Exhibit 3(b)
Convertible Debenture Agreement by and between the
Company and Xxxxxxx, Inc. and GEM Management
Limited dated December 8, 1998
CONVERTIBLE DEBENTURE AGREEMENT
By and Among
Xxxxxxx, Inc. and
Gem Management Limited
(Purchasers)
and
Alottafun, Inc.
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Dated as of December 9, 1998
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS...............................1
ARTICLE II PURCHASE OF DEBENTURES............................3
ARTICLE III REPRESENTATIONS AND WARRANTIES....................4
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES...................8
ARTICLE V CONDITIONS PRECEDENT TO CLOSING..................12
ARTICLE VI TERMINATION......................................14
ARTICLE VII MISCELLANEOUS.............................................15
Exhibit A Convertible Debenture
Exhibit B Conversion Procedures
Exhibit C Warrant
Exhibit D Opinion Letter
Exhibit E Escrow Agreement
Exhibit F Power of Attorney
Schedule 1 List of Purchasers and Warrant Holders
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of December
9, 1998 (this "Agreement"), by and among Alottafun, Inc., a Delaware corporation
(the "Company"), and the persons listed on Schedule 1 (individually, the
"Purchaser" and, collectively the "Purchasers").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire certain of the Company's 2%
Convertible Debentures, due December 8, 2003 (the "Convertible Debentures").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, and
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section
2.1(b).
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$0.01 per share.
"Debentures" means the 2% Convertible Debentures of the
Company, due December 8, 2003, an example of which is attached hereto as Exhibit
A.
"Disclosure Documents" means the disclosure package, including
but not limited to the Company's Financial Statements for the two most recent
fiscal years, the Company's business plan, capitalization information, and
required consents, delivered to the Purchaser in connection with the offering by
the Company of the Debentures and the Schedules to this Agreement furnished by
or on behalf of the Company pursuant to Section 3.1.
"Escrow Agent" means the firm which holds the common shares in
escrow, herein the firm of Xxxxxx, Xxxxxxxxxx & Xxxxxxxx, LLP, 000 Xxxxx Xxxxxx,
0xx Xxxxx, Xxx Xxxx, XX 00000; Tel: 000-000-0000; Fax:
000-000-0000.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"GEM" means GEM Advisors, Inc., with its registered address at
000 0xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000; Phone: 000-000-0000;
Fax: 000-000-0000.
"GEM Ltd." means GEM Management Limited, with its registered
address at P.O. Box 860, 11 Bath Street, St. Helier, Jersey, Channel
Islands JE4 0YZ.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, charge or security interest of any kind in or on such asset
or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"NASD" means the National Association of Securities Dealers,
Inc.
"Per Share Consideration" shall have the meaning set forth in
Section 2.1(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
"Required Approvals" shall have the meaning set forth in
Section 3.1(f).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
"Underlying Shares" means the shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Debenture, and the shares of Common Stock for which the Warrants can be
exercised in accordance with the terms hereof and the Warrant.
"Warrants" means the common stock purchase warrants issued to
GEM and/or its assigns as part of its compensation, an example of which is
attached hereto as Exhibit C.
ARTICLE II
PURCHASE OF DEBENTURES
Section 2.1. Purchase of Debentures; Closing
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchasers, and the Purchasers shall
purchase from the Company on the Closing Date the number of Debentures listed
opposite the Purchaser's name on Schedule 1, which shall have the respective
rights, preferences and privileges set forth in Exhibit A (the "Debenture"), at
a price per Debenture of US$1,000.00 (the "Per Debenture Consideration"). The
Per Debenture Consideration multiplied by the number of Debentures to be
purchased by the Purchaser hereunder is hereinafter referred to as the "Purchase
Price." The total principal amount of Debentures to be purchased by the
Purchasers and the total Purchase Price shall be $400,000.
(b) The closing of the purchase and sale of the Debentures
(the "Closing") shall take place at the offices of the Escrow Agent, Xxxxxx,
Gottbetter & Xxxxxxxx, LLP, immediately following the execution hereof, or at
such other time and/or place as the Purchaser and the Company may agree,
provided, however, in no case shall the Closing take place later than the fifth
day after the last of the conditions listed in Article V is satisfied or waived
by the appropriate party. The date of the Closing is hereinafter referred to as
the "Closing Date".
(c) At the Closing, (i) the Company shall deliver to the
Purchaser (A) one or more Debentures purchased hereunder, registered in the name
of the Purchaser, (B) all documents, instruments and writings required to have
been delivered at or prior to Closing by the Company pursuant to this Agreement,
and (ii) the Purchaser shall deliver to the Company (A) the Purchase Price as
determined pursuant to this Article I in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Company prior to the Closing and (B) all documents, instruments and writings
required to have been delivered at or prior to Closing by the Purchaser pursuant
to this Agreement. At this time, the Company shall also deliver to: (i) GEM
Ltd., the Warrants pursuant to the engagement letter (the "Engagement Letter")
dated November 9, 1998 between GEM and the Company; and (ii) GEM, seven percent
(7%) of the gross proceeds from the sale of the Debentures held by the Escrow
Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on (a) the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, or (b) the Purchaser's
rights under this Agreement, the Debenture and the Warrants (a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. Each of this
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in the Disclosure Documents, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Debentures hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of Debentures. The Debentures have been duly and
validly authorized for issuance, offer and sale pursuant to this Agreement and,
when issued and delivered as provided hereunder against payment in accordance
with the terms hereof, shall be valid and binding obligations of the Company
enforceable in accordance with their terms. The Company has and at all times
while the Debentures are outstanding will maintain an adequate reserve of shares
of Common Stock to enable it to perform its obligations under this Agreement and
the Debentures. When issued in accordance with the terms hereof and the
Debentures, the Underlying Shares will be duly authorized, validly issued, fully
paid and nonassessable.
(e) No Conflicts The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation or bylaws or
(ii) subject to obtaining the consents referred to in Section 3.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in the Disclosure Documents, neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, other than the making
of the applicable blue-sky filings under state securities laws, and other than,
in all cases, where the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, would not materially impair or
delay the ability of the Company to effect the Closing and deliver to the
Purchaser the Debentures free and clear of all Liens (collectively, the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Documents, there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, State, county, local or
foreign) which (i) relates to or challenges the legality, validity or
enforceability of this Agreement or the Debentures (ii) could, individually or
in the aggregate, have a Material Adverse Effect or (iii) could, individually or
in the aggregate, materially impair the ability of the Company to perform fully
on a timely basis its obligations under this Agreement.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability or obligation to perform fully on a timely basis its
obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the
Company to any investment banker or bank with respect to the consummation of the
transactions contemplated hereby except for seven percent (7%) of the gross
proceeds from the sale of the Debentures held in escrow to GEM;
(j) Disclosure Documents. The Disclosure Documents do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(k) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Debentures under the Securities Act) which might subject the offering, issuance
or sale of the Debentures to the registration requirements of Section 5 of the
Securities Act.
(l) Not a Reporting Company; Eligibility to use Exemption
under 504(b). The Company is not subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act. The Company has not sold any
securities under 504(b) in the last twelve months. The Company is eligible to
issue securities exempt from registration pursuant to Rule 504 of Regulation D
promulgated under the Securities Act. The Company will not file a Form 10-SB
with the Securities and Exchange Commission for a period of at least ninety days
from the date of Closing.
Section 3.2. Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and otherwise to carry out its obligations hereunder and thereunder. The
purchase of the Debentures by the Purchaser hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement has
been duly executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the
Debentures and the Underlying Shares for its own account (and/or on behalf of
managed accounts who are purchasing solely for their own accounts for
investment) for investment purposes only and not with a view to or for
distributing or reselling such Debentures or Underlying Shares or any part
thereof or interest therein, without prejudice, however, to the Purchaser's
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Debentures or Underlying Shares in
compliance with applicable State securities laws and under an exemption from
registration under Rule 504 of the Securities Act.
(c) Purchaser Status. At the time the Purchaser (and any
account for which it is purchasing) was offered the Debentures, it (and any
account for which it is purchasing) was, and at the date hereof, it (and any
account for which it is purchasing) is, and at the Closing Date, it (and any
account for which it is purchasing) will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Debentures, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Debentures
and, at the present time, is able to afford a complete loss of such investment.
(f) Prohibited Transactions. The Debentures to be purchased by
the Purchaser are not being acquired, directly or indirectly, with the assets of
any "employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Documents and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures and the merits and risks of
investing in the Debentures; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment in
the Common Stock; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with
respect to the Debentures and to verify the accuracy and completeness of the
information contained in the Disclosure Documents.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Debentures are being offered and sold, and the Underlying Shares are
being offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption, depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Manner of Offering The Debentures and Warrants
are being issued pursuant to Rule 504 (b) of Regulation D of the Securities Act
of 1933. The Debentures and the Underlying Shares will be exempt from
restrictions on transfer, and will carry no restrictive legend. The Company will
use its best efforts to insure that no actions are taken that would jeopardize
the availability of the exemption from registration under Rule 504(b) for the
Debentures and the Underlying Shares.
Section 4.2. Furnishing of Information. As long as the
Purchaser owns Debentures, the Warrants or Underlying Shares, the Company will
promptly furnish to it all annual and quarterly reports comparable to those
required by Section 13(a) or 15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall (i)
advise the Purchaser promptly after obtaining knowledge thereof, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Debentures or the Common
Stock for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, or (B) any event that makes any statement of a material
fact made in the Disclosure Documents untrue or that requires the making of any
additions to or changes in the Disclosure Documents in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, (ii) use its best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption from qualification of
the Debentures or the Common Stock under any state securities or Blue Sky laws,
and (iii) if at any time any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Debentures or the Common Stock under any such laws, use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
Section 4.4. Copies and Use of Disclosure Documents. The
Company shall furnish the Purchaser, without charge, as many copies of the
Disclosure Documents, and any amendments or supplements thereto, as the
Purchaser may reasonably request. The Company consents to the use of the
Disclosure Documents, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Debentures or the Underlying Shares
other than pursuant to an effective registration statement.
Section 4.5. Modification to Disclosure Documents. If any
event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Documents in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Documents were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Documents to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Documents (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Documents will not include
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Documents will comply with applicable law.
Section 4.6. Blue Sky Laws. The Company shall cooperate with
the Purchaser in connection with the qualification of the Debentures, the
Warrants and the Underlying Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchaser may request and to continue such qualification at
all times through the fifth anniversary of the Closing Date; provided, however,
that neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified.
Section 4.7 Integration. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Debentures, the Warrants or the Underlying Shares in a
manner that would require the registration under the Securities Act of the sale
of the Debentures or Underlying Shares to the Purchaser.
Section 4.8 Furnishing of Rule 144A Materials. The Company
shall, for so long as any of the Debentures, the Warrants or Underlying Shares
remain outstanding and during any period in which it is not subject to Section
13 or 15(d) of the Exchange Act, make available to any registered holder of
Debentures, the Warrants or Underlying Shares in connection with any sale
thereof and any prospective purchaser of such Debentures, the Warrants or
Underlying Shares from such Person, the following information in accordance with
Rule 144A(d)(4) under the Securities Act: a brief statement of the nature of the
business of the Company and the products and services it offers and the
Company's most recent audited balance sheet and profit and loss and retained
earnings statements, and similar audited financial statements for such part of
the two preceding fiscal years as the Company has been in operation.
Section 4.9 Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Debentures, the Warrants or Underlying Shares other than the Disclosure
Documents and any amendments and supplements thereto prepared in compliance
herewith or (ii) solicit any offer to buy or sell the Debentures or Underlying
Shares by means of any form of general solicitation or advertising.
Section 4.10 Subsequent Financial Statements. The Company
shall furnish to the Purchaser, promptly after they are filed with the
Commission, a copy of all financial statements for any period subsequent to the
period covered by the financial statements included in the Disclosure Documents.
Section 4.11. Prohibition on Certain Actions
(a) From the date hereof through the Closing Date, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its Certificate of Incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Purchaser; (ii) split,
combine or reclassify its outstanding capital stock; (iii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock; (iv) redeem, repurchase or offer to repurchase or otherwise acquire
shares of its Common Stock; or (v) enter into any agreement with respect to any
of the foregoing.
Section 4.12. Listing of Underlying Shares The Company shall
use its best efforts to cause the Underlying Shares to be approved for listing
on the NASD Electronic Bulletin Board (or other national securities exchange or
market on which the Common Stock is listed) no later than the first day after
which Debentures may be converted hereunder by the Purchaser or the Warrants may
be exercised, and shall provide to the Purchaser evidence of such listing.
Section 4.13. Conversion Procedures: Exhibit B attached hereto
sets forth the procedures with respect to the conversion of the Debentures,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
Section 4.14 Registration of Underlying Shares. So long as any
Warrants remain unexercised or Debentures remain outstanding, the Company agrees
not to file a registration statement with the Commission, without first having
registered the Underlying Shares for resale with the SEC and for resale in such
states of the United States as the Holders thereof (or the Holders of the
Debentures) shall reasonably request. If the Company shall propose to file with
the SEC any registration statement other than a Form 10 which would cause, or
have the effect of causing, the Company to become subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act (a "Reporting Issuer")
or to take any other action the effect of which would be to cause the Underlying
Shares to be issued upon conversion of any then outstanding Debentures to be
restricted securities or cause the Underlying Shares to be issued upon exercise
of any then outstanding Warrants to be restricted securities (as such term is
defined in Rule 144 promulgated under the Securities Act), the Company agrees to
give written notification of such to the Holders of the Debentures then
outstanding at least two weeks prior to such filing or taking of the proposed
action. If any Debentures are outstanding at the end of such notice period, the
Company agrees to file a registration statement on Form S-1 or SB-2, or such
other form of registration statement in which the Underlying Shares may be
included, and to include in such registration statement the Underlying Shares
issuable upon conversion of any then outstanding Debentures or the exercise of
any then outstanding Warrants so as to permit the public resale thereof. All
costs and expenses of registration shall be borne by the Company.
Notwithstanding the foregoing, if the Company for any reason shall become a
Reporting Issuer, or shall have taken any action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to immediately file
with the SEC and cause to become effective a registration statement which would
permit the public resale of such Underlying Shares in such states of the United
States as the Holders thereof shall reasonably request. All costs and expenses
of such registration shall be borne by the Company.
Section 4.15 Escrow. The Company agrees to enter into the
escrow agreement attached hereto as Exhibit E (the "Escrow Agreement"), and to
issue into said Escrow certificates to be held by the Escrow Agent (as defined
in the Escrow Agreement), registered in the names of the Purchasers and without
any restrictive legend of any kind, pursuant to the terms of such Escrow
Agreement, rounded up to the nearest even 10,000 shares. Such certificates shall
be in denominations of 50,000 shares.
Section 4.16 Short Selling. Purchasers and their Affiliates
agree not to engage in any short sales, swaps, purchase of puts, or other
hedging activities involving the Common Stock or other securities of the
Corporation.
Section 4.17 Attorney-in-Fact. To effectuate the terms and
provisions of this Agreement, the Escrow Agreement, the Debenture and the
Warrants, the Company hereby designated and appoints the Escrow Agent and each
of its designees or agents as attorney-in-fact of the Company, irrevocably and
with power of substitution, with authority to carry out any acts and things
necessary or advisable in the sole discretion of the Escrow Agent to carry out
and enforce this Agreement, the Escrow Agreement, the Debenture and the
Warrants. All acts done under the foregoing authorization are hereby ratified
and approved and neither the Escrow Agent nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law. This power of attorney being coupled
with an interest is irrevocable while any amount of the Debenture remains
unpaid, any amount of the Warrants remain unexercised or any portion of this
Agreement or the Escrow Agreement remains unsatisfied.
Section 4.18 Changes to Rule 504. If any shares of Common
Stock required to be reserved for purposes of conversion of the Debenture or
exercise of the Warrants hereunder require registration with or approval of any
governmental authority under any federal (including but not limited to the Act
or similar federal statute than in force) or state law, or listing on any
national securities exchange, before such shares may be issued upon conversion
or exercise, for reasons including but not limited to a material change in Rule
504 of Regulation D promulgated under the Act, the Company will, at its expense,
as expeditiously as possible to cause such shares to be duly registered or
approved or listed on the relevant national securities exchange, as the case may
be. Shares of Common Stock issued upon conversion of the Debenture or exercise
of the Warrants shall be registered by the Company under the Act if required by
Section 4.14 and subject to the conditions stated therein.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of the
Purchaser. The obligation of the Purchaser to purchase the Debentures is subject
to the satisfaction or waiver by the Purchaser, at or prior to the Closing, of
each of the following conditions:
(a) Legal Opinion Exhibit D. The Purchaser shall have received
the legal opinion, addressed to it and dated the Closing Date of the Counsel for
the Company. Such legal opinion shall address the Company's authority to enter
into this Agreement and the applicability of Rule 504 to the offer and sale of
the Debentures, the Warrants and the Underlying Shares;
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(c) 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 to be performed, satisfied
or complied with by the Company at or prior to the Closing;
(d) No Material Adverse Effect. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q, no event which had a Material Adverse Effect shall have occurred
which is not disclosed in the Disclosure Documents;
(e) No Prohibitions. The purchase of and payment for the
Debentures (and upon conversion thereof, the Underlying Shares) hereunder (i)
shall not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (ii) shall not subject the
Purchaser to any penalty, or in its reasonable judgment, other onerous condition
under or pursuant to any applicable law or governmental regulation that would
materially reduce the benefits to the Purchaser of the purchase of the
Debentures or the Underlying Shares (provided, however, that such regulation,
law or onerous condition was not in effect in such form at the date of this
Agreement);
(f) Company Certificates. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Certificate of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, and (C) resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of this Agreement, the issuance
and sale of the Debentures, Warrants and the Underlying Shares and the
appointment of the Attorney-in-Fact pursuant to Section 4.17, and (ii) the
incumbency of officers executing this Agreement;
(g) No Suspensions of Trading in Common Stock Trading in the
Common Stock shall not have been suspended by the Commission or the NASD or
other exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit dissemination
of material information regarding the Company);
(h) Required Approvals All Required Approvals shall have been
obtained; and
(i) Delivery of Debentures The Company shall have delivered to
the Escrow Agent the certificate(s) representing the Debentures, registered in
the name of the Purchaser, each in form satisfactory to the Purchaser.
(j) Power of Attorney Exhibit F The Escrow Agent shall have
received a power of attorney executed on behalf of the Company pursuant to
Section 4.17.
Section 5.2. Conditions Precedent to Obligations of the
Company The obligation of the Company to issue and sell the Debentures hereunder
is subject to the satisfaction or waiver by the Company, at or to the Closing,
of each of the following conditions:
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Debentures (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Debentures or the Underlying Shares to
the Purchaser (provided, however, that such regulation, law or onerous condition
was not in effect in such form at the date of this Agreement).
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent. This Agreement may
be terminated at any time prior to Closing by the mutual consent of the Company
and the Purchaser.
Section 6.2. Termination by the Company or the Purchaser. This
Agreement may be terminated prior to Closing by either the Company or the
Purchaser, by giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by December
9, 1998; provided that the terminating party is not then in material
breach of its obligations under this Agreement in any manner that shall
have caused the failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law
or regulation that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final
judgment, order, decree, ruling or injunction of any court of or
governmental authority having competent jurisdiction; or
(c) there shall have been an amendment to Regulation
D or an interpretive release promulgated or issued thereunder, which,
in the reasonable judgment of the terminating party, would materially
adversely affect the transactions contemplated hereby.
Section 6.3. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement and
such breach is not cured within five business days following receipt by the
Purchaser of notice of such breach.
Section 6.4. Termination by the Purchaser. This Agreement may
be terminated prior to Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement and such
breach is not cured within five business days following receipt by the
Company of notice of such breach;
(b) there has occurred an event since the date of the
financial statements included in the Company's disclosure documents
which could reasonably be expected to have a Material Adverse Effect
and which is not disclosed in the Disclosure Documents; or
(c) trading in the Common Stock has been suspended by
the Commission or the NASD or other exchange or market on which the
Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material
information regarding the Company).
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fees and Expenses Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay the fees of the Escrow Agent and all stamp and other taxes and duties
levied in connection with the issuance of the Debentures (and upon conversion
thereof, the Underlying Shares) pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a result of the
investment hereunder or the transactions contemplated by this Agreement. Whether
or not the transactions contemplated by this Agreement are consummated or this
Agreement is terminated, the Company shall pay (i) all costs, expenses, fees and
all taxes incident to and in connection with: (A) the preparation, printing and
distribution of the Disclosure Documents and all amendments and supplements
thereto (including, without limitation, financial statements and exhibits), and
all preliminary and final Blue Sky memoranda and all other agreements,
memoranda, correspondence and other documents prepared and delivered in
connection herewith (B) the issuance and delivery of the Debentures and, upon
conversion thereof, the Underlying Shares, (C) the qualification of the
Debentures and, upon conversion thereof, the Underlying Shares for offer and
sale under the securities or Blue Sky laws of the several states (including,
without limitation, the fees and disbursements of the Purchasers' counsel
relating to such registration or qualification), (D) furnishing such copies of
the Disclosure Documents and all amendments and supplements thereto, as may
reasonably be requested for use in connection, with resales of the Debentures
and, upon conversion thereof, the Underlying Shares, and (E) the preparation of
certificates for the Debentures and, upon conversion thereof, the Underlying
Shares (including, without limitation, printing and engraving thereof), (ii) all
fees and expenses of the counsel and accountants of the Company and (iii) all
expenses and listing fees on Securities Exchanges, if any.
Section 7.2. Entire Agreement; Amendments. This Agreement,
together with the Exhibits, Annexes and Schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
Section 7.3. Notices Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) 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 mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Mr. Xxxxxxx Xxxxxx
President
Alottafun, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Tel: 000-000-0000
Fax: 000-000-0000
With copies to: Xxxx Xxxxxx, Esq.
Johnson, Blakely, Xxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Tel: 000-000-0000
Fax: 000-000-0000
If to the Purchaser:
See Schedule 1 - Schedule of Purchasers (attached hereto)
With copies to: Xxxx X. Xxxxxxxxxx
Xxxxxx Xxxxxxxxxx & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Tel: 000-000-0000
Fax: 000-000-0000
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.4 Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.5. Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed
to limit or affect any of the provisions hereof.
Section 7.6. Successors and Assigns This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 7.7. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section 7.8. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York without regard to the principles of conflicts of law thereof.
Section 7.9. Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Debentures hereunder.
Section 7.10. Counterpart Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
Section 7.11. Publicity. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed.
Section 7.12. Severability In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.13. Remedies In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Debentures and the Underlying Shares. Each
of the Company and the Purchaser agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
Alottafun, Inc.
By:
------------------------------
Name: Xxxxxxx Xxxxxx
Title: President
Purchaser:
Gem Management Limited
By:
------------------------------
Name:
Title:
Xxxxxxx, Inc.
By:
------------------------------
Name:
Title:
Exhibit B
Conversion Procedures
1. Holder shall execute Holder Conversion Notice in the form attached to
the Debenture as Exhibit A.
2. Holder shall send by fax the Holder Conversion Notice to the Company
and to the Escrow Agent.
3. Holder shall send the original Debenture and Holder Conversion Notice
to the Escrow Agent, along with a fee of $350, with instructions
regarding names and amount of certificates for the issuance of the
Underlying Shares, and instructions as to the reissuance of the balance
of the Debentures, if conversion is not in full.
4. Company will issue and will send by overnight courier within two
business days new Debentures to the Escrow Agent. The Escrow Agent
shall send the new Debenture (if any) and the Common Shares to the
Holder per his instructions. If the Escrow Agent has not received the
new Debenture (if any) and the Common Shares from the Company within
two business days of his receipt of the Conversion Notice, he shall
issue the Common Shares to the Holder from the Escrow Shares.
SCHEDULE 1
----------
Purchaser Full Amount of Number of Shares in
Name & Address Debenture Escrow
-------------- --------- ------
Gem Management Limited $100,000 1,100,000
P.O. Xxx 000
00 Xxxx Xxxxxx
Xx. Xxxxxx
Xxxxxx
XX0 0XX
Phone: 00-0000-000-000
Fax: 00-0000-000-000
--------------------------------------------------------------------------------
Xxxxxxx, Inc. $300,000 3,300,000
X.X. Xxx 00000
Xxxxxxxxx, Xxxxxx
Phone: 000.00.000000
================================================================================
Warrant Holder Full Number Number of Shares
Name & Address of Warrants in Escrow
-------------- ----------- ---------
Gem Management Limited 411,000 411,000
P.O. Xxx 000
00 Xxxx Xxxxxx
Xx. Xxxxxx
Xxxxxx
XX0 0XX
Phone: 00-0000-000-000
Fax: 00-0000-000-000
Mydoc.10590
