EXHIBIT 10.69
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of June 23, 2004 by and
between GK Intelligent Systems, Inc., a Delaware corporation (the "Company"),
and Dutchess Private Equities Fund, II, L.P., a Delaware limited partnership
(the "Investor").
Whereas, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to Ten Million
Dollars ($10,000,000) to purchase the Company's Common Stock, .001 par value
per share (the "Common Stock");
Whereas, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"),
Rule 506 of Regulation D, and the rules and regulations promulgated
thereunder, and/or upon such other exemption from the registration
requirements of the 1933 Act as may be available with respect to any or all of
the investments in Common Stock to be made hereunder; and
Whereas, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit A (as
amended from time to time, the "Registration Rights Agreement") pursuant to
which the Company has agreed to provide certain registration rights under the
1933 Act, and the rules and regulations promulgated thereunder, and applicable
state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements
set forth hereafter, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company and the Investor
hereby agree as follows:
Section 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings specified or indicated below, and such meanings shall be equally
applicable to the singular and plural forms of such defined terms.
"1933 Act" shall have the meaning set forth in the preamble, above.
"1934 Act" shall mean the Securities Exchange Act of 1934, as it may be
amended.
"Affiliate" shall have the meaning specified in Section 5(h), below.
"Agreement" shall mean this Investment Agreement.
"Best Bid" shall mean the highest posted bid price of the Common Stock.
"Buy In" shall have the meaning specified in Section 6, below.
"Buy In Adjustment Amount" shall have the meaning specified in Section 6.
"Closing" shall have the meaning specified in Section 2(h).
"Closing Date" shall mean seven (7) Trading Days following the Put Notice
Date.
"Common Stock" shall have the meaning set forth in the preamble to this
Agreement.
"Control" or "Controls" shall have the meaning specified in Section 5(h).
"Covering Shares" shall have the meaning specified in Section 6.
"Effective Date" shall mean the date the SEC declares effective under the
1933 Act the Registration Statement covering the Securities.
"Environmental Laws" shall have the meaning specified in Section 4(m).
"Execution Date" shall mean the date indicated in the preamble to this
Agreement.
"Indemnities" shall have the meaning specified in Section 11.
"Indemnified Liabilities" shall have the meaning specified in Section 11.
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Investor" shall have the meaning indicated in the preamble of this
Agreement.
"Material Adverse Effect" shall have the meaning specified in Section
4(a).
"Maximum Common Stock Issuance" shall have the meaning specified in
Section 2(i).
"Minimum Acceptable Price" with respect to any Put Notice Date shall mean
75% of the lowest closing bid prices for the ten Trading Day period
immediately preceding such Put Notice Date.
"Open Period" shall mean the period beginning on and including the
Trading Day immediately following the Effective Date and ending on the earlier
to occur of (i) the date which is thirty six (36) months from the Effective
Date; or (ii) termination of the Agreement in accordance with Section 9,
below.
"Pricing Period" shall mean the period beginning on the Put Notice Date
and ending on and including the date that is five (5) Trading Days after such
Put Notice Date.
"Principal Market" shall mean the American Stock Exchange, Inc., the
National Association of Securities Dealers, Inc. Over-the-Counter Bulletin
Board, the Nasdaq National Market System or the Nasdaq SmallCap Market,
whichever is the principal market on which the Common Stock is listed.
"Prospectus" shall mean the prospectus, preliminary prospectus and
supplemental prospectus used in connection with the Registration Statement.
"Purchase Amount" shall mean the total amount being paid by the Investor
on a particular Closing Date to purchase the Securities.
"Purchase Price" shall mean ninety-five percent (95%) of the lowest
closing Best Bid price of the Common Stock during the Pricing Period.
"Put Amount" shall have the meaning set forth in Section 2(b) hereof.
"Put Notice" shall mean a written notice sent to the Investor by the
Company stating the Put Amount of Shares the Company intends to sell to the
Investor pursuant to the terms of the Agreement and stating the current number
of Shares issued and outstanding on such date.
"Put Notice Date" shall mean the Trading Day immediately following the
day on which the Investor receives a Put Notice, however a Put Notice shall be
deemed delivered on (x) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 9:00 am Eastern
Time, or (y) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"Put Restriction" shall mean the days between the end of the Pricing
Period and the date on which the Investor deems the Put closed. During this
time, the Company shall not be entitled to deliver another Put Notice.
"Registration Period" shall have the meaning specified in Section 5(c),
below.
"Registration Rights Agreement" shall have the meaning set forth in the
recitals, above.
"Registration Statement" means the registration statement of the Company
filed under the 1933 Act covering the Common Stock issuable hereunder.
"Related Party" shall have the meaning specified in Section 5(h).
"Resolution" shall have the meaning specified in Section 8(e).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC Documents" shall have the meaning specified in Section 4(f).
"Securities" shall mean the shares of Common Stock issued pursuant to the
terms of the Agreement.
"Shares" shall mean the shares of the Company's Common Stock.
"Sold Shares" shall have the meaning specified in Section 6.
"Subsidiaries" shall have the meaning specified in Section 4(a).
"Trading Day" shall mean any day on which the Principal Market for the
Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement, and each of the other agreements entered into by the parties
hereto in connection with this Agreement.
Section 2. PURCHASE AND SALE OF COMMON STOCK.
(a) Purchase and Sale of Common Stock. Subject to the terms and
conditions set forth herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase from the Company, up to that number of Shares
having an aggregate Purchase Price of Ten Million Dollars ($10,000,000).
(b) Delivery of Put Notices.
(i) Subject to the terms and conditions of the Transaction
Documents, and from time to time during the Open Period, the Company may, in
its sole discretion, deliver a Put Notice to the Investor which states the Put
Amount which the Company intends to sell to the Investor on a Closing Date.
The Put Notice shall be in the form attached hereto as Exhibit B and
incorporated herein by reference. The amount that the Company shall be
entitled to Put to the Investor in any single Put Notice (the "Put Amount")
shall be equal to, at the Company's election, either: (a) two hundred percent
(200%) of the average daily volume (U.S. market only) of the Common Stock for
the ten (10) Trading Days prior to the applicable Put Notice Date, multiplied
by the average of the three (3) daily closing Best Bid prices immediately
preceding the Put Date, or (b) twenty-five thousand $25,000; provided that in
no event will the Put Amount be more than One Million Dollars ($1,000,000)
with respect to any single Put. During the Open Period, the Company shall not
be entitled to submit a Put Notice until after the previous Closing has been
completed. The Purchase Price for the Common Stock identified in the Put
Notice shall be equal to 95% of the lowest closing Best Bid price of the
Common Stock during the Pricing Period.
(ii) If any closing bid price during the applicable Pricing Period
with respect to that Put Notice is less than 75% of the lowest closing Best
Bid prices of the Common Stock for the ten Trading Days prior to the Put
Notice Date (the "Minimum Acceptable Price"), the Put Notice will terminate at
the Company's request sent in accordance with Section 9 of this Agreement. In
the event that the closing bid price for the applicable Pricing Period is less
than the Minimum Acceptable Price, the Company may elect, by sending written
notice to the Investor to cancel the Put Notice.
(c) Reserved
(d) Investor's Obligation to Purchase Shares. Subject to the conditions
set forth in this Agreement, following the Investor's receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company during the related Pricing Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Put Amount set forth
in the Put Notice, and (ii) 20% of the aggregate trading volume of the Common
Stock during the applicable Pricing Period times (x) 95% of the lowest closing
bid prices of the Company's Common Stock during the specified Pricing Period,
but only if said Shares bear no restrictive legend, are not subject to stop
transfer instructions, pursuant to Section 2(h), prior to the applicable
Closing Date.
(e) Limitation on Investor's Obligation to Purchase Shares. In no event
shall the Investor purchase Shares (whether from the Company or in public or
private secondary transactions) other than pursuant to this Agreement until
such date as this Agreement is terminated.
(f) Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and the Investor shall not be
obligated to purchase any Shares at a Closing (as defined in Section 2(h))
unless each of the following conditions are satisfied:
(i) a Registration Statement shall have been declared effective and
shall remain effective and available for the resale of all the Registrable
Securities (as defined in the Registration Rights Agreement) at all times
until the Closing with respect to the subject Put Notice;
(ii) at all times during the period beginning on the related Put
Notice Date and ending on and including the related Closing Date, the Common
Stock shall have been listed on the Principal Market and shall not have been
suspended from trading thereon for a period of one consecutive Trading Day
during the Open Period or one day during a Pricing Period, and the Company
shall not have been notified of any pending or threatened proceeding or other
action to de-list or suspend the Common Stock;
(iii) the Company has complied with its obligations and is otherwise
not in breach of a material provision of, or in default under, this Agreement,
the Registration Rights Agreement or any other agreement executed in
connection herewith which has not been corrected prior to delivery of the Put
Notice Date;
(iv) no injunction shall have been issued and remain in force, or
action commenced by a governmental authority which has not been stayed or
abandoned, prohibiting the purchase or the issuance of the Securities; and
(v) the issuance of the Securities will not violate any shareholder
approval requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs during
a Pricing Period, then the Investor shall have no obligation to purchase the
Put Amount of Common Stock set forth in the applicable Put Notice.
(g) Reserved
(h) Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(f), 7 and 8, the
closing of the purchase by the Investor of Shares (a "Closing") shall occur on
the date which is no later than seven Trading Days following the applicable
Put Notice Date (each a "Closing Date"). Prior to each Closing Date, (i) the
Company shall deliver to the Investor pursuant to the this Agreement,
certificates representing the Shares to be issued to the Investor on such date
and registered in the name of the Investor; and (ii) the Investor shall
deliver to the Company the Purchase Price to be paid for such Shares,
determined as set forth in accordance with the terms of this Agreement. The
Company shall use a nationally recognized overnight delivery (and provide a
tracking number for package)service to deliver the certificates to the address
listed on the Put settlement sheet. In lieu of delivering physical
certificates representing the Securities and provided that the Company's
transfer agent then is participating in The Depository Trust Company ("DTC")
Fast Automated Securities Transfer ("FAST") program, upon request of the
Investor, the Company shall use its commercially reasonable efforts to cause
its transfer agent to electronically transmit the Securities by crediting the
account of the Investor's prime broker (which shall be specified by the
Investor a reasonably sufficient time in advance) with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system.
The Company understands that a delay in the issuance of Securities beyond
the Closing Date could result in economic loss to the Investor. After the
Effective Date, as compensation to the Investor for such loss, the Company
agrees to pay late payments to the Investor for late issuance of Securities
(delivery of Securities after the applicable Closing Date) in accordance with
the following schedule (where "No. of Days Late" is defined as the number of
days beyond the Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right
to pursue actual damages for the Company's failure to issue and deliver the
Securities to the Investor, except to the extent that such late payments shall
constitute payment for and offset any such actual damages alleged by the
Investor, and any Buy In Adjustment Amount.
(i) Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, if during the Open Period the Company
becomes listed on an exchange that limits the number of shares of Common Stock
that may be issued without shareholder approval, then the number of Shares
issuable by the Company and purchasable by the Investor, shall not exceed
that number of the shares of Common Stock that may be issuable without
shareholder approval, subject to appropriate adjustment for stock splits,
stock dividends, combinations or other similar recapitalization affecting the
Common Stock (the "Maximum Common Stock Issuance"), unless the issuance of
Shares, in excess of the Maximum Common Stock Issuance shall first be approved
by the Company's shareholders in accordance with applicable law and the
By-laws and Amended Certificate of Incorporation of the Company, if such
issuance of shares of Common Stock could cause a delisting on the Principal
Market. The parties understand and agree that the Company's failure to seek or
obtain such shareholder approval shall in no way adversely affect the validity
and due authorization of the issuance and sale of Securities or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(i).
Section 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
(a) Sophisticated Investor. The Investor has, by reason of its
business and financial experience, such knowledge, sophistication and
experience in financial and business matters and in making investment
decisions of this type that it is capable of (i) evaluating the merits and
risks of an investment in the Securities and making an informed investment
decision; (ii) protecting its own interest; and (iii) bearing the economic
risk of such investment for an indefinite period of time.
(b) Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Investor and is a
valid and binding agreement of the Investor enforceable against the Investor
in accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(c) Section 9 of the 1934 Act. During the term of this Agreement, the
Investor will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the
Common Stock. The Investor agrees not to short, either directly or
indirectly through its affiliates, principals or advisors, the Company's
common stock during the term of this Agreement.
(d) Accredited Investor. Investor is an "Accredited Investor" as that
term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not result in a
violation of Partnership Agreement or other organizational documents of the
Investor.
(f) Opportunity to Discuss. The Investor has had an opportunity to
discuss the business, management and financial affairs of the Company with the
Company's management to a level of satisfactory conditions for this type of
investment.
(g) Investment Purposes. The Investor is purchasing the Securities for
its own account for investment purposes and not with a view towards
distribution and agrees to resell or otherwise dispose of the Securities
solely in accordance with the registration provisions of the 1933 Act (or
pursuant to an exemption from such registration provisions).
(h) No Registration as a Broker or Dealer. The Investor is not and will
not be required to be registered as a "broker or "dealer" under the 1934 Act,
either as a result of its execution and performance of its obligations under
this Agreement or otherwise.
(i) Good Standing. The Investor is a Limited Partnership, duly
organized, validly existing and in good standing in the State of Delaware.
(j) Tax Liabilities. The Investor understands that it is liable for its
own tax liabilities.
(k) Regulation M. The Investor will comply with Regulation M under the
1934 Act, if applicable.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, or as disclosed on
the Company's SEC Documents, the Company represents and warrants to the
Investor that:
(a) Organization and Qualification. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware, and has the requisite corporate power and authorization to own its
properties and to carry on its business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b), below).
(b) Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement, and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof.
(ii) The execution and delivery of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, including without limitation the reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors, or its
shareholders.
(iii) The Transaction Documents have been duly and validly executed
and delivered by the Company.
(iv) The Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors' rights and remedies.
(c) Capitalization. As of May 6, 2004, the authorized capital stock of
the Company consists of (i) 275,000,000 shares of Common Stock, .001 par value
per share, of which, 68,966,498 shares are issued and outstanding; 10,000,000
shares of Preferred Stock, no par value per share authorized, with no shares
issued or outstanding; and 4,500,050 shares of Common Stock reserved for
issuance pursuant to options, warrants and other convertible securities. All
of such outstanding shares have been, or upon issuance will be, validly issued
and are fully paid and nonassessable. Except as disclosed in the Company's
publicly available filings with Periodic Filings, (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding debt securities; (iii) there are no outstanding
shares of capital stock, options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries
or options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its Subsidiaries;
(iv) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement); (v) there are
no outstanding securities of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (viii) there is no dispute as to the
classification of any shares of the Company's capital stock. The Company has
furnished to the Investor, or the Investor has had access through XXXXX to,
true and correct copies of the Company's Amended Certificate of Incorporation,
as in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto.
(d) Issuance of Shares. The Company has reserved 100,000,000 Shares for
issuance pursuant to this Agreement has been duly authorized and reserved for
issuance (subject to adjustment pursuant to the Company's covenant set forth
in Section 5(f) below) pursuant to this Agreement. Upon issuance in
accordance with this Agreement, the Securities will be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. In the event the Company cannot register a
sufficient number of Shares for issuance pursuant to this Agreement, the
Company will use its best efforts to authorize and reserve for issuance the
number of Shares required for the Company to perform its obligations hereunder
as soon as reasonably practicable.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or the By-laws; or (ii) conflict with, or constitute a
material default (or an event which with notice or lapse of time or both would
become a material default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, contract,
indenture mortgage, indebtedness or instrument to which the Company or any of
its Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and
state securities laws and regulations and the rules and regulations of the
Principal Market or principal securities exchange or trading market on which
the Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e),
neither the Company nor its Subsidiaries is in violation of any term of, or in
default under, the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or the By-laws or their organizational charter or
by-laws, respectively, or any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for possible
conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations that would not individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have
a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization, permit or order of, or make any filing or
registration (except the filing of a registration statement) with, any court,
governmental authority or agency, regulatory or self-regulatory agency or
other third party in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents in
accordance with the terms hereof or thereof. All consents, authorizations,
permits, orders, filings and registrations which the Company is required to
obtain pursuant to the preceding sentence have been obtained or effected on or
prior to the date hereof and are in full force and effect as of the date
hereof. Except as disclosed in Schedule 4(e), the Company and its Subsidiaries
are unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company is not, and will not be, in violation of the listing
requirements of the Principal Market as in effect on the date hereof and on
each of the Closing Dates and is not aware of any facts which would reasonably
lead to delisting of the Common Stock by the Principal Market in the
foreseeable future.
(f) SEC Documents; Financial Statements. From January 1, 2003 to May
19, 2004, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has delivered to
the Investor or its representatives, or they have had access through XXXXX to,
true and complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective filing dates, the
financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is
not included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the
Investor with any material, nonpublic information which was not publicly
disclosed prior to the date hereof and any material, nonpublic information
provided to the Investor by the Company or its Subsidiaries or any of their
officers, directors, employees or agents prior to any Closing Date shall be
publicly disclosed by the Company prior to such Closing Date.
(g) Absence of Certain Changes. Except as set forth in the SEC
Documents, the Company does not intend to change the business operations of
the Company. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law
nor does the Company or its Subsidiaries have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
(h) Absence of Litigation. Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the executive officers of Company or any
of its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.
(i) Acknowledgment Regarding Investor's Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by
the Investor or any of its respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Investor's purchase of the Securities. The
Company further represents to the Investor that the Company's decision to
enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(j) No Undisclosed Events, Liabilities, Developments or Circumstances.
Except as set forth in the SEC Documents, since March 31, 2004, no event,
liability, development or circumstance has occurred or exists, or to the
Company's knowledge is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws on a registration statement filed
with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly announced.
(k) Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement,
and the Company and its Subsidiaries believe that relations with their
employees are good. No executive officer (as defined in Rule 501(f) of the
0000 Xxx) has notified the Company that such officer intends to leave the
Company's employ or otherwise terminate such officer's employment with the
Company.
(l) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth the SEC Documents, none of
the Company's trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights necessary to conduct its business as now or as
proposed to be conducted have expired or terminated, or are expected to expire
or terminate within two years from the date of this Agreement. The Company and
its Subsidiaries do not have any knowledge of any infringement by the Company
or its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on the SEC Documents, there is no claim,
action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or
other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken commercially reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
(m) Environmental Laws. The Company and its Subsidiaries (i) are, to
the knowledge of management of the Company, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental Laws");
(ii) have, to the knowledge of management of the Company, received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (iii) are in
compliance, to the knowledge of the Company, with all terms and conditions of
any such permit, license or approval where, in each of the three foregoing
cases, the failure to so comply would have, individually or in the aggregate,
a Material Adverse Effect.
(n) Title. The Company and its Subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its Subsidiaries. Any real property and facilities held
under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its Subsidiaries.
(o) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company reasonably believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company
nor any such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect. The
Company does not carry Directors and Officers insurance.
(p) Regulatory Permits. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate
their respective properties and assets and conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, approval, authorization or permit, except for such certificates,
approvals, authorizations or permits which if not obtained, or such
revocations or modifications which, would not have a Material Adverse Effect.
(q) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(r) No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
(s) Tax Status. The Company and each of its Subsidiaries has made or
filed all United States federal and state income and all other tax returns,
reports and declarations required byany jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries
has set aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
(t) Certain Transactions. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed in the
SEC Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
(u) Dilutive Effect. The Company understands and acknowledges that the
number of Shares issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to,
the circumstance wherein the trading price of the Common Stock declines during
the period between the Effective Date and the end of the Open Period. The
Company's executive officers and directors have studied and fully understand
the nature of the transactions contemplated by this Agreement and recognize
that they have a potential dilutive effect. The Board of Directors of the
Company has concluded, in its good faith business judgment, that such issuance
is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in
the Transaction Documents, its obligation to issue Shares of Common Stock upon
purchases pursuant to this Agreement is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests
of other shareholders of the Company.
(v) Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of Investor offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition) any of its Common Stock
or securities convertible into Common Stock at a price that is less than the
market price of the Common Stock at the time of issuance of such security or
investment (a "Subsequent Financing") for a period of one year after the
Effective Date, except (i) the granting of options or warrants to employees,
officers, directors and consultants, and the issuance of Shares upon exercise
of options granted, under any stock option plan heretofore or hereafter duly
adopted by the Company or for services rendered or to be rendered; (ii) Shares
issued upon exercise of any currently outstanding warrants or options and upon
conversion of any currently outstanding convertible debenture or convertible
preferred stock, in each case disclosed pursuant to Section 4(c); (iii)
securities issued in connection with the capitalization or creation of a joint
venture with a strategic partner; (iv) securities issued to pay part or all of
the purchase price for the acquisition by the Company of another entity
(which, for purposes of this clause (iv), shall not include an individual or
group of individuals); and (v) securities issued in a bona fide public
offering by the Company of its securities, unless (A) the Company delivers to
Investor a written notice (the "Subsequent Financing Notice") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the person with whom
such Subsequent Financing shall be effected, and attached to which shall be a
term sheet or similar document relating thereto; and (B) Investor shall not
have notified the Company by 5:00 p.m. (New York time) on the fifth Trading
Day after its receipt of the Subsequent Financing Notice of its willingness to
provide, subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent
Financing Notice. If Investor shall fail to notify the Company of its
intention to enter into such negotiations within such time period, then the
Company may effect the Subsequent Financing substantially upon the terms set
forth in the Subsequent Financing Notice; provided that the Company shall
provide Investor with a second Subsequent Financing Notice, and Investor shall
again have the right of first refusal set forth above in this Section, if the
Subsequent Financing subject to the initial Subsequent Financing Notice shall
not have been consummated for any reason on the terms set forth in such
Subsequent Financing Notice within thirty Trading Days after the date of the
initial Subsequent Financing Notice. The rights granted to Investor in this
Section are not subject to any prior right of first refusal given to any other
person disclosed on Schedule 4(c).
(w) Lock-up. The Company shall cause its officers, insiders and
directors to refrain from selling Common Stock during each Pricing Period.
(x) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation
D) in connection with the offer or sale of the Common Stock offered hereby.
(y) No brokers, finders or financial advisory fees or commissions will
be payable by the Company with respect to the transaction contemplated by this
Agreement other than described in Section 12 (m) of this Agreement.
Section 5. COVENANTS OF THE COMPANY
(a) Best Efforts. The Company shall use commercially reasonable efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Section 7 of this Agreement.
(b) Blue Sky. The Company shall, at its sole cost and expense, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Shares for, or obtain
exemption for the Shares for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as reasonably specified by Investor, and
shall provide evidence of any such action so taken to the Investor on or prior
to the Closing Date.
(c) Reporting Status. Until the earlier to occur of (i) the first date
which is after the date this Agreement is terminated pursuant to Section 9 and
on which the Holders (as that term is defined in the Registration Rights
Agreement) may sell all of the Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto); and (ii) the
date on which (A) the Holders shall have sold all the Shares; and (B) this
Agreement has been terminated pursuant to Section 9 (the "Registration
Period"), the Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as a
reporting company under the 1934 Act.
(d) Use of Proceeds. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes or
for other purposes deemed fit by the Company's Board of Directors.
(e) Financial Information. The Company agrees to make available to the
Investor via XXXXX or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; (iii) copies of any notices
and other information made available or given to the shareholders of the
Company generally, contemporaneously with the making available or giving
thereof to the shareholders; and (iv) within two (2) calendar days of filing
or delivery thereof, copies of all documents filed with, and all
correspondence sent to, the Principal Market, any securities exchange or
market, or the National Association of Securities Dealers, Inc., unless such
information is material nonpublic information.
(f) Reservation of Shares. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Shares hereunder. In the event that
the Company determines that it does not have a sufficient number of authorized
Shares to reserve and keep available for issuance as described in this Section
5(f), the Company shall use its best efforts to increase the number of
authorized Shares by seeking shareholder approval for the authorization of
such additional shares.
(g) Listing. The Company shall promptly secure and maintain the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon the Principal Market and each other national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's authorization for quotation on the Principal
Market. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market (excluding suspensions of not more
than one trading day resulting from business announcements by the Company).
The Company shall promptly provide to the Investor copies of any notices it
receives from the Principal Market regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 5(g).
(h) Transactions With Affiliates. The Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or
supplement, any agreement, transaction, commitment or arrangement with any of
its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two (2) years, shareholders who
beneficially own five percent (5%) or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a
five percent (5%) or more beneficial interest (each a "Related Party"), except
for (i) customary employment arrangements and benefit programs on reasonable
terms, (ii) any agreement, transaction, commitment or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. "Affiliate" for purposes
hereof means, with respect to any person or entity, another person or entity
that, directly or indirectly, (i) has a five percent (5%) or more equity
interest in that person or entity, (ii) has five percent (5%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) is under common control with that person or entity. "Control" or
"Controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
(i) Filing of Form 8-K. On or before the date which is three Trading
Days after the Execution Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
(j) Corporate Existence. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
(k) Notice of Certain Events Affecting Registration; Suspension of Right
to Make a Put. The Company shall promptly notify Investor upon the occurrence
of any of the following events in respect of a Registration Statement or
related prospectus in respect of an offering of the Securities and shall not
deliver any Put Notice during the continuation of any of the following events:
(i) receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any
event that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so
that, in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and (v) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate, and the Company shall promptly
make available to Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to Investor any Put Notice during
the continuation of any of the foregoing events.
(l) Reimbursement. If (i) Investor becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person (other than as a result
of a breach of the Investor's representations and warranties set forth in this
Agreement); or (ii) Investor becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents (other than as a result
of a breach of the Investor's representations and warranties set forth in this
Agreement), or if Investor is impleaded in any such action, proceeding or
investigation by any person, then in any such case, the Company will reimburse
Investor for its reasonable legal and other expenses (including the cost of
any investigation and preparation) incurred in connection therewith, as such
expenses are incurred. In addition, other than with respect to any matter in
which Investor is a named party, the Company will pay to Investor the charges,
as reasonably determined by Investor, for the time of any officers or
employees of Investor devoted to appearing and preparing to appear as
witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this section shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any affiliates of Investor that are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees, attorneys, accountants, auditors and controlling persons (if any),
as the case may be, of Investor and any such affiliate, and shall be binding
upon and inure to the benefit of any successors of the Company, Investor and
any such affiliate and any such person.
Section 6. COVER.
If the number of Shares represented by any Put Notices become restricted
or are no longer freely trading for any reason, and after the applicable
Closing Date, the Investor purchases, in an open market transaction or
otherwise, the Company's Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Investor (the "Sold
Shares"), which delivery such Investor anticipated to make using the Shares
represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (a) the
Investor's total purchase price (including brokerage commissions, if any) for
the Covering Shares over (b) the net proceeds (after brokerage commissions, if
any) received by the Investor from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to the Investor in immediately
available funds immediately upon demand by the Investor. By way of
illustration and not in limitation of the foregoing, if the Investor purchases
Common Stock having a total purchase price (including brokerage commissions)
of $11,000 to cover a Buy-In with respect to the Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be
required to pay to the Investor will be $1,000.
Section 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Shares to
the Investor is further subject to the satisfaction, at or before each Closing
Date, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any
time in its sole discretion.
(a) The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(b) The Investor shall have delivered to the Company the Purchase Price
for the Shares being purchased by the Investor at the Closing (after receipt
of confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
(c) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
Section 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to
the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
(a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Investor.
(b) The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of
not more than one Trading Day resulting from business announcements by the
Company, provided that such suspensions occur prior to the Company's delivery
of the Put Notice related to such Closing).
(c) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as
though made at that time (except for (i) representations and warranties that
speak as of a specific date and (ii) with respect to the representations made
in Sections 4(g), (h) and (j) and the third sentence of Section 4(k) hereof,
events which occur on or after the date of this Agreement and are disclosed in
SEC filings made by the Company at least ten Trading Days prior to the
applicable Put Notice Date) and the Company shall have performed, satisfied
and complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company on or before such Closing Date. The Investor may request an update as
of such Closing Date regarding the representation contained in Section 4(c)
above.
(d) The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Shares (in such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
(e) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above (the "Resolutions") and such
Resolutions shall not have been amended or rescinded prior to such Closing
Date.
(f) reserved.
(g) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(h) The Registration Statement shall be effective on each Closing Date
and no stop order suspending the effectiveness of the Registration statement
shall be in effect or shall be pending or threatened. Furthermore, on each
Closing Date (i) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
(i) At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or which would require
public disclosure or an update supplement to the prospectus.
(j) If applicable, the shareholders of the Company shall have approved
the issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(i).
(k) The conditions to such Closing set forth in Section 2(f) shall have
been satisfied on or before such Closing Date.
(l) The Company shall have certified to the Investor the number of
Shares of Common Stock outstanding when a Put Notice is given to the Investor.
Section 9. TERMINATION. This Agreement shall terminate upon any of the
following events:
(i) when the Investor has purchased an aggregate of Ten Million Dollars
($10,000,000) in the Common Stock of the Company pursuant to this Agreement;
provided that the Company's representations, warranties and covenants
contained in this Agreement insofar as applicable to the transactions
consummated hereunder prior to such termination, shall survive the termination
of this Agreement for the period of any applicable statute of limitations;
(ii) on the date which is thirty-six (36) months after the Effective
Date;
Section 10. SUSPENSION. This Agreement shall be suspended upon any of the
following events, and shall remain suspended until such event is rectified:
(i) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five consecutive Trading Days
during the Open Period;
(ii) The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market. Upon the occurrence of one of the
above-described events, the Company shall send written notice of such event to
the Investor.
Section 11. INDEMNIFICATION. In consideration of the parties mutual
obligations set forth in the Transaction Documents, each of the parties (in
such capacity, an "Indemnitor") shall defend, protect, indemnify and hold
harmless the the other and all of the other party's shareholders, officers,
directors, employees, counsel, and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Indemnitor or any other
certificate, instrument or document contemplated hereby or thereby; (ii) any
breach of any covenant, agreement or obligation of the Indemnitor contained in
the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (iii) any cause of action, suit or claim
brought or made against such Indemnitee by a third party and arising out of or
resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, except insofar as any such misrepresentation,
breach or any untrue statement, alleged untrue statement, omission or alleged
omission is made in reliance upon and in conformity with written information
furnished to Indemnitor which is specifically intended for use in the
preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus. To the extent that the foregoing
undertaking by the Indenitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any
cause of action or similar rights Indemnitor may have, and any liabilities the
Indemnitor or the Indemnitees may be subject to.
Section 12. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without regard
to the principles of conflict of laws. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of Boston, County of Suffolk, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(b) Legal Fees; and Miscellaneous Fees. Except as otherwise set forth
in the Transaction Documents, the Company shall pay the fees and expenses of
its advisers, counsel, the accountants and other experts, if any, and all
other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any
attorneys' fees and expenses incurred by either the Company or by the Investor
in connection with the preparation, negotiation, execution and delivery of any
amendments to this Agreement or relating to the enforcement of the rights of
any party, after the occurrence of any breach of the terms of this Agreement
by another party or any default by another party in respect of the
transactions contemplated hereunder, shall be paid on demand by the party
which breached the Agreement and/or defaulted, as the case may be. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of any Securities.
(c) Counterparts. This Agreement may be executed in two (2) or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
(d) Headings; Singular/Plural. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include
the feminine.
(e) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
in that jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction.
(f) Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
the Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and
no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.
(g) Notices. Any notices or other communications required or permitted
to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
GK Intelligent Systems, Inc.
0000 Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone:(000) 000-0000
Facsimile:(000) 000-0000
With Copy to:
Xxxxxxx Business Law
Attn: Xxx Xxxxxxx
0000 Xxxxxx Xxxxxx, Xxxxx 0
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
Dutchess Private Equities Fund, II, LP
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
(h) No Assignment. This Agreement may not be assigned.
(i) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
(j) Survival. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section
11, shall survive each of the Closings and the termination of this Agreement.
(k) Publicity. The Company and Investor shall consult with each other
in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Investor without the prior written consent of
such Investor, except to the extent required by law. Investor acknowledges
that this Agreement and all or part of the Transaction Documents may be deemed
to be "material contracts" as that term is defined by Item 601(b)(10) of
Regulation S-B, and that the Company may therefore be required to file such
documents as exhibits to reports or registration statements filed under the
1933 Act or the 1934 Act. Investor further agrees that the status of such
documents and materials as material contracts shall be determined solely by
the Company, in consultation with its counsel.
(l) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(m) Placement Agent. The Company agrees to pay ___________, ("_____")
a registered broker dealer, $10,000. The $10,000 shall be payable from 1%
(one percent) of the Put Amount on each draw toward the fee. ________will
also act as an unaffiliated broker dealer. The Investor shall have no
obligation with respect to any fees or with respect to any claims made by or
on behalf of other persons or entities for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by
the Transaction Documents. The Company shall indemnify and hold harmless the
Investor, their employees, officers, directors, agents, and partners, and
their respective affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and expenses
incurred in respect of any such claimed or existing fees, as such fees and
expenses are incurred.
(n) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(o) Remedies. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which
such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any default or breach of any provision of this Agreement, including
the recovery of reasonable attorneys fees and costs, and to exercise all other
rights granted by law.
(p) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
(q) Pricing of Common Stock. For purposes of this Agreement, the bid
price of the Common Stock in this Agreement shall be as reported on
Xxxxxxxxx.xxx.
* * *
SIGNATURE PAGE OF INVESTMENT AGREEMENT
The signature of the authorized representative of the on this Signature
Page evidences the Company's agreement to be bound by the terms and conditions
of the Investment Agreement and the Registration Rights Agreement as of the
date first written above.
The undersigned signatory hereby certifies that he has read and
understands the Investment Agreement, and the representations made by the
Company in this Investment Agreement are true and accurate, and on behalf of
the Company, agrees to be bound by its terms.
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
By:/s/ Xxxxxxx X. Xxxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxxx, Managing
Member
GK INTELLIGENT SYSTEMS, INC.
By /s/ Xxxx Xxxxxxx
--------------------------------------
Xxxx Xxxxxxx, Chief Executive Officer
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C [reserved]
EXHIBIT D Broker Representation Letter
EXHIBIT E Board Resolution
EXHIBIT F Put Notice
EXHIBIT G Put Settlement Sheet
LIST OF SCHEDULES
-----------------
Schedule 4(a) Subsidiaries
Schedule 4(c) Capitalization
Schedule 4(e) Conflicts
Schedule 4(g) Material Changes
Schedule 4(h) Litigation
Schedule 4(l) Intellectual Property
Schedule 4(n) Liens
Schedule 4(t) Certain Transactions
