experienced
counsel and, to the extent it deemed necessary, other advisors in connection
with the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement will be construed
as if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The parties intend that each representation,
warranty and agreement contained in this Agreement will have independent
significance. If any party has breached any representation, warranty or
agreement in any respect, the fact that there exists another representation,
warranty or agreement relating to the same subject matter (regardless of the
relative levels of specificity) that the party has not breached will not detract
from or mitigate the fact that the party is in breach of the first
representation, warranty or agreement. Any reference to any Law will be deemed
to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The headings preceding the text of articles and sections
included in this Agreement and the headings to the schedules and exhibits are
for convenience only and are not be deemed part of this Agreement or given
effect in interpreting this Agreement. References to sections, articles,
schedules or exhibits are to the sections, articles, schedules and exhibits
contained in, referred to or attached to this Agreement, unless otherwise
specified. The word "including" means "including without limitation." The use of
the masculine, feminine or neuter gender or the singular or plural form of words
will not limit any provisions of this Agreement. A statement that an item is
listed, disclosed or described means that it is correctly listed, disclosed or
described, and a statement that a copy of an item has been delivered means a
true and correct copy of the writing has been delivered.
6.13 Time of Essence
---------------
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
IN WITNESS WHEREOF, Cognigen, Stanford and Venture have executed this
Agreement as of the date first above written.
COGNIGEN: STANFORD:
COGNIGEN NETWORKS, INC. STANFORD FINANCIAL GROUP COMPANY, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------
By: /s/ Xxxxxxx X. Xxxxxx Name: Xxxxx X. Xxxxx
----------------------------------- ----------------
Name: Xxxxxxx X. Xxxxxx Title: Chief Financial Officer
------------------------------- ---------------------------
Title: President
---------
VENTURE:
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By /s/ Xxxxx X. Xxxxx
--------------------
Name: Xxxxx X. Xxxxx
---------------
Title: President
------------
EXHIBIT A
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
COGNIGEN NETWORKS, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Cognigen Networks, Inc.
SECOND: The following amendment to the Articles of Incorporation were duly
adopted by the board of directors on October __, 2002, in accordance with
Section 0-000-000 of the Colorado Business Corporation Act.
Article FOURTH of the Articles of Incorporation is hereby amended by adding
the following Section (e):
(e) Convertible Series A Preferred Stock. Of the 20,000,000 shares of the
corporation's no par value preferred stock authorized, 500,000 shares of the
corporation's preferred stock shall consist of 8% Convertible Series A Preferred
Stock ("Convertible Series A"). The rights, preferences, privileges and
restrictions imposed upon the Convertible Series A are as follows:
(i) Dividends. The holders of the Convertible Series A shall be
entitled to receive, out of funds legally available therefor, cumulative
dividends at the rate of 8% percent of the Liquidation Value per annum in
cash, when and if declared by the Board of Directors which shall be
preferential to dividends on any Junior Securities. The dividend on the
Convertible Series A shall be payable semi-annually beginning 30 days after
the last day of the second calendar quarter after the issuance of the
Convertible Series A ("Original Issue Date") and 30 days after the end of
each second calendar quarter thereafter, when and if declared by the Board
of Directors. Any dividends earned on the Convertible Series A from the
Original Issue Date to the end of the first calendar quarter after the
Original Issue Date, shall be earned pro rata from the Original Issue Date.
If any dividends payable on the Convertible Series A are not paid for
any reason, the right of the holders of the Convertible Series A to receive
payment of such dividends shall not lapse or terminate, but said unpaid
dividends shall accumulate and shall be paid without interest to the
holders of the Convertible Series A, when and if declared by the Board of
Directors of the corporation, before any sum or sums shall be set aside for
or applied to the purchase or redemption of the Convertible Series A or the
purchase, redemption or other acquisition for value of any Junior
Securities and before any dividend shall be paid or declared, or any other
distribution shall be ordered or made, upon any Junior Securities. After
cumulative dividends on the Convertible Series A for all past dividend
periods and for the then current year dividend period shall have been
declared and paid or set apart, if the Board of Directors may declare
dividends out of funds legally available therefor, such additional
dividends may be declared on any Junior Securities. "Junior Securities" as
used herein means any of the corporation's equity securities other than the
Convertible Series A shares.
(ii) Liquidation and Dissolution. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the corporation, out of the
assets available for distribution to shareholders each share of Convertible
Series A shall be entitled to receive, in preference to any payment on any
Junior Securities of the corporation, an amount equal to one dollar ($1.00)
per share, plus cumulative dividends as provided in Section (e)(i) of this
Article FOURTH accrued and unpaid to the date payment is made available to
the Convertible Series A (the "Liquidation Value"). After the full
preferential liquidation amount has been paid to, or determined and set
apart for, Convertible Series A, the remaining assets shall be payable to
the holders of the corporation's Junior Securities. In the event the assets
of the corporation are insufficient to pay the full preferential
liquidation amount required to be paid to the Convertible Series A, the
Convertible Series A shall receive such funds pro rata on a share for share
basis until the full liquidating preference on the Convertible Series A is
paid in full.
A reorganization described in (iv)(4)(F) below shall not be considered
to be a liquidation, winding up or dissolution within the meaning of this
Section (e)(ii) of this Article FOURTH and the Convertible Series A shall
be entitled only to the rights provided in the plan of reorganization.
(iii) Voting. A holder of a share of Convertible Series A shall not be
entitled to vote on any matters, including the election of directors,
except as required by law.
(iv) Conversion Rights. The holders of Convertible Series A have the
following conversion rights (the "Conversion Rights"):
(1) Right to Convert. Subject to any prior automatic conversion
under subsection (2) immediately below, each share of Convertible
Series A shall be convertible at the option of the holder, at the
office of the corporation or of any transfer agent for such
Convertible Series A, as the case may be, into fully paid and
nonassessable shares of Common Stock, at a conversion price of $1.00
per share, subject to adjustment pursuant to paragraph (iv)(4) below
("Conversion Price").
(2) Automatic Conversion. Each share of Convertible Series A
shall be automatically converted into Common Stock on October __,
2007. At such time, each share of Convertible Series A shall be
converted into one fully paid and nonassessable share of Common Stock
at the Conversion Price.
(3) Mechanics of Conversion. Before any holder of shares of
Convertible Series A shall be entitled to convert the same into full
shares of Common Stock pursuant to paragraph (iv)(1) above, the holder
shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent
for such Convertible Series A, as the case may be, and shall give
written notice to the corporation at such office that the holder
elects to convert the same and shall state therein the holder's name
or the name or names of the holder's nominees in which the holder
wishes the certificate or certificates for shares of Common Stock to
be issued. The corporation shall, as soon as practicable thereafter,
issue and deliver or cause to be issued and delivered at such office
to such holder, or to the holder's nominee or nominees, a certificate
or certificates for the number of full shares of Common Stock to which
the holder shall be entitled as aforesaid. A conversion pursuant to
paragraph (iv)(1) above shall be deemed to have occurred immediately
prior to the close of business on the date of such surrender of the
shares of Convertible Series A to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date.
Upon automatic conversion of Convertible Series A into full
shares of Common Stock pursuant to paragraph (iv)(2) above, the holder
of the Convertible Series A shall, upon request by the corporation,
surrender the certificate or certificates therefor, duly endorsed, at
the office of the corporation or any transfer agent for such
Convertible Series A, as the case may be, and shall state therein the
holder's name or the name or names of the holder's nominees in which
the holder wishes the certificate or certificates for shares of Common
Stock to be issued. The corporation shall, as soon as practicable
thereafter, issue and deliver or cause to be issued and delivered at
such office to such holder, or to the holder's nominee or nominees, a
certificate or certificates for the number of full shares of Common
Stock to which the holder shall be entitled as aforesaid.
Each holder of the Convertible Series A whose Convertible Series
A is converted to Common Stock shall be entitled to, and the
corporation shall promptly pay in cash, or set aside for payment, all
unpaid dividends with respect to such converted shares of the
Convertible Series A, earned to and including the date of conversion.
A holder of the Convertible Series A shall not be entitled to any
remaining dividends with respect to the Convertible Series A so
converted, but shall be entitled to receive, on the date of the
conversion, the arrearages, if any, with respect to any shares of the
Convertible Series A so converted.
(4) Adjustments to Conversion Price.
(A) Special Definitions. For purposes of this paragraph (e)(iv),
the "Original Issue Date" shall mean, the original date on which a
share of Convertible Series A was first issued to each such
shareholder and "Market Price" shall be determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or a foreign exchange, is admitted to unlisted trading
privileges on such an exchange, or is listed for trading on a
trading system of the National Association of Securities Dealers,
Inc. such as the Nasdaq SmallCap Market or the Nasdaq National
Market, the OTC Bulletin Board or the Bulletin Board Exchange,
then the current value shall be the last reported sale price of
the Common Stock on such an exchange or system on the last
business day prior to the conversion date or if no such sale is
made on such day, the average of the closing bid prices for the
Common Stock for such day on such exchange or such system shall
be used;
(ii) If the Common Stock is not so listed on such exchange
or system or admitted to unlisted trading privileges, the current
value shall be the average of the last reported bid prices
reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of conversion date; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and if bid prices are not so
reported, the current value shall be an amount, not less than
book value, determined in such reasonable manner as may be
prescribed by the board of directors of the corporation.
(B) Adjustment for Stock Splits and Combinations. If the
corporation shall at any time or from time to time after the Original
Issue Date effect a subdivision of the outstanding Common Stock, the
applicable Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased and, conversely, if the
corporation shall at any time or from time to time after the Original
Issue Date combine the outstanding shares of Common Stock, the
applicable Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustments under
this paragraph (iv)(4)(B) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(C) Adjustment for Certain Dividends and Distributions. In the
event the corporation at any time, or from time to time, after the
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in shares of Common Stock, then
and in each event the applicable Conversion Price then in effect shall
be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date, and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution; provided, however, if
such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and
thereafter such Conversion Price shall be adjusted pursuant to
this paragraph (iv)(4)(c) as of the time of actual payment of
such dividends or distributions.
(D) Adjustment for Other Dividends and Distributions. In the
event the corporation at any time or from time to time after the
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the
corporation other than shares of Common Stock, then and in such event
provisions shall be made so that the holders of Convertible Series A
shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereon, the amount of securities of
the corporation which they would have received had their Convertible
Series A been converted into Common Stock on the date of such event
and had thereafter, during the period from the date of such event to
and including the conversion date, retained such securities (together
with any distributions payable thereon during such period) receivable
by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph (d)
with respect to the rights of the holders of the Convertible Series A.
(E) Adjustment for Reclassification, Exchange, or Substitution.
If the Common Stock issuable upon the conversion of the Convertible
Series A at any time or from time to time after the Original Issue
Date, shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination
of shares or stock dividends provided for in paragraphs (iv)(4)(B) and
(C) above, or a reorganization, merger, consolidation, or sale of
assets provided for in paragraph (iv)(4)(F) below, then, and in each
such event, provisions shall be made (by adjustment to the Conversion
Price or otherwise) so that the holder of each share of Convertible
Series A shall have the right thereafter to convert each share of
Convertible Series A into the kind and amount of shares of stock and
other securities receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares
of Common Stock into which such share of Convertible Series A might
have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
(F) Adjustment for Reorganization, Merger, Consolidation or Sales
of Assets. If at any time or from time to time after the Original
Issue Date, there shall be a capital reorganization of the corporation
(other than a subdivision, combination, reclassification, exchange or
substitution of shares provided for in paragraphs (iv)(4)(B) and (E)
above) or a merger or consolidation of the corporation with or into
another corporation, or the sale of all or substantially all of the
corporation's properties and assets to any other person or entity,
then, as a part of such reorganization, merger, consolidation, or
sale, provision shall be made (by adjustment to the Conversion Price
or otherwise) so that the holders of the Convertible Series A shall
thereafter be entitled to receive upon conversion of the Convertible
Series A, the number and kind of shares of stock or other securities
or property of the corporation, or of any successor corporation
resulting from such merger or consolidation or sale, to which a holder
of Common Stock deliverable upon conversion of such shares would have
been entitled if such capital reorganization, merger, consolidation,
or sale occurred on the date of the conversion.
(5) No Impairment. The corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this paragraph (e)(iv) and in the taking of
all such action as may be necessary or appropriate, in order to protect the
conversion rights of the holders of the Convertible Series A against
impairment.
(6) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price or any other adjustment
pursuant to this paragraph (e)(iv), the corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish (in accordance with subsection (8) below) to each
holder of such Convertible Series A a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall furnish (in
accordance with subsection (8) below) or cause to be furnished to such
holder a like certificate setting forth the (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of a share of such
Convertible Series A.
(7) Notices of Record Date. In the event that:
(A) the corporation shall set a record date for the purpose of
entitling the holders of its shares of Common Stock to receive a
dividend, or other distribution, payable otherwise than in cash;
(B) the corporation shall set a record date for the purpose of
entitling the holders of its shares of Common Stock to subscribe for
or purchase any shares of any class or to receive any other rights;
(C) there shall occur any capital reorganization of the
corporation, reclassification of the shares of the corporation (other
than a subdivision or combination of its outstanding common stock),
consolidation or merger of the corporation with or into another
corporation or conveyance of all or substantially all of the assets of
the corporation to another person or entity; or
(D) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the corporation;
then, and in any such case, the corporation shall cause to be
mailed to the holders of record of the outstanding shares of the
Convertible Series A, at least 10 days prior to the date hereinafter
specified, a notice stating (i) the date which (x) has been set as the
record date for the purpose of such dividend, distribution, or rights,
or (y) such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or, winding up is to take place
and (ii) the record date as of which holders of Common Stock of record
shall be entitled to other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(8) Notices. Any notice required by the provisions of this
paragraph (e)(iv) to be given to the holders of shares of Convertible
Series A shall be in writing and shall be delivered by personal service or
agent, or by registered or certified mail, return receipt requested, with
postage thereon fully prepaid. All such communications shall be addressed
to each holder of record at its address appearing on the books of the
corporation. Service of any such communication made only by mail shall be
deemed complete on the date of actual delivery as shown by the addressee's
registry or certification receipt.
(9) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Convertible Series A. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to the product of such fraction multiplied
by the Market Price of one share of the corporation's Common Stock on the
date of conversion.
(10) Payment of Taxes. The corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that
may be imposed with respect to the issue or delivery of shares of Common
Stock upon conversion of shares of Convertible Series A, including without
limitation any tax or other charge imposed in connection with any transfer
involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of the Convertible Series A so
converted were registered.
(11) Reservation of Common Stock. The corporation shall at all
times reserve and keep available, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Convertible Series A, the full number of shares of Common Stock deliverable
upon the conversion of all shares of Convertible Series A from time to time
outstanding. The corporation shall from time to time increase the
authorized number of shares of Common Stock if the remaining unissued
authorized shares of Common Stock shall not be sufficient to permit the
conversion of all of the Convertible Series A at the time outstanding.
(12) Restrictions and Limitations. So long as any shares of the
Convertible Series A remain outstanding, the corporation may not, without a
vote or written consent by the holders of a majority of the outstanding
shares of the Convertible Series A, voting as a separate class, authorize,
issue, obligate itself to issue, or agree to the authorization or issuance
by any of the subsidiaries of the corporation of, any capital stock or
securities convertible into or exercisable for any capital stock, having a
preference over, or being on a parity with, the Convertible Series A with
respect to voting, dividends or upon liquidation.
(13) Registration Rights. Holders of Convertible Series A shall
have registration rights under the Securities Act of 1983, as amended with
respect to the Common Stock issuable upon conversion of the Convertible
Series A as set forth in that certain Purchase Agreement dated October __,
2002, by and among, Cognigen Networks, Inc., Stanford Financial Group
Company, Inc. and Stanford Venture Capital Holdings, Inc.
(14) Retirement of Convertible Series A Converted. No shares of
Convertible Series A that have been converted shall ever again be reissued,
and all such shares so converted shall, upon such conversion, cease to be a
part of the authorized shares of the corporation.
(v) No Preemptive Rights. No holder of the Convertible
Series A shall be entitled as of right to subscribe for, purchase, or
receive any part of any new or additional shares of any class, whether
now or hereafter authorized, or of bonds, debentures, or other
evidences of indebtedness convertible into or exchangeable for shares
of any class, but all such new or additional shares of any class, or
bonds, debentures, or other evidences of indebtedness convertible into
or exchangeable for shares, may be issued and disposed of by the Board
of Directors on such terms and for such consideration (to the extent
permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.
(vi) Replacement. Upon receipt of evidence reasonably
satisfactory to the corporation of the ownership and the loss, theft,
destruction or mutilation of any certificate evidencing Convertible
Series A shares, and in the case of any such loss, theft or
destruction, upon receipt of indemnity and surety bond reasonably
satisfactory to the corporation, or, in the case of any such
mutilation upon surrender of such certificate, the corporation will
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Convertible Series
A shares represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Dated: October __, 2002
COGNIGEN NETWORKS, INC.,
a Colorado corporation
By:
--------------------------------------
Xxxxxxx X. Xxxxxx, President
EXHIBIT B
The securities represented by this Stock Purchase Warrant may not be offered for
sale, sold or otherwise transferred except pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act") or pursuant to an
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
STOCK PURCHASE WARRANT
To Subscribe for and Purchase
Common Stock
of
COGNIGEN NETWORKS, INC.
THIS CERTIFIES THAT, for value received, ______(name)________, or its
registered assigns ("Holder"), is entitled to subscribe for and purchase from
Cognigen Networks, Inc. ("Company"), a corporation organized and existing under
the laws of the State of Colorado, at the price specified below (subject to
adjustment as noted below) at any time after the date hereof to and including
October 14, 2004 (the "Expiration Date") One Hundred Fifty Thousand (150,000)
fully paid and nonassessable shares of the Company's $0.001 par value common
stock ("Common Stock") (subject to adjustments as noted below) ("Warrant") and
if held by more than one person ("Warrants"). The Warrant exercise price shall
be $0.50 per share of Common Stock ("Exercise Price").
This Warrant is subject to the following provisions, terms and conditions:
1. The rights represented by this Warrant may be exercised by the Holder,
in whole or in part, by written notice of exercise delivered to the Company 20
days prior to the intended date of exercise and by the surrender of this Warrant
(properly endorsed if required) at the principal office of the Company and,
except as provided in Section 11 of this Warrant, upon payment to it by official
bank check of the purchase price for such shares. The Company agrees that the
shares so purchased shall be and are deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. Subject to the provisions of the next succeeding paragraph,
certificates for the shares of Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceeding 10 days, after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of shares of Common
Stock, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the Holder within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of Common Stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 6 hereof.
3. The Company represents and warrants that this Warrant has been duly
authorized by all necessary corporate action, has been duly executed and
delivered and is a legal and binding obligation of the Company. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant according to the terms
hereof will, upon issuance, be duly authorized and issued, fully paid and
nonassessable. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
5. The Holder, by acceptance of this Warrant, agrees to give written
notice, using the Form of Assignment attached to this Warrant, to the Company
before transferring this Warrant or transferring any Common Stock issuable or
issued upon the exercise hereof of such Holder's intention to do so, describing
briefly the manner of any proposed transfer of this Warrant or such Holder's
intention as to the disposition to be made of shares of Common Stock issuable or
issued upon the exercise hereof. Such Holder shall also provide the Company with
a counsel's opinion satisfactory to the Company to the effect that the proposed
transfer of this Warrant or disposition of shares of Common Stock may be
effected without registration or qualification (under any federal or state law)
of this Warrant or the shares of Common Stock issuable or issued upon the
exercise hereof. Upon receipt of such written notice and opinion by the Company,
such Holder shall be entitled to transfer this Warrant, or to exercise this
Warrant in accordance with its terms and dispose of the shares of Common Stock
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by such Holder to the Company, provided that an appropriate
legend respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for such shares of Common Stock.
6. Subject to the provisions of paragraph 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, at the principal office
of the Company by the Holder in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and Holder of this
Warrant, by taking or holding the same, consents and agrees that the bearer of
this Warrant, when endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder as the owner for all purposes.
7. This Warrant is exchangeable, upon the surrender hereof by the Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder, each of such
new Warrants to represent the right to subscribe for and purchase such number of
shares of Common Stock as shall be designated by said Holder at the time of such
surrender.
8. The Company covenants that:
(a) All shares of Common Stock that may be issued and delivered to a
Holder upon the exercise of this Warrant and payment of the Warrant
purchase price will be, upon such delivery, validly and duly issued, fully
paid and nonassessable.
(b) Subject to the terms and conditions contained herein, this Warrant
shall be binding on the Company and its successors and shall inure to the
benefit of the Holder and the successors and assigns of the Holder.
(c) If the Company fails to perform any of its obligations hereunder,
it shall be liable to the Holder for all damages, costs and expenses
resulting from the failure, including, but not limited to, all reasonable
attorney's fees and disbursements.
(d) This Warrant cannot be changed or terminated or any performance or
condition waived in whole or in part except by an agreement in writing
signed by the party against whom enforcement of the change, termination or
waiver is sought.
(e) If any provision of this Warrant shall be held to be invalid,
illegal or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable, and
the invalidity, illegality or unenforceability shall not affect the
remainder of this Warrant.
9. (a) If the Company shall at any time subdivide its outstanding Common
Stock by recapitalization, reclassification or split-up thereof, the number of
Shares of Common Stock subject to this Warrant immediately prior to such
subdivision shall be proportionately increased, and if the Company shall at any
time combine the outstanding Common Stock by recapitalization, reclassification
or combination thereof, the number of Shares of Common Stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any corresponding adjustment to the Exercise Price shall become
effective at the close of business on the record date for such subdivision or
combination.
(b) In the event of a dividend (other than in shares of Common Stock),
the proposed dissolution or liquidation of the Company, or any corporate
separation or division, including, but not limited to, a split-up,
split-off or spin-off, or a merger or consolidation of the Company with
another Company, or the sale of all or substantially all of the assets of
the Company, the Board of Directors of the Company may provide that each
Holder will have the right to exercise this Warrant (at its then current
Exercise Price) solely for the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
dissolution, liquidation, corporate separation or division, or merger or
consolidation by a Holder of the number of shares of Common Stock for which
this Warrant might have been exercised immediately prior to such
dissolution, liquidation, corporate separation or division, or merger or
consolidation.
(c) The preceding paragraph will not apply to a merger or
consolidation in which the Company is the surviving Company and shares of
Common Stock are not converted into or exchanged for stock, securities of
any other Company, cash or any other thing of value. Notwithstanding the
preceding sentence, in case of any consolidation or merger of another
Company into the Company in which the Company is the surviving Company and
in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock
(excluding a change in par value, or from no par value to par value, or any
change as a result of a subdivision or combination, but including any
change in such shares into two or more classes or series of shares), the
Board may provide that the Holder of this Warrant will have the right to
exercise this Warrant solely for the kind and amount of shares of stock and
other securities (including those of any new direct or indirect parent of
the Company), property, cash or any combination thereof receivable upon
such reclassification, change, consolidation or merger by the Holder of the
number of shares of Common Stock for which this Warrant might have been
exercised.
(d) In the event of a change in the Common Stock of the Company as
presently constituted into the same number of shares with a different par
value, the shares resulting from any such change will be deemed to be the
Common Stock of the Company within the meaning of this Warrant.
(e) Except as expressly provided in this Warrant, the Holder will have
no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another Company; and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
will not affect, and no adjustment will be made with respect to, the number
or price of shares of Common Stock subject to this Warrant. The grant of
this Warrant will not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structures, or to merge or consolidate, or to dissolve,
liquidate, or sell or transfer all or any part of its business or assets.
10. All questions concerning this Warrant will be governed and interpreted
and enforced in accordance with the internal law, not the law of conflicts, of
the State of Colorado.
11. For purposes of this Section 11, this Warrant shall be deemed to
represent the same number of Warrants as there are shares of Common Stock
underlying this Warrant ("Warrant Shares"). For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this Section 11,
the Holder shall be deemed to hold 10,000 Warrants. In addition, for purposes of
this Section 11, the following terms shall have the following meanings:
"Current Market Value of a Warrant Share" shall be determined as follows:
(a) If the Common Stock is listed on a national securities exchange or
a foreign exchange, is admitted to unlisted trading privileges on such an
exchange, or is listed for trading on a trading system of the National
Association of Securities Dealers, Inc. such as the Nasdaq SmallCap Market
or the Nasdaq National Market, the OTC Bulletin Board or the Bulletin Board
Exchange, then the current value shall be the last reported sale price of
the Common Stock on such an exchange or system on the last business day
prior to the conversion date or if no such sale is made on such day, the
average of the closing bid prices for the common stock for such day on such
exchange or such system shall be used; or
(b) If the Common Stock is not so listed on such exchange or system or
admitted to unlisted trading privileges, the current value shall be the
average of the last reported bid prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of conversion date.
"Warrant Value" shall mean the Current Market Value of a Warrant Share
minus or less the Exercise Price payable under this Warrant as of the close
of business on the last business day prior to the day the Company receives
a notice from the Holder under this Section 11.
The Holder of this Warrant shall have the right to exchange, in a
cashless transaction, all or part of the Holder's Warrants for Common Stock
issued by the Company at anytime prior to the Expiration Date of such
Warrants by providing written notice ("Notice") to the Company using the
Subscription Form attached to this Warrant. Such Notice may only be
provided at a time when the Common Stock is listed or approved for trading
or quotation on a domestic or foreign exchange, interdealer trading system,
or national quotation bureau. Such Notice shall set forth the number of
Warrants which the Holder elects to exchange for Common Stock.
Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of shares of Common Stock of the Company to
the Holder which is determined by dividing the Warrant Value of the
Warrants being exchanged by the Current Market Value of a Warrant Share as
of the date the Notice is received by the Company.
The Holder shall surrender the Warrant that the Holder is exchanging
for shares of Common Stock upon receipt thereof. If the entire Warrant is
being exchanged by the Holder for Common Stock, the Company shall cancel
the entire Warrant. If less than the entire Warrant is being exchanged for
Common Stock, the Company shall issue a new Warrant to the Holder
representing the portion of this Warrant which was not exchanged for Common
Stock.
12. The Holder of this Warrant shall have registration rights under the
Securities Act of 1933, as amended with respect to the Common Stock issuable
upon exercise of this Warrant as set forth in that certain Purchase Agreement
dated as of October 15, 2002, by and between the Company, Stanford Financial
Group Company, Inc. and Stanford Venture Capital Holdings, Inc.
IN WITNESS WHEREOF, Cognigen Networks, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of October
15, 2002.
COGNIGEN NETWORKS, INC.
By:
----------------------------------------
Xxxxxxx X. Xxxxxx
Its: President and Chief Executive Officer
---------------------------------------
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Cognigen Networks, Inc. (the "Company")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
--------------------------------------
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, __________ shares of the $0.001 par
value common stock (the "Common Stock") provided for therein and tenders payment
herewith
o to the order of the Company in the amount of $___________, such payment
being made as provided on the face of this Warrant; or
o in the form of a cashless exercise pursuant to Section 11 of this Warrant,
and elects to exchange ______________ Warrants for shares of Common Stock.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Deliver to:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:
Signature
--------------------------------------------
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
------------------------------------------
[NAME]
this Warrant, and appoints
------------------------------------------
[NAME]
to transfer this Warrant on the books of the Company with the full power of
substitution in the premises. Dated: In the presence of:
(Signature must conform in all respects
to the name of the Holder as specified on
the face of this Warrant without
alteration, enlargement or any change
whatsoever, and the signature must be
guaranteed in the usual manner)
EXHIBIT C
The securities represented by this Stock Purchase Warrant may not be offered for
sale, sold or otherwise transferred except pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act") or pursuant to an
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
STOCK PURCHASE WARRANT
To Subscribe for and Purchase
Common Stock
of
COGNIGEN NETWORKS, INC.
THIS CERTIFIES THAT, for value received, _____(name)________, or its
registered assigns ("Holder"), is entitled to subscribe for and purchase from
Cognigen Networks, Inc. ("Company"), a corporation organized and existing under
the laws of the State of Colorado, at the price specified below (subject to
adjustment as noted below) at any time after the date hereof to and including
October 14, 2007 (the "Expiration Date") Three Hundred Fifty Thousand (350,000)
fully paid and nonassessable shares of the Company's $0.001 par value common
stock ("Common Stock") (subject to adjustments as noted below) ("Warrant") and
if held by more than one person ("Warrants"). The Warrant exercise price shall
be $0.75 per share of Common Stock ("Exercise Price").
This Warrant is subject to the following provisions, terms and conditions:
1. The rights represented by this Warrant may be exercised by the Holder, in
whole or in part, by written notice of exercise delivered to the Company 20
days prior to the intended date of exercise and by the surrender of this
Warrant (properly endorsed if required) at the principal office of the
Company and, except as provided in Section 11 of this Warrant, upon payment
to it by official bank check of the purchase price for such shares. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of Common Stock so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding 10 days, after the rights represented by this Warrant shall have
been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of shares of Common Stock, if any, with respect to
which this Warrant shall not then have been exercised shall also be
delivered to the Holder within such time.
2. Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of Common Stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 6 hereof.
3. The Company represents and warrants that this Warrant has been duly
authorized by all necessary corporate action, has been duly executed and
delivered and is a legal and binding obligation of the Company. The Company
covenants and agrees that all shares of Common Stock which may be issued
upon the exercise of the rights represented by this Warrant according to
the terms hereof will, upon issuance, be duly authorized and issued, fully
paid and nonassessable. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved
for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
5. The Holder, by acceptance of this Warrant, agrees to give written notice,
using the Form of Assignment attached to this Warrant, to the Company
before transferring this Warrant or transferring any Common Stock issuable
or issued upon the exercise hereof of such Holder's intention to do so,
describing briefly the manner of any proposed transfer of this Warrant or
such Holder's intention as to the disposition to be made of shares of
Common Stock issuable or issued upon the exercise hereof. Such Holder shall
also provide the Company with a counsel's opinion satisfactory to the
Company to the effect that the proposed transfer of this Warrant or
disposition of shares of Common Stock may be effected without registration
or qualification (under any federal or state law) of this Warrant or the
shares of Common Stock issuable or issued upon the exercise hereof. Upon
receipt of such written notice and opinion by the Company, such Holder
shall be entitled to transfer this Warrant, or to exercise this Warrant in
accordance with its terms and dispose of the shares of Common Stock
received upon such exercise or to dispose of shares of Common Stock
received upon the previous exercise of this Warrant, all in accordance with
the terms of the notice delivered by such Holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on
transfer and disposition may be endorsed on this Warrant or the
certificates for such shares of Common Stock.
6. Subject to the provisions of paragraph 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
Holder of this Warrant, by taking or holding the same, consents and agrees
that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books
of the Company, any notice to the contrary notwithstanding; but until such
transfer on such books, the Company may treat the registered Holder as the
owner for all purposes.
7. This Warrant is exchangeable, upon the surrender hereof by the Holder at
the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the
number of shares of Common Stock which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe
for and purchase such number of shares of Common Stock as shall be
designated by said Holder at the time of such surrender.
8. The Company covenants that:
(a) All shares of Common Stock that may be issued and delivered to a
Holder upon the exercise of this Warrant and payment of the Warrant
purchase price will be, upon such delivery, validly and duly issued,
fully paid and nonassessable.
(b) Subject to the terms and conditions contained herein, this Warrant
shall be binding on the Company and its successors and shall inure to
the benefit of the Holder and the successors and assigns of the
Holder.
(c) If the Company fails to perform any of its obligations hereunder, it
shall be liable to the Holder for all damages, costs and expenses
resulting from the failure, including, but not limited to, all
reasonable attorney's fees and disbursements.
(d) This Warrant cannot be changed or terminated or any performance or
condition waived in whole or in part except by an agreement in writing
signed by the party against whom enforcement of the change,
termination or waiver is sought.
(e) If any provision of this Warrant shall be held to be invalid, illegal
or unenforceable, such provision shall be severed, enforced to the
extent possible, or modified in such a way as to make it enforceable,
and the invalidity, illegality or unenforceability shall not affect
the remainder of this Warrant.
9. (a) If the Company shall at any time subdivide its outstanding Common Stock
by recapitalization, reclassification or split-up thereof, the number of
Shares of Common Stock subject to this Warrant immediately prior to such
subdivision shall be proportionately increased, and if the Company shall at
any time combine the outstanding Common Stock by recapitalization,
reclassification or combination thereof, the number of Shares of Common
Stock subject to this Warrant immediately prior to such combination shall
be proportionately decreased. Any corresponding adjustment to the Exercise
Price shall become effective at the close of business on the record date
for such subdivision or combination.
(a) In the event of a dividend (other than in shares of Common Stock), the
proposed dissolution or liquidation of the Company, or any corporate
separation or division, including, but not limited to, a split-up,
split-off or spin-off, or a merger or consolidation of the Company
with another Company, or the sale of all or substantially all of the
assets of the Company, the Board of Directors of the Company may
provide that each Holder will have the right to exercise this Warrant
(at its then current Exercise Price) solely for the kind and amount of
shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation,
corporate separation or division, or merger or consolidation by a
Holder of the number of shares of Common Stock for which this Warrant
might have been exercised immediately prior to such dissolution,
liquidation, corporate separation or division, or merger or
consolidation.
(b) The preceding paragraph will not apply to a merger or consolidation in
which the Company is the surviving Company and shares of Common Stock
are not converted into or exchanged for stock, securities of any other
Company, cash or any other thing of value. Notwithstanding the
preceding sentence, in case of any consolidation or merger of another
Company into the Company in which the Company is the surviving Company
and in which there is a reclassification or change (including a change
to the right to receive cash or other property) of the shares of
Common Stock (excluding a change in par value, or from no par value to
par value, or any change as a result of a subdivision or combination,
but including any change in such shares into two or more classes or
series of shares), the Board may provide that the Holder of this
Warrant will have the right to exercise this Warrant solely for the
kind and amount of shares of stock and other securities (including
those of any new direct or indirect parent of the Company), property,
cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by the Holder of the number of shares
of Common Stock for which this Warrant might have been exercised.
(c) In the event of a change in the Common Stock of the Company as
presently constituted into the same number of shares with a different
par value, the shares resulting from any such change will be deemed to
be the Common Stock of the Company within the meaning of this Warrant.
(d) Except as expressly provided in this Warrant, the Holder will have no
rights by reason of any subdivision or consolidation of shares of
stock of any class, or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class, or
by reason of any dissolution, liquidation, merger, or consolidation or
spin-off of assets or stock of another Company; and any issue by the
Company of shares of stock of any class, or securities convertible
into shares of stock of any class, will not affect, and no adjustment
will be made with respect to, the number or price of shares of Common
Stock subject to this Warrant. The grant of this Warrant will not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structures, or to merge or consolidate, or to
dissolve, liquidate, or sell or transfer all or any part of its
business or assets.
10. All questions concerning this Warrant will be governed and interpreted and
enforced in accordance with the internal law, not the law of conflicts, of
the State of Colorado.
11. For purposes of this Section 11, this Warrant shall be deemed to represent
the same number of Warrants as there are shares of Common Stock underlying
this Warrant ("Warrant Shares"). For example, if there are 10,000 Warrant
Shares underlying this Warrant, then for purposes of this Section 11, the
Holder shall be deemed to hold 10,000 Warrants. In addition, for purposes
of this Section 11, the following terms shall have the following meanings:
"Current Market Value of a Warrant Share" shall be determined as follows:
(a) If the Common Stock is listed on a national securities exchange or a
foreign exchange, is admitted to unlisted trading privileges on such
an exchange, or is listed for trading on a trading system of the
National Association of Securities Dealers, Inc. such as the Nasdaq
SmallCap Market or the Nasdaq National Market, the OTC Bulletin Board
or the Bulletin Board Exchange, then the current value shall be the
last reported sale price of the Common Stock on such an exchange or
system on the last business day prior to the conversion date or if no
such sale is made on such day, the average of the closing bid prices
for the common stock for such day on such exchange or such system
shall be used; or
(b) If the Common Stock is not so listed on such exchange or system or
admitted to unlisted trading privileges, the current value shall be
the average of the last reported bid prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of
conversion date.
"Warrant Value" shall mean the Current Market Value of a Warrant Share
minus or less the Exercise Price payable under this Warrant as of the
close of business on the last business day prior to the day the
Company receives a notice from the Holder under this Section 11.
The Holder of this Warrant shall have the right to exchange, in a
cashless transaction, all or part of the Holder's Warrants for Common
Stock issued by the Company at anytime prior to the Expiration Date of
such Warrants by providing written notice ("Notice") to the Company
using the Subscription Form attached to this Warrant. Such Notice may
only be provided at a time when the Common Stock is listed or approved
for trading or quotation on a domestic or foreign exchange,
interdealer trading system, or national quotation bureau. Such Notice
shall set forth the number of Warrants which the Holder elects to
exchange for Common Stock.
Within 10 days after receipt of such Notice by the Company, the
Company shall issue the number of shares of Common Stock of the
Company to the Holder which is determined by dividing the Warrant
Value of the Warrants being exchanged by the Current Market Value of a
Warrant Share as of the date the Notice is received by the Company.
The Holder shall surrender the Warrant that the Holder is exchanging
for shares of Common Stock upon receipt thereof. If the entire Warrant
is being exchanged by the Holder for Common Stock, the Company shall
cancel the entire Warrant. If less than the entire Warrant is being
exchanged for Common Stock, the Company shall issue a new Warrant to
the Holder representing the portion of this Warrant which was not
exchanged for Common Stock.
12. The Holder of this Warrant shall have registration rights under the
Securities Act of 1933, as amended with respect to the Common Stock
issuable upon exercise of this Warrant as set forth in that certain
Purchase Agreement dated as of October 15, 2002, by and between the
Company, Stanford Financial Group Company, Inc., and Stanford Venture
Capital Holdings, Inc.
IN WITNESS WHEREOF, Cognigen Networks, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of October
15, 2002.
COGNIGEN NETWORKS, INC.
By:
--------------------------------------
Xxxxxxx X. Xxxxxx
Its: President and Chief Executive Officer
-------------------------------------
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Cognigen Networks, Inc. (the "Company")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
--------------------------------------
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, __________ shares of the $0.001 par
value common stock (the "Common Stock") provided for therein and tenders payment
herewith
o to the order of the Company in the amount of $___________, such payment
being made as provided on the face of this Warrant; or
o in the form of a cashless exercise pursuant to Section 11 of this Warrant,
and elects to exchange ____________ Warrants for shares of Common Stock.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name:
-------------------------------------------------------------------------
Address:
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Deliver to:
-------------------------------------------------------------------
Address:
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and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:
Signature
--------------------------------------------
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
------------------------------------
[NAME]
this Warrant, and appoints
------------------------------------
[NAME]
to transfer this Warrant on the books of the Company with the full power of
substitution in the premises. Dated: In the presence of:
(Signature must
conform in all respects to the name of
the Holder as specified on the face of
this Warrant without alteration,
enlargement or any change whatsoever, and
the signature must be guaranteed in the
usual manner)
