Exhibit 10.7
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND AMONG
CERTAIN INVESTORS
AND
CYBER DIGITAL INC.
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DATED AS OF JULY 2, 2001
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This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the
2nd day of July, 2001 (this "Agreement"), by and between the investor or if more
than one, investors identified on Schedule A hereto (each an "Investor" or
"Investors"), and Cyber Digital Inc., a corporation organized and existing under
the laws of the State of New York (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to each Investor,
from time to time as provided herein, and each Investor shall purchase his
Proportionate Share of up to $6,000,000 of the Common Stock (as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Price" shall be the price based on the VWAP.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg, L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Change in Control" shall mean the officers and directors of
the Company as of the Subscription Date shall own less than 5% of the
outstanding Common Stock on an Optional Purchase Date.
Section 1.5 "Closing" shall mean each of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.6 "Closing Date" shall mean, with respect to a Closing the
thirteenth (13th) Trading Day following the Optional Purchase Date related to
such Closing and the second Trading Day following the Valuation Period, provided
all conditions to such Closing have been satisfied on or before such Trading
Days.
Section 1.7 "Commitment Amount" shall mean $6,000,000.
Section 1.8 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investors shall have purchased
Put Shares pursuant to this Agreement for an aggregate Purchase Price equal to
the Commitment Amount, (y) the date this Agreement is terminated pursuant to
Section 2.5, or (z) the date occurring thirty (30) months from the date of
commencement of the Commitment Period.
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Section 1.9 "Common Stock" shall mean the Company's common stock, $.01
par value per share.
Section 1.10 "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section 1.11 "Condition Satisfaction Date" See Section 7.2.
Section 1.12 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.14 "Escrow Agreement" See Section 7.2(o).
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the regulations promulgated thereunder.
Section 1.16 "Finder" See Section 13.4.
Section 1.17 "Finder's Fee" See Section 13.4.
Section 1.18 "Floor Price" shall mean the lowest price per share at
which the Company will issue Put Shares, as may be determined from time to time
by the Company and designated in an Optional Purchase Notice.
Section 1.19 "Investment Amount" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by the Investor to purchase
Put Shares with respect to any Optional Purchase Date as notified by the Company
to the Investor in accordance with Section 2.2 hereof.
Section 1.20 "Legend" See Section 9.1.
Section 1.21 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform its obligations under any of (a) this Agreement and (b)
the Registration Rights Agreement in any material respect.
Section 1.22 "Maximum Put Amount" shall mean, for all Investors in the
aggregate, the lesser of (i) fifteen percent (15%) of the Average Daily Prices
for the twenty-two Trading Days immediately preceding an Optional Purchase Date
multiplied by the reported daily trading
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volume of the Common Stock on the Principal Market for the twenty-two Trading
Days immediately preceding the Optional Purchase Date, or (ii) $250,000.
Section 1.23 "Minimum Put Amount" shall mean $100,000 for all Investors
in the aggregate.
Section 1.24 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.25 "Non-Accountable Expense Allowance" See Section 13.4.
Section 1.26 "Optional Purchase Date" shall mean any Trading Day during
the Commitment Period that an Optional Purchase Notice is deemed delivered
pursuant to Section 2.2(b) hereof.
Section 1.27 "Optional Purchase Notice" shall mean a written notice to
the Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.28 "Outstanding" when used with reference to Common Stock or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.29 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.30 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the OTC Bulletin Board, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock. As of the date of this Agreement, the
OTC Bulletin Board is the Principal Market.
Section 1.31 "Proportionate Share" shall mean the proportion of the
Commitment Amount agreed to be purchased by each Investor as set forth on
Schedule A.
Section 1.32 "Purchase Price" shall mean the following: For each Trading
Day during a Valuation Period (or such other date on which the Purchase Price is
calculated in accordance with the terms and conditions of this Agreement) the
Purchase Price shall be 90% of the VWAP unless the Common Stock is listed for
trading on the NASDAQ SmallCap Market, in which case the Purchase Price shall be
95% of the VWAP. The Purchase Price percentage shall increase by one-half of one
percent (0.5%) for each increase of not less than $25,000,000 in the Company's
market capitalization as reported by Bloomberg L.P., over and above a market
capitalization of $25,000,000. The increased market capitalization must have
been maintained during each Trading Day in the Valuation Period in connection
with which the Purchase Price is being determined. The Purchase Price may not
exceed 95% of the VWAP regardless of the Company's market capitalization.
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Section 1.33 "Put" shall mean each occasion the Company elects to
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount as determined by the Company and as limited
by this Agreement of the Company's Common Stock, subject to the terms of this
Agreement, which tender must be given to each Investor for such Investor's
Proportionate Share.
Section 1.34 "Put Shares" shall mean all shares of Common Stock issued
or issuable pursuant to a Put.
Section 1.35 "Registrable Securities" shall mean the Put Shares and
Warrant Shares during the term of the Registration Rights Agreement as set forth
in Section 4.2 of the Registration Rights Agreement.
Section 1.36 "Registration Rights Agreement" shall mean the agreement
regarding the filing of a Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors as of
the Subscription Date.
Section 1.37 "Registration Statement" shall mean a registration
statement on Form SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.38 "Regulation D" shall mean Regulation D of the Securities
Act.
Section 1.39 "SEC" shall mean the Securities and Exchange Commission.
Section 1.40 "Section 4(2)" shall mean Section 4(2) of the Securities
Act.
Section 1.41 "Securities Act" shall mean the United States Securities
Act of 1933, as amended, and the regulations promulgated thereunder.
Section 1.42 "SEC Documents" shall mean the Company's latest Form 10-K
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.43 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.44 "Trading Cushion" shall mean the thirty (30) calendar days
after any Optional Purchase Date and five (5) Trading Days after the most recent
Closing Date.
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Section 1.45 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.46 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing Subsections (a)
and (b) above, at a price per share less, or for other consideration lower, than
the Bid Price in effect on the Trading Day immediately prior to such issuance,
or without consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and the price per share
for which Additional Capital Shares may at any time thereafter be issuable
pursuant to such warrants, options or other rights shall be less than the Bid
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
Subsections (a) through (f) hereof, inclusive, which in the opinion of the
Company's Board of Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of a Put or Closing
Date.
Upon each occurrence of any one or more of the foregoing Valuation Events the
Purchase Price and number of Put Shares to be issued shall be adjusted to offset
the dilutive effect of such one or more Valuation Events.
Section 1.47 "Valuation Period" shall mean the period of twenty-two (22)
Trading Days during which the Purchase Price of the Common Stock is determined,
which period shall be with respect to the Purchase Prices on any Optional
Purchase Date, the twenty-two (22) Trading Days following the day on which an
Optional Purchase Notice is deemed to be delivered.
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Section 1.48 "VWAP" shall mean the daily volume weighted average price
of the Common Stock on the Principal Market as reported by Bloomberg, L.P. using
the AQR function.
Section 1.49 "Warrant" shall mean the common stock purchase warrant of
the Company described in Section 13.1, a form of which is annexed hereto as
Exhibit E. Each Warrant shall evidence the right of the holder to purchase the
number of Warrant Shares indicated therein. Section 1.50 "Warrant Recipient" See
Section 13.1 and Schedule 13.
Section 1.51 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may exercise a Put by the delivery of an
Optional Purchase Notice. The number of Put Shares that the Investor shall
receive pursuant to such Put for each Trading Day during the Valuation Period
shall be determined by dividing the Investment Amount specified in the Optional
Purchase Notice by one-twenty-second (1/22nd) of the Purchase Price for that
Trading Day.
Section 2.2 Mechanics.
(a) Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver an Optional Purchase Notice to the
Investor, subject to the conditions set forth in Section 7.2; provided, however,
the Investment Amount for each Put as designated by the Company in any Optional
Purchase Notice shall be neither less than the Minimum Put Amount nor more than
the Maximum Put Amount. The Optional Purchase Notice shall state the
commencement date of the Valuation Period.
(b) Date of Delivery of Optional Purchase Notice. An
Optional Purchase Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is received
prior to 12:00 noon New York time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon New York time
on a Trading Day or at any time on a day which is not a Trading Day. No Optional
Purchase Notice may be deemed delivered on a day that is not a Trading Day.
(c) Determination of Put Shares Issuable. The Purchase Price
shall be based on the Average Daily Price on each separate Trading Day during
the Valuation Period. The number of Put Shares to be purchased by each Investor
with respect to such Investor's Proportionate Share shall be determined on a
daily basis during each Valuation Period and settled on the Closing Date. The
portion of Investment Amount for which Put Shares may be issued for each Trading
Day during the Valuation Period shall be one-twenty-second (1/22nd) of the
Investment Amount.
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(d) Maximum Optional Purchase Notices/Amount. There shall be
a maximum of twenty-four (24) Optional Purchase Notices given during the term of
this Agreement. Subject to the terms and conditions of this Agreement, the
Company shall have the right to issue each Optional Purchase Notice for an
Investment Amount up to the Maximum Put Amount. The Company may not issue an
Optional Purchase Notice in connection with any amount of shares which would
exceed the amount permitted to be issued without approval of the Company's
shareholders, if such approval is required pursuant to the rules of the
Principal Market.
(e) Trading Halt Limitations and Blackouts. Unless the
Investor elects in writing to the contrary, the Investor is not required to
purchase Put Shares for any Trading Day during which trading of the Common Stock
is suspended or halted for three or more hours or for any day during which any
of the events described in Section 6.8 has occurred or is continuing. In such
case, one-twenty-second (1/22nd) of the Investment Amount shall be withdrawn
from the Investment Amount for each such Trading Day. The Investor must notify
the Company of any such election by facsimile or otherwise, no later than 6:15
P.M., New York time, on the eleventh (11th) and twenty-second (22nd) Trading
Days of the Valuation Period of the days for which the foregoing elections are
made.
(f) Floor Price, Trading Halt Limitations and Blackout
Periods. On each such date during the Valuation Period that the Purchase Price
is less than the Floor Price, (i) the Investment Amount specified in the
applicable Optional Purchase Notice shall be reduced by one-twenty-second
(1/22nd), and (ii) the Company shall not sell and the Investor shall not
purchase Put Shares equal to such reduction in the Investment Amount. The
Investor, however, may elect in writing to purchase all such Put Shares at the
Floor Price for one or more days for which the Purchase Price is less than the
Floor Price. The Investor must notify the Company of any such election by
facsimile or otherwise, no later than 6:30 P.M., New York time, on the eleventh
(11th) and twenty-second (22nd) Trading Days of the Valuation Period of the days
for which the foregoing election is made.
Section 2.3 Closings. In connection with each Put, the Company shall, at
the Investor's option, deliver either to the Investor or to escrow one or more
certificates registered in the name of the Investor, representing the Put Shares
to be purchased by the Investor after the Optional Purchase Date and on or prior
to such Closing Date, or deposit such certificate(s) into such account or
accounts previously designated by the Investor. The Investor shall, on or before
the Closing Date, deliver to escrow pursuant to the Escrow Agreement, if any,
the Investment Amount specified in the Optional Purchase Notice by wire transfer
of immediately available funds to an account designated by the Company. In
addition, on or prior to the Closing Date, each of the Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
or reasonably requested by either of them pursuant to this Agreement in
connection with that Put. Payment of funds to the Company and delivery of the
certificates to the Investor shall occur out of escrow in accordance with the
Escrow Agreement referred to in Section 7.2(o) following (x) the Company's
deposit into escrow of the certificates representing the Put Shares and (y) the
Investor's deposit into escrow of the Investment Amount; provided, however, that
to the extent the Company has not paid the fees, expenses and disbursements of
the Investor's counsel in accordance with Section 13.3, the amount of such fees,
expenses and disbursements shall be paid in immediately available funds drawn
out of the deposited funds, at
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the direction of the Investor, to Investor's counsel with no reduction in the
number of Put Shares issuable to the Investor on such Closing Date. With respect
to any Valuation Period, the first Closing Date will relate to the first eleven
Trading Days of that Valuation Period. The second Closing Date will relate to
the subsequent eleven Trading Days of that Valuation Period .
Section 2.4 Liquidated Damages. In the event the Put Shares are not
delivered by the Company on a Closing Date, the Company will pay the Investor,
as liquidated damages for such failure to deliver, and not as a penalty, five
percent (5%) of the applicable Investment Amount for each seven (7) day period,
or part thereof following such failure, in cash, until such Put Shares have been
delivered. The Escrow Agent shall be directed to pay such liquidated damages to
the Investor out of the Investment Amount delivered by the Investor to the
Escrow Agent.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including, at the option of the Investor, with respect to a Closing Date that
has not yet occurred in connection with an Optional Purchase Notice that has
been given by the Company) in the event that (i) there shall occur any stop
trade order by the SEC or Principal Market or suspension by the SEC of the
effectiveness of the Registration Statement for five (5) consecutive Trading
Days or for an aggregate of twenty (20) Trading Days during the Commitment
Period, for any reason, or (ii) the Company shall at any time fail to comply
with the requirements of Article VI hereof, without regard to any cure period or
written notice to cure which may be permitted or required.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) or an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
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Section 3.4 Not an Affiliate. The Investor is not an officer, director
or, to Investor's good faith belief, an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor (a)
violate any provision of any indenture, instrument or agreement to which
Investor is a party or is subject, or by which Investor or any of its assets is
bound, (b) conflict with or constitute a material default thereunder, (c) result
in the creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party, or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be subject.
Section 3.6 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and Investor
has had access to copies of any such reports that have been requested by it.
Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to the Put Shares or the Warrant Shares.
Section 3.8 No Prior Short Selling. The Investor represents that prior
to the date of this Agreement has any of the Investor, its agents, associates,
representatives or affiliates engaged in or effected, directly or indirectly,
any (i) "short sale" (as such term is defined in Rule 3b-3 of the 0000 Xxx) of
the Common Stock or (ii) hedging transaction, which establishes a net short
position with respect to the Common Stock as of the Subscription Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation
duly organized and existing in good standing under the laws of the State of New
York and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
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Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares; (ii) the
execution, issuance and delivery of this Agreement and the Registration Rights
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 Capitalization. The authorized and outstanding capital stock
of the Company as of the Subscription Date is set forth on Schedule 4.3 hereto.
Except as set forth in the SEC Documents or Schedule 4.3, as of the Subscription
Date, there are no options, warrants or rights to subscribe for securities,
rights or obligations convertible into or exchangeable for, or giving any rights
to receive any Capital Shares. All of the outstanding shares of Common Stock
have been duly and validly authorized and issued and are fully paid and
nonassessable.
Section 4.4 Common Stock. As of the commencement of and throughout the
Commitment Period, the Company will have registered the Common Stock pursuant to
Section 12(b) or 12(g) of the Exchange Act and be in full compliance with all
reporting requirements of the Exchange Act, and the Company will have maintained
all requirements for the continued listing or quotation of the Common Stock, and
the Common Stock is then listed or quoted on the Principal Market.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company described above and/or
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and/or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
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 not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of
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the dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
Section 4.6 Valid Issuances. If made in accordance with this Agreement,
the sale by the Company of the Put Shares and Warrant will be properly
accomplished pursuant to Section 4(2), Regulation D and any applicable state
law. The sale by the Company of the Warrant Shares, if made in accordance with
the terms of the Warrants, will be properly accomplished pursuant to Section
4(2), Regulation D and any applicable state law. When issued, the Put Shares
shall be duly and validly issued, fully paid, and nonassessable. Neither the
sales of the Put Shares and Warrant Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital Shares or other
securities of the Company. The Put Shares and Warrant Shares shall not subject
the Investor or holder to personal liability by reason of the possession
thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf, if any, (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Put Shares or
Warrant Shares, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the sale of the Put Shares or the Warrant Shares under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Articles"), and
the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance of
Common Stock, Warrants and Warrant Shares do not and will not (i) result in a
violation of the Articles or By-Laws or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party, or (iii) result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate do not and will not have a Material Adverse Effect. The Company
is not required under federal, state or
12
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
other than any SEC, NASD, Principal Market or state securities filings that may
be required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Principal Market.
Section 4.10 No Material Adverse Change. Since the date of the most
recent financial statements included in the SEC Documents, no Material Adverse
Effect has occurred or exists with respect to the Company, except as disclosed
in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since the date of
the most recent financial statements included in the SEC Documents and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since the date of
the most recent financial statements included in the SEC Documents, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the current management and Board of Directors of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which might
have a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which might result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company in connection with the transactions contemplated
by this Agreement have not made, at any time, any oral or written communication
in connection with same which contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the statements,
in the light of the circumstances under which they were made, not misleading.
13
Section 4.16 Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the minimum Purchase Price therefor under the terms of this
Agreement.
Section 6.3 Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares and Warrant Shares on the Principal Market. The Company further
shall, if the Company applies to have the Common Stock traded on any other
Principal Market, include in such application the Put Shares, and shall take
such other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall take all action necessary to continue the listing
and trading of its Common Stock on a Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such Principal Market.
Section 6.4 Exchange Act Registration. The Company shall cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
14
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1 shall be free of legends.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents.
Section 6.8 Blackout Period. Subject to the requirements of Regulation
FD under the Exchange Act, the Company will immediately notify the 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 Registrable
Securities: (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 and 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 the 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 Registrable 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 the 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 will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Optional Purchase Notice during
the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
the Investor as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the issuance of
Optional Purchase Notices. Such notification shall constitute only the Company's
good faith estimate and shall in no way obligate the Company to raise such
amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
15
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Investor
such shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
Section 6.11 Issuance of Put Shares. The sale and issuance of the Put
Shares and Warrant Shares shall be made in accordance with the provisions and
requirements of applicable state law.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
an Optional Purchase Notice and the Obligation of the Investor to Purchase Put
Shares. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice, (ii) for each day during the
Valuation Period; and (iii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed with
the SEC a Registration Statement with respect to the resale of the Registrable
Securities that shall have been declared effective by the SEC prior to the first
Optional Purchase Date, but in no event later than the date set forth in the
Registration Rights Agreement and shall have filed a prospectus supplement on
the first trading day after each Closing Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have previously
become effective and shall
16
remain effective on each Condition Satisfaction Date and (i) neither the Company
nor the Investor shall have received notice that the SEC has issued or intends
to issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so, and (ii) no other suspension of the use or withdrawal of the effectiveness
of the Registration Statement or related prospectus shall exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. 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 that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is reasonably likely to
have a Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock (including without limitation the Put
Shares) shall not have been suspended by the SEC, the Principal Market or the
NASD and the Common Stock (including without limitation the Put Shares) shall
have been approved for listing or quotation on and shall not have been delisted
from the Principal Market. The issuance of shares of Common Stock with respect
to the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be
delivered to the Investor, within five (5) Trading Days of the effective date of
the Registration Statement, an opinion of the Company's independent counsel in
the form of Exhibit B hereto, addressed to the Investor; provided, however, that
in the event that such an opinion cannot be delivered by the Company's
independent counsel to the Investor, the Company shall promptly revise the
Registration Statement and shall not deliver an Optional Purchase Notice. If an
Optional Purchase Notice shall have been delivered in good faith without
knowledge by the Company that
17
an opinion of independent counsel can not be delivered as required, at the
option of the Investor, either the applicable Closing Date shall automatically
be postponed for a period of up to five (5) Trading Days until such an opinion
is delivered to the Investor, or such Closing shall otherwise be canceled.
Liquidated damages determined pursuant to Section 2.4 shall be calculated and
payable on the Closing Date. The Company's independent counsel shall also
deliver to the Investor upon execution of this Agreement an opinion in form and
substance reasonably satisfactory to the Investor addressing, among other
things, corporate matters and the exemption from registration under the
Securities Act of the issuance of the Registrable Securities by the Company to
the Investor under this Agreement.
(i) Due Diligence. No dispute between the Company and the
Investor shall exist pursuant to Section 8.2(c) as to the adequacy of the
disclosure contained in the Registration Statement.
(j) Beneficial Ownership Limitation. On each Closing Date,
the number of Put Shares then to be purchased by the Investor shall not exceed
the number of such shares that, when aggregated with all other shares of Common
Stock then owned by the Investor beneficially or deemed beneficially owned by
the Investor, would result in the Investor owning more than 4.99% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Optional Purchase Notice associated with
such Closing Date is given, the amount of Common Stock outstanding on such
Closing Date shall govern for purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made pursuant to this Agreement and,
if any, Shares, would own more than 4.99% of the Common Stock following such
Closing Date.
(k) Cross Default. The Company shall not be in default of a
material term, covenant, warranty or undertaking of any other agreement to which
the Company and any Investor are parties, nor shall there have occurred an event
of default under any such other agreement
(l) No Knowledge. The Company shall have no knowledge of any
event reasonably likely to have the effect of causing the Registration Statement
relating to those Put Shares to be suspended or otherwise ineffective.
(m) Trading Cushion. The Trading Cushion shall have elapsed.
(n) Shareholder Vote. The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market or the laws of any
jurisdiction to which the Company is subject.
(o) Escrow Agreement. If requested by the Company or any
Investor, the parties hereto shall have entered into a mutually approved escrow
agreement for the Commitment Amount and the Company shall have agreed to pay the
fees and expenses of the
18
escrow agent mutually appointed by the Company and Investor and not be in
default of any such payments.
(p) Voting Restrictions. The Investors shall not be subject
to voting or other restrictions arising under any applicable "anti-takeover"
laws, rules or regulations.
(q) Change in Control. A Change in Control shall not have
occurred.
(r) Other. On each Closing Date, the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), and any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
any Registration Statement, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD, Principal Market, or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with any Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of that Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of that Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company represents and warrants that the Company and
its officers, directors, employees and agents have not disclosed any non-public
information to the Investor or advisors to or representatives of the Investor.
The Company covenants and agrees that it shall refrain from disclosing, and
shall cause its officers, directors, employees and agents to refrain from
disclosing any non-public information to the Investor, unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
19
disclosing any non-public information hereunder, require the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(b) The Company acknowledges and understands that the
Investor is entering into this Agreement and the Registration Rights Agreement
at the request of the Company and in good faith reliance on the Company's
representation set forth in Section 4.16 that neither it nor its agents have
disclosed to the Investor any material non-public information.
(c) The Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, in violation of
Regulation FD of the Exchange Act provided, subject to its compliance with
Regulation FD of the Exchange Act, however, that notwithstanding anything herein
to the contrary, the Company will, as hereinabove provided, immediately notify
the advisors and representatives of the Investor and, if any, underwriters, of
any event or the existence of any circumstance (without any obligation to
disclose the specific event or circumstance) of which it becomes aware,
constituting non-public information (whether or not requested of the Company
specifically or generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
Section 8.3 Confidentiality. The Company agrees that it will not
publicly or privately disclose the identities of the Investors, Warrant
Recipients, or Finders unless expressly agreed to in writing by the Investor or
otherwise required by law.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND
HAVE BEEN ISSUED IN
20
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A
PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG CYBER DIGITAL INC.
AND CERTAIN INVESTORS DATED JUNE ___, 2001. A COPY OF THE PORTION
OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to
the transfer agent for the Common Stock (and to any substitute or replacement
transfer agent for the Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing shares of Common Stock that bear the Legend,
to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered, or prior to
issuance of a certificate; provided that (i) the Registration Statement shall
then be effective; (ii) the Investor confirms to the transfer agent that it has
sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise
transfer such shares of Common Stock in a bona fide transaction to a third party
that is not an affiliate of the Company; and (iii) the Investor or sales agent
confirms to the transfer agent that the Investor or sales agent has complied
with the prospectus delivery requirement; and
(b) at any time upon any surrender of one or more
certificates evidencing Registrable Securities that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered and
21
containing representations that (i) the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act or (ii) the Investor has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Registrable Securities in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities. Any of the notices referred to above in this
Section 9.1 may be sent by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the Legend has been or shall be placed on the share certificates
representing the Common Stock and no instructions or "stop transfers orders," so
called, "stock transfer restrictions," or other restrictions have been or shall
be given to the Company's transfer agent with respect thereto other than as
expressly set forth in this Article IX.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement and the Registration
Rights Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement or the Registration Rights Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, and be binding upon, any
transferee of any of the Common Stock or Warrants purchased or acquired by the
Investor or Warrant Recipient hereunder with respect to the Common Stock held by
such person unless such Common Stock is free from restrictions on further
transfer of such Common Stock, and (b) the Investor's and Warrant Recipient's
obligations and corresponding rights set forth in this Agreement may be assigned
at any time, in whole or in part, to any other person or entity (including any
affiliate of the Investor or Warrant Recipient) effective upon written notice to
the Company. The Company shall have the right to require any transferee to
22
execute a counterpart of this Agreement unless the Common Stock held by such
transferee is free from further restrictions on transfer.
Section 11.2 Termination. This Agreement shall terminate twenty-four
(24) months after the commencement of the Commitment Period; provided, however,
that the provisions of Articles VI, VIII, IX, X, XI, XII, XIII and XIV shall
survive the termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This Agreement and the
Registration Rights Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) delivered by reputable express courier service with charges prepaid, or
(iii) transmitted by hand delivery, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by
written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery, personal
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received), or (b) on the second business day following the date of
delivery to the express courier service, addressed to the address below, or upon
actual receipt of such delivery, whichever shall first occur. The addresses for
such communications shall be:
If to Cyber Digital Inc.:
Cyber Digital Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
With a copy to (which communication shall not constitute notice):
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
23
If to the Investor:
To the address and telecopier number set forth on Schedule A hereto
with a copy to (which communication shall not constitute notice):
Xxxxxxx X. Xxxxxxx, Esq.
c/o Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 12.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, and any action in
respect thereof to which the Investor, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and any such Controlling
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement in
any event as such Damages are incurred.
(b) The Investor agrees to indemnify and hold harmless the
Company, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, and any action in
respect thereof to which the Company, its partners, affiliates, officers,
directors, employees, and duly authorized agents, and any such Controlling
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Investor contained in this Agreement in
an aggregate amount not to exceed one-third of each such Investor's
Proportionate Share.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 12.2 (an
"Indemnified Party") might seek indemnity under Section 12.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than the
Company, the Investor or any affiliate of the
24
Company (a "Third Party Claim"), the Indemnified Party shall deliver a written
notification, enclosing a copy of all papers served, if any, and specifying the
nature of and basis for such Third Party Claim and for the Indemnified Party's
claim for indemnification that is being asserted under any provision of Section
12.2 against any person (the "Indemnifying Party"), together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such Third Party Claim (a "Claim Notice") with reasonable promptness
to the Indemnifying Party. If the Indemnified Party fails to provide the Claim
Notice with reasonable promptness after the Indemnified Party receives notice of
such Third Party Claim, the Indemnifying Party will not be obligated to
indemnify the Indemnified Party with respect to such Third Party Claim to the
extent that the Indemnifying Party's ability to defend has been irreparably
prejudiced by such failure of the Indemnified Party. The Indemnifying Party will
notify the Indemnified Party as soon as practicable within the period ending
thirty (30) calendar days following receipt by the Indemnifying Party of either
a Claim Notice or an Indemnity Notice (as defined below) (the "Dispute Period")
whether the Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party under Section 12.2 and whether the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
1. If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
12.3(a), then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
which affects the Indemnified Party, other than the payment of monetary damages,
or that provides for the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to Section 12.2). The
Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified Party, at
any time prior to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause 1, file any motion, answer or other pleadings
or take any other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause 1, and except as provided in the
preceding sentence, the Indemnified Party will bear its own costs and expenses
with respect to such participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under Section 12.2 with respect to such Third Party Claim.
2. If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 12.3(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously
25
and diligently or settle the Third Party Claim, or if the Indemnifying Party
fails to give any notice whatsoever within the Dispute Period, then the
Indemnified Party will have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings will be prosecuted by the Indemnified Party in a reasonable
manner and in good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause 2, if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in clause 3
below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause 2 or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party will reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this clause 2, and the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
3. If the Indemnifying Party notifies the Indemnified Party that
it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 12.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. In the event any
Indemnified Party should have a claim under Section 12.2 against the
Indemnifying Party that does not involve a Third Party Claim, the Indemnified
Party shall deliver a written notification of a claim for indemnity under
Section 12.2 specifying the nature of and basis for such claim, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 12.2 and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand.
26
ARTICLE XIII
FEES-EXPENSES-WARRANTS
Section 13.1 Warrants. The parties identified on Schedule 13 hereto
("Warrant Recipients") shall receive in the aggregate Warrants to purchase
750,000 Warrant Shares. A form of Warrant is annexed hereto as Exhibit E. The
Purchase Price (as defined in the Warrant) for 500,000 Warrant Shares shall be
$4.10. The Purchase Price for 250,000 Warrant Shares shall be $5.15. The
Warrants will be exercisable for four years from the Issue Date (as defined in
the Warrant). The Warrant Recipients are granted the registration rights set
forth in the Registration Rights Agreement with respect to the Warrant Shares.
The Company's obligations to the Warrant Recipients is binding only if the
Registration Rights Agreement is signed by the Warrant Recipients. The Warrant
must be delivered to the Warrant Recipients on the Subscription Date. All the
representations, undertakings and covenants made by the Company relating to the
Put Shares and the holder of the Put Shares are also made by the Company to and
for the benefit of the Warrant Recipients and in relation to the Warrant Shares.
Section 13.2 Timely Delivery. In the event any Warrant is not timely
delivered, the Investor shall have no obligation to purchase Put Shares pursuant
to this Agreement.
Section 13.3 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, and reasonable expenses
and disbursements of the Investor's counsel in an amount of $15,000 which shall
be payable on or before the Subscription Date.
Section 13.4 Finders. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the Company or Investor
except as described on Schedule 13 ("Finder"). The Company agrees to pay to the
Finder a fee equal to five percent (5%) ("Finder's Fee") of the Investment
Amount and a Non-Accountable Expense Allowance of $20,000. The Finder's Fee
shall be paid out of the escrow account established for deposit of Investment
Amounts. The Non-Accountable Expense Allowance shall be paid out of the escrow
account established for deposit of Investment Amounts at the first Closing. A
default by the Company of the Company's obligations to the Finders shall be
deemed a default under the Agreement, shall terminate the Investor's obligation
to comply with any Optional Purchase Notices provided such default is not due to
a failure by an escrow agent to comply with his obligations. The Company on the
one hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any other
persons claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions.
Section 13.5 Transfer. At the election and in the sole discretion of any
Finder or Warrant Recipient, the right to receive Finder's Fees may be
transferred to the Investor or Warrant Recipient whose investment gives rise to
such payment. Upon such transfer, the Investor may take a credit equal to the
Finder's Fee against the Investment Amount that gives rise to the Finder's Fee.
A Warrant Recipient, at his sole discretion, may transfer either before
27
or after issuance, all or some of the Warrants to the Investor whose investment
gives rise to the requirement to issue the Warrants. The transferee of the
Warrants will receive all the rights and benefits granted to the Warrant
Recipients pursuant to this Agreement, the Registration Rights Agreement and any
other agreement relating to the Warrants.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement may be delivered by
telecopier transmission which such copy shall be deemed an original executed
Agreement.
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto, the
documents delivered in connection herewith, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 14.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the Bid Price, VWAP, trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 14.6 Remedies for Breach. The Company and each Investor
acknowledges that the other party's remedy at law for the breach of the
provisions provided in this Agreement is inadequate. Therefore, the Company and
each Investor agrees that a breach or violation of this Agreement by the
Company, on the one hand, and the Investors, on the other hand, will entitle the
other party, as a matter of right, to an injunction or other equitable relief,
issued by any court or arbitration panel of competent jurisdiction, restraining
any further or continued breach or violation of this Agreement. Such right to an
injunction will be cumulative and in addition to,
28
and not in lieu of, any other remedies to which the Company and the Investors
may show themselves justly entitled.
Section 14.7 Publicity. Except as required by applicable law, neither
the Company nor the Investor shall issue any press release or otherwise make any
public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 14.8 Confidentiality. Investor agrees to maintain the
confidentiality of all information about the Company received from any officer,
employee or agent of the Company, until such time as that confidential
information is released to the public generally as contemplated by Regulation FD
of the Exchange Act other than as a result of any disclosure by Investor.
[THIS SPACE INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
CYBER DIGITAL, INC.
By:
---------------------------------------
---------------------------------------
GRENVILLE FINANCIAL LTD. - Investor
30
SCHEDULE A
------------------------------------------ -------------------------- ----------------------------
INVESTOR SHARE OF PROPORTIONATE
COMMITMENT SHARE OF
AMOUNT COMMITMENT
AMOUNT
------------------------------------------ -------------------------- ----------------------------
GRENVILLE FINANCIAL LTD. $6,000,000.00 100%
Trident Xxxxxxxx
X.X. Xxx 000
Xxxx Xxxx, Xxxxxxx, B.V.I.
Fax: 000-000-000-0000
------------------------------------------ -------------------------- ----------------------------
TOTAL $6,000,000.00 100%
------------------------------------------ -------------------------- ----------------------------
31
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
WITHIN 5 TRADING DAYS FOLLOWING EFFECTIVE DATE OF
REGISTRATION STATEMENT
TO:
We have acted as counsel to __________________, a ___________
corporation (the "Company"), in connection with the Private Equity Line of
Credit Agreement between the Company and you, dated as of ______________, 2001
(the "Line of Credit Agreement"), pursuant to which the Company will issue to
you from time to time shares of Common Stock, $____ par value (the "Put Shares")
and the Registration Rights Agreement between you and the Company, dated
__________, 2001 (the "Registration Rights Agreement," and together with the
Line of Credit Agreement, the "Agreements"). This opinion is rendered to you
pursuant to Section 7.2(h) of the Line of Credit Agreement. Capitalized terms
used without definition in this opinion have the meanings given to them in the
Line of Credit Agreement.
In connection with this opinion, we have assumed the authenticity of all
records, documents, and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments submitted
to us as copies. We have also assumed that there are no facts or circumstances
relating to you that might prevent you from enforcing any of the rights to which
our opinion relates. We have based our opinion upon our review of the following
records, documents and instruments:
(a) The Articles certified by the Secretary of State [the jurisdiction
of incorporation] as of ____________, 2001 and certified to us by an officer of
the Company as being complete and in full force and effect as of the date of
this opinion;
(b) The Bylaws certified to us by an officer of the Company as being
complete and in full force and effect as of the date of this opinion;
(c) Records certified to us by an officer of the Company as constituting
all records of proceedings and actions of the Board of Directors and the
shareholders of the Company relating to the transactions contemplated by the
Agreement;
(d) The Agreements;
(e) A certificate related to the good standing of the Company issued by
the Secretary of State of the State of [the jurisdiction of incorporation] dated
__________, 2001;
(f) A Certificate of the Chief Executive Officer of the Company as to
certain factual matters (the "Officer's Certificate");
(g) The SEC Documents.
32
With your consent, we have based our opinion expressed in paragraph 1
below as to the good standing of the Company solely upon the documents
enumerated in (e) and (f) above.
Where our opinion relates to our "knowledge," such knowledge is based
upon our examination of the records, documents, instruments, and certificates
enumerated or described above and the actual knowledge of attorneys in this firm
who are currently involved in substantive legal representation of the Company on
matters related to the Agreements. With your consent, we have not examined any
records of any court, administrative tribunal or other similar entity in
connection with our opinion expressed in paragraph 2 of Part III below. We have
assumed for purposes of our opinion to the effect that the Put Shares are fully
paid and that the consideration for such Put Shares will be received by the
Company in accordance with the Line of Credit Agreement.
We express no opinion as to any anti-fraud provisions of applicable
federal or state securities laws, any tax, anti-trust, land use, export, safety,
environmental or hazardous materials laws, rules or regulations.
This opinion is limited to the federal laws of the United States of
America and the laws of the State of New York. We disclaim any opinion as to the
laws of any other jurisdiction and we further disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
regional or local governmental body.
Based upon the foregoing and our examination of such questions of law as
we have deemed necessary or appropriate for the purpose of this opinion, and
subject to the limitations and qualifications expressed below, it is our opinion
that:
1. The Company has been duly incorporated and is validly existing and in
good standing under the laws of the State of New York and has all requisite
power and authority to carry on its business and to own, lease and operate its
properties and assets as described in the SEC Documents. To our knowledge the
Company does not have any subsidiaries other than as set forth in the SEC
Documents.
2. To our knowledge, except as described in the SEC Documents, there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, any officer or director of the Company in
his or her capacity as such, nor to our knowledge has the Company received any
written threat of any such claims, actions, suits, proceedings or
investigations.
3. To our knowledge, except as described in the Company's
representations and warranties contained in Article IV of the Line of Credit
Agreement, there are no outstanding options, warrants, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments, understanding,
or arrangements by which the Company is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock.
33
4. Subject to the accuracy of your representations in Article III of the
Line of Credit Agreement on the date hereof and on the date of issuance of any
Put Shares and Warrant Shares, and the statement in the Officer's Certificate
that the Company has not offered or sold, and will not offer or sell, any Put
Shares by means of advertising or public solicitation, the issuance of the Put
Shares and Warrant Shares in conformity with the terms of the Line of Credit
Agreement constitutes transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended. The Put Shares and the
Warrant Shares, when issued in compliance with the Line of Credit Agreement and
Registration Rights Agreement, will be duly authorized, validly issued, fully
paid, and non-assessable and free of preemptive rights set forth in the
Articles, Bylaws and any agreement filed as an exhibit to the SEC Documents,
provided, however, that the Put Shares and Warrant Shares may be subject to
restrictions on transfer under state and federal securities laws, but only to
the extent set forth in the Line of Credit Agreement.
5. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and to issue the Put
Shares. Execution and delivery of the Agreements by the Company and performance
by the Company of the transactions contemplated thereby has been duly authorized
by all necessary corporate action and no further consent or authorization of the
Company's board of directors or shareholders is required. Each of the Agreements
has been duly executed and delivered on the part of the Company and is a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium, and other laws of general
applicability relating to or affecting creditors' rights, (ii) to general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law, and (iii) to limitations imposed by applicable law or public
policy on the enforceability of the indemnification provisions contained in the
Agreements.
6. The execution, delivery and performance of and compliance with the
respective terms of each of the Agreements, and issuance of the Put Shares in
accordance with the Line of Credit Agreement, will not violate any provision of
the Articles or Bylaws or any law applicable to the Company.
7. The holders of the Common Stock will not be subject to the provisions
of the States of [states of incorporation and principal office location]
anti-takeover statutes.
In connection with the registration of the Put Shares and Warrant
Shares, we advised the Company as to the requirements of the Securities Act and
the applicable rules and regulations promulgated thereunder and rendered other
legal advice and assistance in the course of preparation of the Registration
Statement and Prospectus, including review and discussion of the contents
thereof. On the basis of the information that was developed in the course of the
performance of such services considered in the light of our understanding of the
Securities Act, including the requirements of Forms S-1 and SB-2, we have no
reason to believe that (i) the Registration Statement (other than the financial
statements and related statements and schedules, as to which we express no
belief) as of its Effective Date contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or (ii) the
Prospectus (other than the financial statements and related statements and
schedules, as to which we express no belief) as of
34
the Effective Date of the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The limitations
inherent in the independent verification of factual matters and the character of
determinations involved in the registration process are such, however, that
except as set forth in this opinion letter we do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally, including without limitation the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered in a proceeding in equity or at law.
C. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, including the
General Qualifications and the Equitable Principles Limitation, and this opinion
letter should be read in conjunction therewith.
This opinion is rendered as of the date first written above, is solely
for your benefit in connection with the Agreements and may not be relief upon or
used by, circulated, quoted, or referred to nor may any copies hereof by
delivered to any other person without our prior written consent. We disclaim any
obligation to update this opinion letter or to advise you of facts,
circumstances, events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions expressed herein.
Very truly yours,
EXHIBIT C
COMPLIANCE CERTIFICATE
----------------------------------
The undersigned, _______________, hereby certifies, with respect to the
shares of Common Stock of _____________________ (the "Company") issuable in
connection with the Optional Purchase Notice, dated (the "Notice"), delivered
pursuant to Article II of the Private Equity Line of Credit Agreement, dated
_____________, 2001, by and among the Company and certain Investors (the
"Agreement"), as follows:
1. The undersigned is the duly elected ______________________________ of
the Company.
2. The representations and warranties of the Company set forth in the
Agreement are true and correct in all material respects as though made on and as
of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The amount of Common Stock remaining registered in an effective
registration statement on behalf of each Investor as of this date is set forth
on the schedule hereto.
The undersigned has executed this Certificate this ____ day of ________,
2001.
--------------------------------
By:
--------------------------------
Name:
Title:
36
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
-------------------------------------
[TRANSFER AGENT]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of ________________, 2001 among certain Investors (the
"Investor") and Cyber Digital Inc. (the "Company"). Pursuant to the Agreement,
subject to the terms and conditions set forth in the Agreement the Investor has
agreed to purchase from the Company and the Company has agreed to sell to the
Investor from time to time during the term of the Agreement shares of Common
Stock of the Company, $____ par value (the "Common Stock"). As a condition to
the effectiveness of the Agreement, the Company has agreed to issue to you, as
the transfer agent for the Common Stock (the "Transfer Agent"), these
instructions relating to the Common Stock to be issued to the Investor (or a
permitted assignee) pursuant to the Agreement. All terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the SEC, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investor under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, the Transfer Agent shall deliver to
the Investor the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investor shall request, provided
that:
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(a) in connection with such event, the Investor (or its permitted
assignee) shall confirm in writing to the Transfer Agent that (i) the Investor
confirms to the transfer agent that it has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common Stock in
a bona fide transaction to a transferee that is not an affiliate of the Company;
and (ii) the Investor confirms to the transfer agent that the Investor has
complied with the prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act; or
(c) the Investor, its permitted assignee, or either of their brokers
confirms to the transfer agent that (i) the Investor has held the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investor (or the Trading Day immediately following if such date is not a Trading
Day), the Investor will not have sold more than the greater of (a) one percent
(1%) of the total number of outstanding shares of Common Stock or (b) the
average weekly trading volume of the Common Stock for the preceding four weeks
during the three months ending upon such delivery date (or the Trading Day
immediately following if such date is not a Trading Day), and (iii) the Investor
has complied with the manner of sale and notice requirements of Rule 144 under
the Securities Act.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of __________.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these irrevocable instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable Instructions
and shall be entitled to rely upon, and enforce, the provisions hereof.
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CYBER DIGITAL INC.
By:
---------------------------------
Name:
Title:
AGREED:
[TRANSFER AGENT]
By:
----------------------------
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SCHEDULE 13
------------------------------------------------------------- ------------------------------------
FINDERS CASH FINDERS FEE
------------------------------------------------------------- ------------------------------------
LADENBURG XXXXXXXX & CO., INC. 5% of Investment Amount
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax:
------------------------------------------------------------- ------------------------------------
TOTAL 5% of Investment Amount
------------------------------------------------------------- ------------------------------------
------------------------------------------------ ---------------------- --------------------------
WARRANT RECIPIENTS $4.10 PURCHASE $5.15
PRICE PER SHARE SHARES PURCHASE PRICE PER
------------------------------------------------ ---------------------- --------------------------
LADENBURG XXXXXXXX & CO., INC. 250,000 Warrants 125,000 Warrants
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax:
------------------------------------------------ ---------------------- --------------------------
GRENVILLE FINANCIAL LTD. 250,000 Warrants 125,000 Warrants
Trident Xxxxxxxx
X.X. Xxx 000
Xxxx Xxxx, Xxxxxxx, B.V.I.
Fax: 000-000-000-0000
------------------------------------------------ ---------------------- --------------------------
TOTAL 500,000 Warrants 250,000 Warrants
------------------------------------------------ ---------------------- --------------------------
40
