Exhibit 99.2
UNIT PURCHASE AGREEMENT
RAPIDTRON, INC.
THIS AGREEMENT is made effective as of the 12th day of November, 2003 (the
"EFFECTIVE DATE") by and among:
RAPIDTRON, INC., a Nevada corporation, of 0000 Xxxxxx Xxx., Xxxx. X, Xxxxx
Xxxx, XX 00000 (the "COMPANY");
XXXX XXXXX, an individual and President, Chairman of the Board of Directors
and shareholder of the Company ("XXXXX");
XXXXX XXXXXXX, an individual and Secretary, Treasurer, General Manager,
Director and shareholder of the Company ("MEINEKE");
XXXXX XXXXXXX, an individual and Executive Vice President and shareholder
of the Company ("DERMUTZ");
CERES FINANCIAL LIMITED, a BVI company, of Walkers Xxxxxxxx, P.O. Box 92,
Mill Mall, Road Town, Tortola, British Virgin Islands (the "LEAD
INVESTOR"); and
Each of the persons or entities named as Subscribers on Schedule A attached
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hereto (each, a "SUBSCRIBER").
The Company, the Lead Investor and the Subscribers are collectively referred to
as the "PARTIES." Collectively, Xxxxx, Meineke and Dermutz are referred to in
this Agreement as the "PRINCIPALS." The Lead Investor and the Subscribers are
referred to collectively as the "INVESTORS" and individually as an "INVESTOR."
WHEREAS:
A. The Company is currently offering units (the "UNITS") at $1.25 per
Unit, subject to certain anti-dilution price adjustments, and each
Unit consists of one share of the Company's common stock (a "COMMON
SHARE") with a par value of $0.001 and one non-transferable share
purchase warrant (a "WARRANT"). Each Warrant will entitle the
Subscriber to subscribe for one additional Common Share at a price of
$1.25 per share at any time up to 5:00 p.m. local time in Costa Mesa,
California on the first anniversary of the date of issuance and,
thereafter, at a price of $1.50 per share at any time up to 5:00 p.m.
local time in Costa Mesa, California on the second anniversary of the
date of issuance. The Units, the Common Shares, and the Warrants are
referred to in this Agreement as the "SECURITIES." All dollar amounts
set forth in this Agreement are in United States dollars.
B. Each Investor, severally and not jointly, agrees to purchase its pro
rata portion of Units in four (4) tranches, subject to the terms and
conditions set forth in this Agreement.
C. The Company is offering the Securities only to qualified investors who
(i) satisfy the criteria for "ACCREDITED INVESTORS" as defined under
Rule 501(a) of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), (ii) are not "U.S. Persons" as such term is defined by Rule 902
of Regulation S under the Securities Act and (iii) are outside the
United States at the time of execution and delivery of this Agreement.
The Company is offering the Securities pursuant to (i) an exemption
from registration promulgated under Rule 506 of Regulation D of the
Securities Act and/or (ii) an exclusion from the registration
requirements available under Rule 903 of Regulation S of the
Securities Act.
D. The Lead Investor has agreed to purchase the number of Units set forth
beside Lead Investor's name on Schedule A attached hereto, subject to
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the terms and conditions set forth in this Agreement. Each of the
Parties acknowledges that the Subscribers would not otherwise invest
in the Company, absent the investment of the Lead Investor. As a
condition to facilitating such investment by the Lead Investor, the
Company has agreed to certain covenants for the benefit of the Lead
Investor, individually, and certain additional covenants for the
benefit of the Investors, collectively.
E. The Principals have made certain representations and warranties to the
Investors related to the forecasted performance of the Company in
connection with the offering of the Units, and have agreed that such
representations are a material inducement to the Lead Investor and the
Subscribers' investment in the Company. In connection with such
forecasts, the Principals have agreed to enter into an Escrow and
Contribution Agreement under which the Principals have agreed (i) to
place any and all of the Common Shares of the Company held by them on
the date hereof into escrow and (ii) to contribute their pro rata
share of such escrowed shares to the Company in the event of (A) a
breach such representations and warranties or (B) the issuance of
stock options in excess of certain limits (the "ESCROW AND
CONTRIBUTION AGREEMENT").
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual
covenants and agreements herein contained, the receipt of which is acknowledged,
the Parties covenant and agree with each other as follows:
1. SUBSCRIPTION
1.1 Subscription. Subject to the terms and subject to the conditions of
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this Agreement and the adjustments set forth in Section 1.3, each of
the Investors, severally and not jointly, agrees to purchase its pro
rata portion of Units at the Purchase Price (as such term is defined
in Section 1.3) in four (4) tranches on the following closing dates
(each, a "CLOSING"):
(a) Tranche 1 upon execution and delivery of this Agreement for
576,000 Units for proceeds of $720,000;
(b) Tranche 2 thirty (30) days after the date of the first Closing
for 416,000 Units for proceeds of $520,000;
(c) Tranche 3 on December 31, 2003 for 288,000 Units for proceeds of
$360,000; and
(d) Tranche 4 on January 31, 2004 for the remaining number of Units
subscribed for under this Agreement for gross proceeds in excess
of $1,600,000.
1.2 Security Offered. Each Unit shall consists of one Common Share and one
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non-transferable Warrant. Each Warrant will entitle the Investor to
subscribe for one additional Common Share at a price of $1.25 per
share at any time up to 5:00 p.m. local time in Costa Mesa, California
on the first anniversary of the date of issuance and, thereafter, at a
price of $1.50 per share at any time up to 5:00 p.m. local time in
Costa Mesa, California on the second anniversary of the date of
issuance. The Warrants will be evidenced by a Warrant Certificate, in
the form attached as Schedule B to be issued to the Investor on
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the date of each Closing (each, a "CLOSING DATE").
1.3 Purchase Price. On each Closing Date, each Investor, severally and not
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jointly, shall pay to the Company the Purchase Price of Units
subscribed in such Tranche, by check payable to "Rapidtron, Inc.", by
wire transfer to Rapidtron, Inc. (pursuant to the wire transfer
instructions provided in advance of such Closing Date) or by other
means agreed to in writing by the parties (except in Tranche 4 in
which the Investors may pay the Purchase Price by tendering one or
more promissory notes payable by the Company), which shall be applied
to payment for the Units subscribed for herein. The Investors shall
use their best efforts to pay
the Purchase Price by wire transfer. The "Purchase Price" of each Unit
shall be $1.25 per Unit, subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution on its Common Shares, (ii) subdivide its outstanding
Common Shares into a greater number of shares, (iii) combine the
shares of its outstanding Common Shares into a smaller number of
shares, or (iv) issue shares by reclassification of its Common
Shares, then in each such case the Purchase Price and the number
of Units subscribed for under this Agreement in effect
immediately prior thereto shall be proportionately adjusted so
that each Investor shall be entitled to receive, to the extent
permitted by applicable law, the number and kind of Securities
which such Investor would have owned or have been entitled to
receive after the happening of such event had such Units been
purchased immediately prior to the record date for such event (or
if no record date is established in connection with such event,
the effective date for such action). An adjustment pursuant to
this subparagraph (a) shall become effective immediately after
the record date in the case of a stock dividend or distribution
and shall become effective immediately after the effective date
in the case of a subdivision, combination or reclassification.
(b) If and whenever the Company shall (i) issue or sell any Common
Shares for a consideration per share less than the Purchase Price
in effect immediately prior to the time of such issuance or sale,
(ii) issue or sell any warrants, options or other rights to
acquire Common Shares at a purchase price less than the Purchase
Price in effect immediately prior to the time of such issuance or
sale or (iii) issue or sell any other securities that are
convertible into Common Shares for a purchase or exchange price
less than the conversion price in effect immediately prior to the
time of such issuance or sale (except for the issuance or sale of
Common Shares pursuant to the exercise of employee stock options
that may be granted pursuant to employee stock option plans
adopted by the Company's Board of Directors as of the date of
this Agreement) then, upon such issuance or sale, the Purchase
Price shall be reduced to the price at which such Common Shares
are being issued or sold by the Company or the price at which
such other securities are exercisable or convertible into Common
Shares.
(c) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly-owned subsidiary of the
Company), or in case of any sale or transfer of all or
substantially all of the assets of the Company, or in case of any
share exchange pursuant to which all of the outstanding Common
Shares are converted into other securities or property, the
Company shall, prior to or at the time of such transaction, make
appropriate provision or cause appropriate provision to be made
so that each Investor shall have the right upon payment of the
Purchase Price of the Units subscribed for under this Agreement,
to purchase such Units and exercise such warrants immediately
prior to closing such transaction and thereby purchase securities
of the kind and amount of shares of stock and other securities
and property receivable upon such consolidation, merger, sale,
transfer or share exchange by a holder of the number of Common
Shares immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in
connection with any such consolidation, merger, sale, transfer or
share exchange, each holder of Common Shares is entitled to elect
to receive either securities, cash or other assets upon
completion of such transaction, the Company shall provide or
cause to be provided to each Investor the right, upon payment of
the Purchase Price of the Units subscribed for under this
Agreement, to elect the securities, cash or other assets into
which the Common Shares and Common Shares acquirable upon
exercise of the Warrants after completion of any such transaction
on the same terms and subject to the same conditions applicable
to holders of the Common Shares (including, without limitation,
notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise
the election).
(d) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of
Section 1.3(a), (b) or (c), but which should result in an
adjustment in the Purchase Price and/or the number of Units or
Securities subject to this Agreement in order to fairly protect
the subscription rights of each Investor, an appropriate
adjustment in such subscription rights shall be made by the
Company.
(e) Notwithstanding the foregoing, there shall be no adjustment to
the number of Units or Purchase Price of any Units once such
Units have been issued by the Company in accordance with the
terms of this Agreement.
1.4 Delivery of Certificates. Promptly upon receipt of the Purchase Price
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at the applicable Closing, the Company shall deliver to each Investor
certificates representing the number of Common Shares and Warrants
underlying the Units purchased, registered in the name of the
Investor. Each Investor agrees to execute and deliver such other
documents as may be reasonably requested by the Company in connection
with the certificate delivery.
1.5 Use of Proceeds. As an inducement to invest in the Company, the
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Company represents, warrants and covenants to each Investor that the
proceeds of each Tranche will be used for the following purposes:
(a) Tranche 1 for proceeds of $720,000:
(i) $400,000 payable to Axess AG for equipment and products;
(ii) $150,000 payable to Silverback Data Management in
connection with certain publication services;
(iii) $20,000 payable to Xxxx Xxxxx for accrued compensation;
(iv) $125,000 to the Company for operating expenses; and
(v) $25,000 payable to Lead Investor's legal counsel towards
"Investor's Legal Fee" pursuant to Section 5.2 below
(b) Tranche 2 for proceeds of $520,000:
(i) $200,000 payable to Axess AG for equipment and products;
(ii) $150,000 payable to Silverback Data Management in
connection with certain publication services;
(iii) $20,000 payable to Xxxx Xxxxx for accrued compensation;
(iv) $25,000 payable to Lead Investor's legal counsel towards
"Investor's Legal Fee" pursuant to Section 5.2 below; and
(v) $125,000 to the Company for operating expenses.
(c) Tranche 3 for proceeds of $360,000:
(i) $150,000 payable to Silverback Data Management in
connection with certain publication services;
(ii) $25,000 payable to the Company's legal counsel;
(iii) $50,000 to the Company to be used for marketing materials
and activities; and
(iv) $135,000 to the Company for operating expenses.
(d) Tranche 4 for gross proceeds in excess of $1,600,000 to the
Company first to pay any remaining, unpaid portion of the
Investor's Legal Fee pursuant to Section 5.2 below, second to pay
any unpaid portion of the outstanding invoice(s) from the
Company's legal counsel, and the remaining proceeds for operating
expenses.
Notwithstanding the foregoing, in no event shall the proceeds of any
Tranche in this Section 1.1 be used to satisfy the Company's obligations
under notes payable, accounts payable and/or accrued salaries and expenses
payable as of the Effective Date to Xxxx Xxxxx, Xxxxx Xxxxxxx, Xxxxx
Xxxxxxxx, Comerica Bank, Meineke LLC, Equus Marketing and Design.
1.6 By signing this Agreement, each Investor acknowledges that the Company
is relying on the accuracy and completeness of the representations
contained in this Agreement in complying with its obligations under
applicable securities laws.
2. CLOSING, CLOSING CONDITIONS AND DELIVERIES
2.1 The Closing of each of the transactions contemplated by Section 1.1 shall
take place at the offices of Xxxxxx & Whitney, LLP, 0000 Xxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxx Xxxxxxxxxx 00000, at 5:00 p.m., Seattle time, on the
Effective Date or at such other place or different time or day as may be
mutually acceptable to the Lead Investor and the Company.
2.2 The Closing of the transaction contemplated by Section 1.1 (a) is subject
to the fulfillment of the following conditions (the "INITIAL CLOSING
CONDITIONS") which are for the benefit of each Investor:
(a) all relevant documentation and approvals as may be required, by
applicable securities statutes, regulations, policy statements and
interpretation notes, by applicable securities regulatory authorities
and by applicable rules and guidelines of any stock exchange on which
the Common Shares are listed, shall have been obtained and, where
applicable, executed by or on behalf of the Investor;
(b) the Company's board of directors shall have authorized and approved
the execution and delivery of this Agreement, the issuance and
delivery of the Units, the allotment and issuance of the Common
Shares, the allotment and issuance of the Warrants, and the allotment
and issuance of the Common Shares acquired upon exercise of the
Warrants (the "Warrant Shares");
(c) the representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the Closing Date, and the
Company shall have delivered a certificate of a senior officer of the
Company (acting without personal liability) to that effect to the
Investors;
(d) no action or proceeding at law or in equity shall be pending or
threatened by any person, including any government, governmental
authority, regulatory body or agency to enjoin, restrict or prohibit
the purchase and issuance of the Securities or the transactions
contemplated hereby;
(e) the Company shall have entered into a Consulting Agreement for
strategic management consulting services with Big Sky Management Ltd.;
(f) the Company and the Lead Investor shall have executed and delivered
the Registration Rights Agreement in the form attached hereto as
Schedule C;
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(g) the Company and each of the Principals and their respective spouses
shall have executed and delivered the Escrow and Contribution
Agreement in the form attached hereto as Schedule D;
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(h) the Principals shall have delivered Schedule E of this Agreement
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listing any and all Common
Shares owned directly or indirectly by them;
(i) the Company shall have delivered a copy of resolutions of the Board of
Directors of the Company certified by the secretary of the Company
authorizing and approving the execution, delivery and performance of
this Agreement;
(j) the Lead Investor, for its sole benefit, shall have completed its
business, financial, legal and technical due diligence inquiries; and
(k) the Company shall have entered into an agreement with Silverback Data
Management.
2.3 The Closing of each of the transactions contemplated by Section 1.1 (b),
(c) and (d) is subject to the fulfillment of the following conditions (the
"SUBSEQUENT CLOSING CONDITIONS") which are for the benefit of each Investor
and which Subsequent Closing Conditions the Company covenants to exercise
its reasonable best efforts to have fulfilled on or prior to each Closing
Date:
(a) all relevant documentation and approvals as may be required, by
applicable securities statutes, regulations, policy statements and
interpretation notes, by applicable securities regulatory authorities
and by applicable rules and guidelines of any stock exchange on which
the Company's common shares are listed, shall have been obtained and,
where applicable, executed by or on behalf of the Investor;
(b) the issuance and delivery of the Units, the allotment and issuance of
the Common Shares, the allotment and issuance of the Warrants, the
allotment and issuance of the Warrant Shares and any adjustments to
the Purchase Price or the number or type of securities required under
the terms of this Agreement shall have been authorized by the board of
directors of the Company;
(c) the Company shall have complied with its covenants contained in this
Agreement to be complied with prior to such Closing, including the
covenant related to the use of proceeds set forth in Section 1.5 and
the covenants set forth in Section 4.2, and the Company shall have
delivered a certificate of a senior officer of the Company (acting
without personal liability) to that effect to the Investors;
(d) the representations and warranties of the Company set forth in this
Agreement shall be true and correct as of the Closing Date, and the
Company shall have delivered a certificate of a senior officer of the
Company (acting without personal liability) to that effect to the
Investors;
(e) each of the agreements contemplated in Sections 2.2 (f), (g) and (h)
shall continue to be in full force and effect and there shall be no
material breach in such agreements;
(f) the Company shall not (i) have applied for or consented to the
appointment of, and there shall not have been a taking of possession
by, a receiver, custodian, trustee or liquidator for the Corporation
or any of its property; (ii) have become generally unable to pay its
debts as they become due; (iii) have made a general assignment for the
benefit of creditors or become insolvent; (iv) have filed or be served
with any petition for relief under the Bankruptcy Code or any similar
federal or state statute; (v) have any judgment entered against it in
excess of $50,000 in any one instance or have any attachment or levy
made to or against any of its property or assets; (vi) have defaulted
with respect to any evidence of indebtedness or liability for borrowed
money, or any such indebtedness shall not be paid as and when due and
payable; or (vii) have assessed or imposed against it, or if there
shall exist, any general or specific lien for any federal, state or
local taxes or charges against any of its property or assets;
(g) neither the Company nor any Principal shall have taken any action
which has had a substantial, adverse effect upon the Company's ability
to meet its financial projections set forth in Section 4.1(ii) of this
Agreement (by way of example and not of limitation, a Principal's
voluntary
termination of employment);
(h) the Company shall have paid, in accordance with Section 5.2, the
Investor's Legal Fee; and
(i) the Company shall have prior to December 31, 2003 and the Closing of
Tranche 3 in Section 1.1(c), converted debt, in the amounts set forth
beside each Debt Holders name on Schedule G of this Agreement, payable
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as of the Effective Date into shares of common stock at $1.00 per
share.
2.4 The Initial Closing Conditions and Subsequent Closing Conditions may be
waived in writing in whole or in part by the Investors before Closing upon
such terms as it may consider appropriate.
3. INVESTOR REPRESENTATIONS, WARRANTIES, AND COVENANTS
3.1 Each Investor, severally and not jointly, makes the following
representations and warranties to the Company:
(a) The Investor is purchasing the Units, consisting of the Common Shares
and the Warrants, for its own account or for the account of one or
more persons for investment purposes only and not with a view to
resale or distribution and, in particular, it has no intention to
distribute either directly or indirectly any of the Common Shares
issued in connection with the purchase of the Units, or upon exercise
of the Warrants; provided, however, that the Purchaser may sell or
otherwise dispose of any of the Common Shares pursuant to registration
thereof under the Securities Act and any applicable state securities
laws or under an exemption from such registration requirements.
(b) The Investor recognizes that investment in the Securities involves
substantial risks and has taken full cognizance of and understands all
of the risks related to the purchase of the Securities, including
without limitation those set forth under the caption "Risk Factors" in
the Company's reports on Form 10-KSB, 10-QSB and 8-K and the draft
Form 10-QSB for the quarter ended September 30, 2003, in substantially
the form provided to the Investors (collectively, the "SEC Reports")
filed with the United States Securities and Exchange Commission (the
"SEC") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(c) In making its decision to invest in the Units, the Investor has
carefully reviewed and is familiar with the Company's SEC Reports, and
the Investor has relied on the information contained therein and the
documents and materials delivered therewith, and on the Investor's own
independent investigations and/or those of the Investor's own
professional tax and other advisors. The Investor and the Investor's
advisors (including the Investor's representative, if any) have been
given the opportunity to obtain information and to examine all
documents relating to the Company, and to ask questions of and to
receive answers from the officers of the Company concerning the
Company, the officers and directors, and the terms and conditions of
this investment, and to obtain any additional information, to the
extent the Company possesses that information or could acquire it
without unreasonable effort or expense, to verify the accuracy of any
information previously furnished. All questions have been answered to
the full satisfaction of the Investor, and all information and
documents, records and books pertaining to this investment that the
Investor has requested have been made available to the Investor.
(d) The Investor believes that it, either alone or with the assistance of
its advisor(s) (including the Investor's representative, if any), has
such knowledge and experience in financial and business matters that
the Investor is capable of reading and interpreting disclosure
materials, such as the SEC Reports and the Company's financial
statements, and of evaluating the merits and risks of the prospective
investment in the Securities. The Investor has obtained sufficient
information to evaluate the merits and risks of an investment in the
Company and has the net worth to undertake those risks.
(e) The Investor has obtained, to the extent the Investor deems necessary,
the Investor's own personal,
professional advice with respect to the risks inherent in the
investment in the Company and the suitability of the investment in the
Securities in light of the Investor's financial condition and
investment needs.
(f) The Investor believes that investment in the Securities is suitable
for the Investor based on the Investor's investment objectives and
financial needs, and the Investor has adequate means for providing for
the Investor's current financial needs and personal contingencies and
has no need for liquidity of investment with respect to the
Securities.
(g) The Investor is able to (i) hold the Common Shares and, if the
Warrants are exercised, the Common Shares underlying the Warrants, for
an indefinite period of time, (ii) bear the economic risk of the
Investor's investment, and (iii) withstand a complete loss of the
investment.
(h) The Investor has not purchased the Securities as a result of any form
of general solicitation or general advertising, including
advertisements, articles, notices, or other communications published
in any newspaper, magazine, or similar media, or broadcast over radio
or television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising.
(i) The Investor, and if applicable, each person for whose account it is
purchasing the Units:
(a) acknowledges that the Units, consisting of the Common Shares and
the Warrants, have not been registered under the Securities Act,
and the Investor undertakes and agrees that it will not offer or
sell the Common Shares unless the Common Shares are registered
under the Securities Act and the securities laws of all
applicable states of the United States, or such Common Shares are
sold pursuant to an available exemption from such registration
requirements;
(b) represents that it is an "ACCREDITED INVESTOR" as such term is
defined under Rule 501(a) of Regulation D of the Securities Act,
by satisfying one or more of the criteria set forth on Schedule F
, attached hereto; -----------
(c) represents it is not a "U.S. person", as defined in Regulation S
under the Securities Act (which definition includes but is not
limited to (A) any individual resident in the United States, (B)
any partnership or corporation organized or incorporated under
the laws of the United States, (C) any partnership or corporation
formed by a U.S. person under the laws of any foreign
jurisdiction principally for the purpose of investing in
securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by "accredited investors"
as defined in Rule 501(a) of Regulation D under the Securities
Act resident in the United States, or (D) any estate or trust of
which any executor, administrator or trustee is a U.S. person),
and is not purchasing the Units for the account or benefit of a
"U.S. person"; and
(d) represents that it was not offered any of the Units in the United
States, did not receive any materials relating to the offer of
the Units in the United States, and did not execute this
Agreement or any other materials relating to the purchase of the
Units in the United States.
(j) The Investor understands that the Common Shares issuable upon purchase
of the Units and the Common Shares issuable on the exercise of the
Warrants are "restricted securities," as such term is defined under
Rule 144 of the Securities Act, and may not be offered, sold,
transferred, pledged, or hypothecated to any person in the absence of
registration under the Securities Act or an opinion of counsel
satisfactory to the Company that registration is not required. Even if
an exemption is available, the assignability and transfer of the
Securities is subject to limitations imposed by this Agreement.
(k) The Investor further understands that a legend in substantially the
following form will be placed on all documents evidencing the Common
Shares and the Common Shares issuable upon exercise of the Warrants
and that similar notations may be made on the Company records as a
means of preventing the disposition of the Common Shares other than in
accordance with this Agreement and applicable law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY, (B) IF THE SECURITIES HAVE BEEN
REGISTERED IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS UNDER THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS (C)
IN COMPLIANCE WITH THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER
THE SECURITIES ACT IN ACCORDANCE WITH RULE 144 THEREUNDER, IF APPLICABLE,
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN A
TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE LAWS AND REGULATIONS GOVERNING THE OFFER AND SALE OF
SECURITIES, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE
COMPANY AN OPINION OF COUNSEL, OF RECOGNIZED STANDING, OR OTHER EVIDENCE OF
EXEMPTION, REASONABLY SATISFACTORY TO THE COMPANY. HEDGING TRANSACTIONS
INVOLVING THE SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH U.S. SECURITIES LAWS.
(l) If a partnership, trust, corporation, or other entity: (i) the
Investor has the power and authority to sign and comply with the terms
of this Agreement and the person signing this Agreement on its behalf
has the necessary power to do so; (ii) the Investor's principal place
of business and principal office are located within the jurisdiction
set forth in its address below.
(m) The Investor understands and agrees that there may be material tax
consequences to the Investor of an acquisition or disposition of the
Securities. The Company gives no opinion and makes no representation
with respect to the tax consequences to the Investor under United
States, state, local or foreign tax law of the Investor's acquisition
or disposition of the Securities.
(n) The Investor confirms that neither the officers of the Company nor any
of its affiliates or agents have made any representations or
warranties or statements, except as explicitly set forth in this
Agreement, concerning the Investor's investment in the Units,
including but not limited to any representations or warranties
concerning tax consequences that may arise in connection with the
Investor's investment in the Securities or the anticipated financial
results of the operations of the Company.
(o) The Investor acknowledges that in making its decision to invest in the
Securities, it is not relying on any other Investor or upon any
person, firm or company. Each Investor agrees that no other Investor
(including the Lead Investor) nor the partners, employees, officers or
controlling persons of any other Investor shall be liable for any
actions taken by such Investor, or omitted to be taken by such
Investor, in connection with such investment.
(p) No brokers or finders underlined no person, firm or corporation has or
will have, as a result of an act or mission of any Investor, any
right, interest or valid claim against the company or any Investor for
any commission, fee for other compensation as a finder or broker in
connection with the transactions contemplated by this agreement. Each
Investor will indemnify and hold the company harmless against any and
all liability with respect to any such commission, fee or other
compensation which may be payable or determined to be payable in
connection with the transactions contemplated by this agreement.
3.2 Each Investor agrees as follows:
(a) If the Investor decides to offer, sell or otherwise transfer any of
the Common Shares or Warrants, it will not offer, sell or otherwise
transfer any of such securities directly or indirectly, unless:
(a) the sale is to the Company or in a transaction that is registered
under the Securities Act and in accordance with any applicable
state securities or "Blue Sky" laws;
(b) the sale is made outside the United States in a transaction
meeting the requirements of Rule 904 of Regulation S under the
Securities Act and in compliance with applicable local laws and
regulations;
(c) the sale is made in compliance with the exemption from the
registration requirements under the Securities Act and in
accordance with Rule 144 thereunder, if applicable, and in
accordance with any applicable state securities or "Blue Sky"
laws; or
(d) the securities are sold in a transaction that does not require
registration under the Securities Act or any applicable U.S.
state laws and regulations governing the offer and sale of
securities; and
with respect to subparagraphs (iii) and (iv) hereof, it has prior to such
sale furnished to the Company an opinion of counsel reasonably satisfactory
to the Company.
(b) The Investor agrees not to engage in hedging transactions prior to the
expiration of the one-year distribution compliance period set forth in
Rule 903(b)(3) of Regulation S under the Securities Act with regard to
(A) the Units, or (B) any other securities that it acquires from the
Company in reliance upon the exclusion from registration provided by
Regulation S under the Securities Act, and understands that the
certificates representing the Common Shares and the Warrants will be
impressed with a legend to such effect.
3.3 Each Investor acknowledges and agrees as follows:
(a) the Warrants are non-transferrable, except as otherwise required by
law; provided however, the holder of the Warrants may transfer the
Warrant to a family trust, family member or corporation controlled by
the shareholder, or if a corporation, its shareholders.
(b) the Investor acknowledges that any person who exercises a Warrant will
be required to provide to the Company either:
(a) a representation that the Warrant is being exercised by the
original purchaser of the Units and the representations and
warranties made in connection with such purchase remain true and
correct as of the date of the exercise; or
(b) a written opinion of counsel or other evidence satisfactory to
the Company to the effect that the Warrants and the Warrant
Shares have been registered under the Securities Act and
applicable state securities laws or are exempt from registration
thereunder.
4. COMPANY AND PRINCIPAL REPRESENTATIONS, WARRANTIES, AND COVENANTS
4.1 In order to induce each Investor to enter into this Agreement and to
purchase the number of Units set forth after its name on Schedule A, the
----------
Company(and each of the Principals in the case of Section 4.1(hh), Section
4.1(ii)) and Section 4.1(jj) hereby represents and warrants to each
Investor, except as disclosed in the attached Company Disclosure Schedule,
that:
(a) Organization, Standing, Etc. The Company is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the
state of Nevada, and has the requisite corporate power and
authority to own its properties and to carry on its business in all
material respects as it is now being conducted. The Company has the
requisite corporate power and authority to issue the Securities and to
otherwise perform its obligations under this agreement.
(b) Governing Instruments. The Company has filed in its SEC Reports true,
----------------------
accurate and correct copies of the articles of incorporation and
bylaws of the Company and such articles of incorporation and bylaws
are the duly and legally adopted articles of incorporation and bylaws
of the Company in effect as of the date of this Agreement.
(c) Subsidiaries, etc. Except as otherwise described in its SEC Reports,
------------------
the Company does not have any direct or indirect ownership interest in
any corporation, partnership, joint venture, association or other
business enterprise. If any entity is described in the Company's SEC
Reports and the Company owns a controlling interest in such entity,
each of the representations and warranties set forth in this article
4.1 are being hereby restated with respect to such entity (modified as
appropriate to the nature of such entity).
(d) Qualification. The Company is duly qualified, licensed or domesticated
-------------
as a foreign corporation in good standing in each jurisdiction wherein
the nature of its activities or the properties owned or leased by it
makes such qualification, licensing or domestication necessary and in
which failure to so qualify or be licensed or domesticated would have
a material adverse impact upon its business.
(e) Financial Statements. The Company's most recent financial statements
---------------------
contained in the Company's SEC Reports (i) are in accordance with the
books and records of the Company, (ii) present fairly the financial
condition of the Company at the balance sheets dates and the results
of its operations for the periods therein specified, and (iii) have,
in all material respects, been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with
prior accounting periods. Without limiting the generality of the
foregoing, the balance sheets or notes thereto disclose all of the
debts, liabilities and obligations of any nature (whether absolute,
accrued or contingent and whether due or to become due) as of the date
of the Company's most recent financial statements contained in the
Company's SEC Reports, which, individually or in the aggregate, are
material and which in accordance with generally accepted accounting
principles would be required to be disclosed in such balance sheets,
and includes appropriate reserves for all taxes and other liabilities
accrued as of such dates but not yet payable.
(f) Tax Returns and Audits. All required federal, state and local tax
-------------------------
returns or appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid with
respect to such returns have been paid or provision for the payment
thereof has been made. The Company is not delinquent in the payment of
any such tax or in the payment of any assessment or governmental
charge. The Company has not received notice of any tax deficiency
proposed or assessed against it, and it has not executed any waiver of
any statute of limitations on the assessment or collection of any tax.
None of the Company's tax returns have been audited by governmental
authorities in a manner to bring such audits to the Company's
attention. The Company does not have any tax liabilities except those
incurred in the ordinary course of business since January 1, 2003.
(g) Changes, Dividends, Etc. Except for the transactions contemplated by
-------------------------
this Agreement, since the date of the Company's most recent financial
statements contained in the Company's SEC Reports, the Company has
not: (i) incurred any debts, obligations or liabilities, absolute,
accrued or contingent and whether due or to become due, except current
liabilities incurred in the ordinary course of business which will not
materially and adversely affect the business, properties or prospects
of the Company; (ii) paid any obligation or liability other than, or
discharged or satisfied any liens or encumbrances other than those
securing, current liabilities, in each case in the ordinary course of
business; (iii) declared or made any payment to or distribution to its
shareholders as such, or purchased or redeemed any of its shares of
capital stock, or obligated itself to do so; (iv) mortgaged, pledged
or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (v) sold, transferred or leased any of
its assets except in the ordinary course of business; (vi) suffered
any physical damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, business
or prospects of the Company; (vii) entered into any transaction other
than in the ordinary course of business; (viii) encountered any labor
difficulties or labor union organizing activities; (ix) issued or sold
any shares of capital stock or other securities or granted any
options, warrants, or other purchase rights with respect thereto other
than pursuant to this agreement; (x) made any acquisition or
disposition of any material assets or became involved in any other
material transaction, other than for fair value in the ordinary course
of business; (xi) increased the compensation payable, or to become
payable, to any of its directors or employees, or made any bonus
payment or similar arrangement with any of its directors or employees
or increased the scope or nature of any fringe benefits provided for
its directors or employees; or (xii) agreed to do any of the foregoing
other than pursuant hereto. There has been no material adverse change
in the financial condition, operations, results of operations or
business of the Company since the date of the Company's most recent
financial statements contained in the Company's SEC Reports or most
resent draft delivered to the Lead Investor.
(h) Title to Properties and Encumbrances. The Company has good and
----------------------------------------
marketable title to all of its properties and assets, including
without limitation the properties and assets reflected on Company's
most recent financial statements contained in the Company's SEC
Reports and the properties and assets used in the conduct of its
business, except for property disposed of in the ordinary course of
business since the date of the Company's most recent financial
statements contained in the Company's SEC Reports, which properties
and assets are not subject to any mortgage, pledge, lease, lien,
charge, security interest, encumbrance or restriction, except (a)
those which are shown and described on the Company Disclosure Schedule
or the notes to the financial statements attached to the Company's
latest SEC Reports, (b) liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of
which the validity thereof shall currently be contested in good faith
by appropriate proceedings, or (c) those which do not materially
affect the value of or interfere with the use made of such properties
and assets.
(i) Conditions of Properties. The plant, offices and equipment of the
-------------------------- Company have been kept in good condition
and repair in the ordinary course of business.
(j) Litigation; Governmental Proceedings. There are no legal actions,
--------------------------------------
suits, arbitrations or other legal, administrative or governmental
proceedings or, to the knowledge of the Company, threatened against
the Company, or its properties or business, and the Company is not
aware of any pending investigations or facts which are likely to
result in or form the basis for any such action, suit or other
proceeding. The Company is not in default with respect to any
judgment, order or decree of any court or any governmental agency or
instrumentality. The Company has not been threatened with any action
or proceeding under any business or zoning ordinance, law or
regulation.
(k) Compliance With Applicable Laws and Other Instruments. To the best of
-------------------------------------------------------
the Company's knowledge, the business and operations of the Company
have been and are being conducted in all material respects in
accordance with all applicable laws, rules and regulations of all
governmental authorities. Neither the execution nor delivery of, nor
the performance of or compliance with, this agreement nor the
consummation of the transactions contemplated hereby will, with or
without the giving of notice or passage of time, result in any breach
of, or constitute a default under, or result in the imposition of any
lien or encumbrance upon any asset or property of the Company pursuant
to, any agreement or other instrument to which the Company is a party
or by which it or any of its properties, assets or rights is bound or
affected, and will not violate the articles of incorporation or bylaws
of the Company. The Company is not in violation of its articles of
incorporation or bylaws nor in material violation of, or in material
default under, any lien, indenture, mortgage, lease, agreement,
instrument, commitment or arrangement in any material respect. The
Company is not subject to any restriction which would prohibit it from
entering into or performing its obligations under this agreement.
(l) Units, Warrants and Conversion Shares. The Units and the underlying
-----------------------------------------
Common Shares, when issued and paid for pursuant to the terms of this
Agreement or upon the exercise of the Warrants, will be duly
authorized, validly issued and outstanding, fully paid, nonassessable
shares and shall be free and clear of all pledges, liens, encumbrances
and restrictions created by the Company. The Warrants, when issued
pursuant to the terms of this agreement will be binding obligations of
the Company in accordance with their terms. The Common Shares have
been reserved for issuance and when issued upon exercise of the
Warrants will be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all pledges, liens,
encumbrances and restrictions.
(m) Securities Laws. Based in part upon the representations of the
----------------
Investors in Section 3, no consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the
execution and delivery of this agreement or the offer, issuance, sale
or delivery of the Securities, other than the qualification thereof,
if required, under applicable state securities laws, which
qualification has been or will be effected as a condition of these
sales except applicable notices of exemption, such as a Form D. The
Company has not, directly or through an agent, offered the Securities
or any similar securities for sale to, or solicited any offers to
acquire such securities from, persons other than the Investors and
other accredited investors, except prior to the date of this
Agreement, which offers have or will be terminated prior to the First
Closing Date. To the best of the Company's knowledge, under the
circumstances contemplated by this agreement and assuming the accuracy
of the representations of the Investors in article 3, the offer,
issuance, sale and delivery of the Securities will not, under current
laws and regulations, require compliance with the prospectus delivery
or registration requirements of the federal Securities Act.
(n) Patents and Other Intangible Rights. To the best of the Company's
---------------------------------------
knowledge, the Company (a) owns or has the exclusive right to use,
free and clear of all material liens, claims and restrictions, all
patents, trademarks, service marks, trade names, copyrights, licenses
and rights with respect to the foregoing, used in the conduct of its
business as now conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person under or with
respect to any of the foregoing, (b) is not obligated or under any
liability whatsoever to make any payments of a material nature by way
of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise, (c) owns or has the
unrestricted right to use all trade secrets, including know-how,
customer lists, inventions, designs, processes, computer programs and
technical data necessary to develop operation and sale of all products
and services sold or proposed to be sold by it, free and clear of any
rights, liens, or claims of others, and (d) is not using any
confidential information or trade secrets of others.
(o) Capital Stock. The authorized capital stock of the Company consists of
--------------
100,000,000 common shares, $0.001 par value, of which 17,929,314
shares are issued and outstanding as of the Effective Date, and
5,000,0000 shares of preferred stock, $0.001 par value, of which no
shares are issued and outstanding. All of the outstanding shares of
the Company were duly authorized and validly issued and are fully paid
and nonassessable. There are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or
nature whatever, other than this Agreement, under which the Company is
obligated to issue any securities of any kind representing an
ownership interest in the Company. Neither the offer nor the issuance
or sale of the Units, the Common Shares or the Warrants constitutes an
event, under any anti-dilution provisions of any securities issued or
issuable by the Company or any agreements with respect to the issuance
of securities by the Company, which will either increase the number of
shares issuable pursuant to such provisions or decrease the
consideration per share to be received by the Company pursuant to such
provisions. No holder of any security of the Company is entitled to
any pre-emptive or similar
rights to purchase any securities of the Company from the Company;
provided, however, that nothing in this section 4.1(o) shall affect,
alter or diminish any right granted to the Investors in this
Agreement.
(p) All securities issued by the Company after May 8, 2003, have been
issued in full compliance with an exemption or exemptions from the
registration and prospectus delivery requirements of the Securities
Act and from the registration and qualification requirements of all
applicable state securities laws.
(q) Outstanding Debt. The Company does not have any material indebtedness
-----------------
incurred as the result of a direct borrowing of money, including, but
not limited to, indebtedness with respect to trade accounts, except as
set forth in the Company's most recent financial statements contained
in the Company's SEC Reports or the notes thereto. The Company is not
in default in the payment of the principal of or interest or premium
on any such indebtedness, and no event has occurred or is continuing
under the provisions of any instrument, document or agreement
evidencing or relating to any such indebtedness which with the lapse
of time or the giving of notice, or both, would constitute an event of
default thereunder.
(r) Assets and Contracts. The Company has filed all material agreements
----------------------
required to be filed or submitted with its SEC Reports under the rules
and regulations of the SEC. The Company has in all material respects
substantially performed all obligations required to be performed by it
to date and is not in default in any material respect under any of the
contracts, agreements, leases, documents, commitments or other
arrangements to which it is a party or by which it is otherwise bound.
All instruments material to the Company's business or otherwise
described in this section are in effect and enforceable according to
their respective terms, and there is not under any of such instruments
any existing material default or event of default or event which, with
notice or lapse of time or both, would constitute an event of default
thereunder. All parties having material contractual arrangements with
the Company are in substantial compliance therewith and none are in
material default in any respect thereunder.
(s) Corporate Acts and Proceedings.This Agreement has been duly authorized
------------------------------
by all necessary corporate action on behalf of the Company, has been
duly executed and delivered by authorized officers of the Company, and
is a valid and binding agreement on the part of the Company that is
enforceable against the Company in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and to judicial
limitations on the enforcement of the remedy of specific performance
and other equitable remedies. All corporate action necessary to the
authorization, creation, reservation, issuance and delivery of the
Units, Common Shares, the Warrants and the Common Shares acquirable
upon exercise of the Warrants has been taken by the Company, or will
be taken by the Company on or prior to the Closing Date.
(t) Accounts Receivable. To the extent that they exceed the reserves for
--------------------
doubtful accounts set forth in the most recent financial statements
contained in the Company's SEC Reports, the accounts receivable which
are reflected in such financial statements and all accounts receivable
of the Company which have arisen since the latest date of the balance
sheet contained in such financial statements (except such accounts
receivable as have been collected) are valid and enforceable claims,
and the goods and services sold and delivered which gave rise to such
accounts were sold and delivered in conformity with the applicable
purchase orders, agreements and specifications. To the best of the
Company's knowledge, such accounts receivable are subject to no valid
defense or offsets except routine customer complaints or warranty
demands of an immaterial nature. The reserve for doubtful accounts
that is included in the most recent financial statements contained in
the Company's SEC Reports is adequate.
(u) Inventories. The inventories of the Company which are reflected in the
-----------
most recent financial statements contained in the Company's SEC
Reports and all inventory items which have been
acquired since the latest date of the balance sheet contained in such
financial statements consist of raw materials, supplies,
work-in-process and finished goods of such quality and quantities as
are currently usable or salable in the ordinary course of its
business.
(v) Purchase Commitments and Outstanding Bids. No material purchase
---------------------------------------------
commitment of the Company is in excess of normal, ordinary and usual
requirements of its business, or was made at any price in excess of
the then current market price, or contains terms and conditions more
onerous than those usual and customary in the industry.
(w) There is no outstanding material bid, sales proposal, contract or
unfilled order of the Company which (a) will, or could if accepted,
require the Company to supply goods or services at a cost to the
Company in excess of the revenues to be received therefrom, or (b)
quotes prices which do not include a xxxx-up over reasonably estimated
costs consistent with past xxxx-ups on similar business or market
conditions current at the time.
(x) Insurance Coverage. There are in full force policies of insurance
-------------------
issued by insurers of recognized responsibility insuring the Company
and its properties and business against such losses and risks, and in
such amounts, as in the Company's best judgment, after advice from its
insurance broker, are acceptable for the nature and extent of such
business and its resources.
(y) No Brokers or Finders. No person, firm or corporation has or will
------------------------
have, as a result of any act or omission of the Company, any right,
interest or valid claim against the Company or any Investor for any
commission, fee or other compensation as a finder or broker in
connection with the transactions contemplated by this Agreement. The
Company will indemnify and hold each of the Investors harmless against
any and all liability with respect to any such commission, fee or
other compensation which may be payable or determined to be payable in
connection with the transactions contemplated by this Agreement.
(z) Conflicts of Interest. No officer, director or shareholder of the
-----------------------
Company or any affiliate (as such term is defined in Rule 405 under
the Securities Act) of any such person has any direct or indirect
interest (a) in any entity which does business in excess of $10,000
with the Company, (b) in any property, asset or right with a value in
excess of $10,000 which is used by the Company in the conduct of its
business, or (c) in any contractual relationship with the Company
other than as an employee, the proceeds of which will exceed $10,000.
For the purpose of this section 4.1(x), there shall be disregarded any
interest which arises solely from the ownership of less than a 5%
equity interest in a corporation whose stock is regularly traded on
any national securities exchange or in the over-the-counter market.
Notwithstanding the foregoing, the Company makes no representation or
warranty regarding the direct or indirect interests of Xxxxxxxx
Xxxxxxxx other than those required to have been disclosed in the
Company's SEC Reports.
(aa) Licenses. The Company possesses from the appropriate agency,
--------
commission, board and government body and authority, whether state,
local or federal, all licenses, permits, authorizations, approvals,
franchises and rights which are (a) necessary for it to engage in the
business currently conducted by it, and (b) if not possessed by the
Company would have an adverse impact on the Company's business. The
Company has no knowledge that would lead it to believe that it will
not be able to obtain all licenses, permits, authorizations,
approvals, franchises and rights that may be required for any business
the Company proposes to conduct.
(bb) Disclosure. The Company has not knowingly withheld from the Investors
----------
any material facts known to the Company and relating to the assets,
business, operations, financial condition or prospects of the Company.
No representation or warranty in this Agreement or in any certificate,
schedule, statement or other document furnished or to be furnished to
any Investor pursuant hereto or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact
required to be stated herein or therein or necessary to make the
statements herein or therein not misleading.
(cc) Registration Rights. Other than as contemplated under this Agreement,
--------------------
the Company has not agreed to register any of its authorized or
outstanding securities under the Securities Act.
(dd) Retirement Plans. The Company does not have any retirement plan in
-----------------
which any employees of the Company participates that is subject to any
provisions of the Employee Retirement Income Security Act of 1974 and
of the regulations adopted pursuant thereto ("ERISA").
(ee) Environmental and Safety Laws. The Company has not received any notice
-----------------------------
that it is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to
the best of the Company's knowledge no material expenditures are or
will be required in order to comply with any such existing statute,
law or regulation.
(ff) Employees. To the best of the Company's knowledge, no officer of the
---------
Company or employee of the Company (whose annual compensation is in
excess of $20,000) has any plans to terminate his or her employment
with the Company. Except for the accrual of salaries disclosed in the
Company's Disclosure Statement, the Company has complied in all
material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity,
collective bargaining and payment of Social Security and other taxes,
and the Company has not encountered any material labor difficulties.
The Company does not have any worker's compensation liabilities.
(gg) Absence of Restrictive Agreements. To the best of the Company's
------------------------------------
knowledge, no employee of the Company is subject to any secrecy or
non-competition agreement or any agreement or restriction of any kind
that would impede in any way the ability of such employee to carry out
fully all activities of such employee in furtherance of the business
of the Company. To the best of the Company's knowledge, no employer or
former employer of any employee of the Company has any claim of any
kind whatsoever in respect of any of such rights.
(hh) Company Forecasts. The Company and the Principals have provided to
------------------
each of the Investors true, accurate and correct copies of the
Principals' collective best estimate of the business forecasts for the
Company through December 31, 2004 (the "Forecast"). The Forecast
represents the Company's and the Principals' best estimate of the
Company's projected financial performance for such period based upon
information available as of the date hereof and are not misleading in
any material respect.
(ii) Company Revenues. Each of the Principals represents and warrants that
-----------------
the Company's gross revenue for the fifteen (15) month period
beginning October 1, 2003 and ending December 31, 2004 will be at
least $10,880,000, as calculated in accordance with generally accepted
accounting principles in the United States and in conformance with the
rules and regulations of the United States Securities and Exchange
Commission.
(jj) Form 10-QSB for September 30, 2003. The Company and the Principals
-------------------------------------
have provided to each of the Investors a true, accurate and correct
copies of the draft Form 10-QSB for the quarter ended September 30,
2003 in substantially the form as will be filed with the SEC.
4.2 Conduct of Business Prior to January 31, 2004. In order to induce the
---------------------------------------------------
Lead Investor to enter into this Agreement and to purchase the number of
Units set forth after its name on Schedule A, the Company hereby covenants
----------
and agrees that during the period from the execution and delivery of the
this Agreement and continuing until January 1, 2004, except as expressly
agreed to in writing, the Company shall not do, cause or permit any of the
following, without the prior written consent of Lead Investor, which
consent shall not be unreasonable withheld, conditioned or delayed:
(a) Material Contracts. Enter into any material contract or commitment, or
-------------------
violate, amend or otherwise modify or waive any of the terms of any of
its material contracts in any case, other than
in the ordinary course of business;
(b) Issuance of Securities. Except as contemplated in the this Agreement
----------------------
or as set forth on the Disclosure Schedule, issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character
obligating it to issue, any such shares or other convertible
securities, other than the issuance of shares of its common stock
pursuant to the exercise of stock options or other rights therefor
outstanding as of the date of this Agreement or at a price greater
than the Purchase Price;
(c) Intellectual Property.Convey, license, assign or otherwise transfer to
---------------------
any person or entity any rights to its intellectual property rights or
assets other than in the ordinary course of business;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to which
-----------------
any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or encumber
------------
any of its properties or assets which are material individually or in
the aggregate, to it and its business, taken as a whole, except in the
ordinary course of business;
(f) Indebtedness. Incur any indebtedness for borrowed money or guarantee
------------
any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) Leases. Enter into any operating lease in excess of $20,000;
------
(h) Payment of Obligations. Pay, discharge or satisfy in an amount in
------------------------
excess of $10,000 in any one case or $50,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the
ordinary course of business, other than the payment, discharge or
satisfaction of liabilities reflected or reserved against in the
Company's financial statements for the quarter ended September 30,
2003 or incurred in the ordinary course of business;
(i) Capital Expenditures. Make any capital expenditures, capital additions
---------------------
or capital improvements in excess of $25,000, except in the ordinary
course of business;
(j) Insurance. Materially reduce the amount of any material insurance
---------
coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of substantial
-----------------------
value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any
---------------------------------------------------
employee benefit or stock purchase or option plan obligating the
Company to issue more than 100,000 shares of common stock in
aggregate, pay any special bonus or special remuneration exceeding
$5,000 individually or $20,000 in the aggregate to any employee or
director (except payments made pursuant to written agreements
outstanding on the date of the definitive unit purchase agreement), or
increase the salaries or wage rates of its employees except in the
ordinary course of business;
(m) Severance Arrangements. Grant any severance or termination pay (i) to
-----------------------
any director or officer or (ii) to any other employee except (A)
payments made pursuant to written agreements outstanding on the date
hereof or (B) grants which are made in the ordinary course of business
in accordance with its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the routine collection
--------
of bills or (ii) in such cases
where it, in good faith, determines that failure to commence suit
would result in the material impairment of a valuable aspect of its
business;
(o) Acquisitions. Acquire or agree to acquire by merging or consolidating
------------
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets which are material
individually or in the aggregate, to its business, taken as a whole;
(p) Taxes. Other than in the ordinary course of business, make or change
-----
any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, settle any material claim or
assessment in respect of taxes; or
(q) Revaluation. Revalue any of its assets, including without limitation
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writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business or as
required by US GAAP.
4.3 Capital Contribution by the Principals.
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(a) All representations and warranties made by the Principals in Section
4.1(ii), shall survive the final Closing Date and continue in full
force and effect through December 31, 2004.
(b) Unless the Lead Investor consents to such issuances or grants, the
Company shall, and each of the Principals shall take all reasonable
actions to, limit the number of shares of common stock issued or
options (or other securities exercisable to acquire shares of common
stock) granted by Rapidtron under all employee or consultant
compensatory arrangements to 400,000 or fewer common shares beginning
on the Effective Date and ending on termination of the Escrow
Agreement (defined below) and to ensure that all of the following
criteria with respect to such grants and issuances are satisfied (i)
the exercise price or deemed issue price of such shares shall be in
excess of $1.25 per share, (ii) options granted and shares issued
shall vest yearly on a pro rata basis over a period of not less than
three (3) years and (iii) options granted and the right to receive
shares shall terminate 90 days after termination of such employee's
employment or consultant's relationship with the Company (the "Maximum
Compensatory Covenant").
(c) The Parties agree that it would be difficult to quantify the damages
resulting from the breach of the representations and warranties set
forth in Section 4.1(ii), and further agree that it is in the best
interest of the Parties to establish in advance the amount and nature
of damages to be paid by the Principals for breach of such
representations and warranties. The Parties agree that the Principals
shall place that number of common shares of the Company set forth
beside such Principals name in Schedule E attached hereto into
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escrow (the "Escrowed Shares"). The Principals will enter into the
Escrow and Contribution Agreement ("Escrow Agreement") pursuant to
which the Escrowed Shares shall be contributed to the Company (the
"Principal Contribution") in lieu of an obligation to indemnify the
Investors for any and all losses, costs, damages, liabilities and
expenses, arising out of any breach of the representations and
warranties given or made by the Principals in Section 4.1(ii) or any
breach of the covenant set forth in Section 4.3(b). The Parties agree
that the representations and warranties made in Section 4.1(ii) and
the covenants set forth in Section 4.3(b) are a material inducement
for the Investors to enter into this Agreement and that the Principal
Contribution is a reasonable measure of damages, and not a penalty,
for breach of the representations and warranties set forth in Section
4.1(ii) or the covenants set forth in Section 4.3(b).
(d) The Principal Contribution of the Escrowed Shares (under the terms and
conditions set forth in the Escrow and Contribution Agreement) as
liquidated damages shall be the Investors' sole and exclusive remedy
for any principal's breach of the representations and warrants given
or made in Section 4.1(ii) of this Agreement or the covenant set forth
in Section 4.3(b) of this Agreement.
(e) The Parties agree that any claim under this Section 4.3 shall be made
in accordance with the terms and conditions set forth in the Escrow
and Contribution Agreement.
(f) Each Investor hereby appoints the Lead Investor as his/her/its the
representative and his true and lawful attorney-in-fact with full
power, in his name and on his behalf, to act according to the terms of
this Section 4.3 in the Lead Investor's absolute discretion, and in
general to do all things and to perform all acts including, without
limitation, executing and delivering all agreements, certificates,
receipts, instructions and other instruments contemplated by or deemed
advisable in connection with this Section 4.3 and the Escrow and
Contribution Agreement. Notwithstanding the foregoing, the Lead
Investor shall inform each Investor of all notices received, and of
all actions, decisions, notices and exercises of any rights, power or
authority proposed to be done, given or taken by the Lead Investor in
connection with the this Section 4.3. The Lead Agent shall not be
liable for any act done or omitted hereunder as agent for the
Investors while acting in good faith and in the exercise of reasonable
judgment and any act done or omitted pursuant to the advice of counsel
shall be conclusive evidence of such good faith. The Investors shall
severally indemnify the Lead Investor and hold it harmless against any
loss, liability or expense incurred without gross negligence or bad
faith on the part of the Lead Agent and arising out of or in
connection with the acceptance or administration of his duties
hereunder.
5. GENERAL
5.1 From time to time during the period commencing as of the first Closing Date
and extending through January 31, 2004, the Company may sell additional
Units to raise aggregate proceeds from the sale of such Units in an amount
not to exceed $1,600,000, on the same terms and conditions as are specified
herein, to persons (who may or may not initially be parties to this
agreement) who execute a copy of this Agreement. Each such additional
investor shall be regarded as an "Investor" for all purposes of this
agreement, including exercising the rights and remedies of an Investor
hereunder.
5.2 Should the Company desire to sell any newly issued securities, the Company
shall provide written notice to the Lead Investor in the following manner
(the "OFFER NOTICE"). The Offer Notice must specify all of the terms and
conditions of the proposed sale, but may omit the identity of the proposed
purchaser(s) (collectively, the "PROPOSED PURCHASER"). The Investors shall
have the option, but not the obligation, within five (5) business days
after receipt of the Offer Notice to purchase all of the securities
specified in the Offer Notice ("OFFERED SECURITIES") at the price and on
all the terms stated in the Offer Notice, including, without limitation,
the closing date and manner of delivery of funds. If any Investor exercises
such option, Lead Investor shall deliver written notice to the Company
within such five (5) business day period. If any Investor exercises such
option but fails to close in accordance with the terms set forth in the
Offer Notice, then such Investor shall have no further rights under this
Section 5.2. If an Investor does not elect to purchase the Offered
Securities within said five (5) business day period, then the Company shall
be under no obligation to sell any of the Offered Stock to the Investor but
may instead sell any portion of the Offered Stock to the Proposed Purchaser
at the price and on the terms and conditions specified in Offer Notice,
within ninety (90) days of delivery of the Offer Notice. The Company may
not, however, without giving a new notice of his intention to so do
pursuant to this Section 5.2, sell any or all of the Offered Stock beyond
said ninety (90) day period or at any other price or on any terms and
conditions other than those specified in the Offer Notice.
5.3 The Company agrees to reimburse the Lead Investor for legal expenses
incurred by it for their special legal counsel, Xxxxxx & Xxxxxxx LLP, in
connection with the transactions contemplated by this Agreement solely from
the proceeds of the Purchase Price as set forth in Section 1.5 of this
Agreement .
5.4 For the purposes of this Agreement, time is of the essence.
5.5 The parties will sign and deliver all further documents and instruments and
do all things that may, either before or after the signing of this
Agreement, be reasonably required to carry out the full intent and meaning
of this Agreement.
5.6 This Agreement may not be assigned by either party hereto.
5.7 All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered, or mailed
first-class postage prepaid, registered or certified mail, if to any
Investor or any holder of Warrants addressed to such holder at its address
as shown on the books of the Company, or at such other address as such
holder may specify by written notice to the Company, or if to the Company
at the address set forth above, Attention: President; or at such other
address as the Company may specify by written notice to the Investors; and
such notices and other communications shall for all purposes of this
agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
5.8 All representations and warranties contained herein shall survive the
execution and delivery of this agreement, any investigation at any time
made by the Investors or on their behalf, and the sale and purchase of the
Units and payment therefor. All statements contained in any certificate,
instrument or other writing delivered by or on behalf of the Company
pursuant to this Agreement or in connection with or in contemplation of the
transactions herein contemplated shall constitute representations and
warranties by the Company hereunder.
5.9 This Agreement and the agreements contemplated herein contains the entire
understanding of the parties with respect to the transactions contemplated
in this Agreement and the terms of this Agreement expressly replace and
supersede any prior oral or written communication, understanding or
agreement among the parties and this Agreement may be amended only by
agreement in writing executed by the parties.
5.10 Each Party acknowledges that it has been advised by the other to seek
independent legal and financial (including tax) advice with respect to this
Agreement and that it has not relied on the other party for any advice,
whether legal or otherwise, with respect to this Agreement.
5.11 This Agreement shall be interpreted neutrally and no construction against
the drafter shall be permitted.
5.12 It is the intention of the parties hereto that this Agreement and the
performance hereunder shall be interpreted and construed in accordance with
and pursuant to the laws of the State of California.
5.13 This Agreement may be signed by the parties in as many counterparts as may
be deemed necessary, each of which so signed will be deemed to be an
original, and all counterparts together will constitute one and the same
instrument. A copy of this Agreement transmitted by facsimile will be
treated and relied on for all purposes by any person as an originally
signed copy.
5.14 In the event any legal action is instituted by any party to this Agreement
for the purpose of enforcing or interpreting any provision of this
Agreement or any other agreement arising under or relating to this
Agreement, the prevailing party in such action shall be entitled to recover
its reasonable attorneys' and expert witness fees and costs.
TO BE COMPLETED BY THE INVESTOR
-------------------------------
A. REGISTRATION INSTRUCTIONS The name and address of the person in whose name
the Securities are to be registered is as follows (if the name and address
is the same as was inserted in paragraph A above, then insert "N/A"):
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Name
--------------------------------------------------------
Address
--------------------------------------------------------
City, State Zip Code
Attn:
--------------------------------------------------------
B. DELIVERY INSTRUCTIONS. The name and address of the person to whom the
certificates representing the Investor's Securities referred to in
paragraph A above are to be delivered is as follows (if the name and
address is the same as was inserted in paragraph A above, then insert
"N/A"):
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Name
--------------------------------------------------------
Address
--------------------------------------------------------
City, State Zip Code
Attn:
--------------------------------------------------------
C. SUBSCRIPTION AMOUNT:
Subscription Funds: US$__________________
Number of Units: __________________ Units (where each Unit consists
of one share and one half of one purchase warrant. Each
whole warrant will entitle the Investor to subscribe
for one additional common share of the Company on the
terms set forth in this Agreement).
TO BE COMPLETED AND SIGNED BY THE INVESTOR:
-------------------------------------------
The Investor has signed this Agreement as of the 12th day of November, 2003.
--------------------------------------------------------------
Name of the Investor - use the name inserted in paragraph A above.
--------------------------------------------------------------
Signature of Investor
--------------------------------------------------------------
Title (if applicable)
ACCEPTANCE
Signed and Accepted this 12th day of November 2003.
RAPIDTRON, INC.
Per:
/s/ Xxxx Xxxxx
---------------------------------------
Authorized Signatory
PRINCIPALS:
Xxxx Xxxxx
By: /s/ Xxxx Xxxxx
----------------------
Name: Xxxx Xxxxx
Address:
Xxxxx Xxxxxxx
By: /s/ Xxxxx Xxxxxxx
----------------------
Name: Xxxxx Xxxxxxx
Address:
Xxxxx Xxxxxxx
By: /s/ Xxxxx Xxxxxxx
----------------------
Name: Xxxxx Xxxxxxx
Address:
