EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July
10, 2001 by and between Network Commerce Inc., a Washington corporation (the
"Company") and Cody Holdings Inc. (the "Purchaser"), a British Virgin Islands
corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $18,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
Article 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of $18,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto (the "Initial Closing"), shall take place at the offices of Xxxxxxx
Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to this Agreement for late delivery of the Draw
Down Shares and the Registration Rights Agreement for a suspension of the
Registration Statement or the Purchaser's right to resell the Draw Down Shares
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
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such provisions bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Purchaser in
connection with the failure of the Company to deliver the Draw Down Shares in a
timely manner or the suspension of the Purchaser's right to resell the Draw Down
Shares under the Registration Statement, and (c) the parties are sophisticated
businesses and have been represented by sophisticated and able legal and
financial counsel and negotiated this Agreement at arm's length. Article 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. Except as set
forth in the SEC Documents or on the Disclosure Schedule prepared by the Company
and attached hereto, or as contemplated by this Agreement, the Company hereby
makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated validly existing and in good standing under the laws of the
State of Washington and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. The Company does not have any Subsidiaries and does not own more than
fifty percent (50%) of or control any other business entity. The Company is duly
qualified to do business and is in good standing as a foreign corporation 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 could not have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
the Transaction Documents and to issue the Draw Down Shares pursuant to their
respective terms, (ii) the execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby 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) the Transaction Documents have been duly
executed and delivered by the Company and at the Initial Closing shall
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, reorganization, moratorium,
liquidation, conservatorship, receivership 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 capital stock of the Company consists of
200,000,000 shares of Common Stock of which 5,216,905 shares are issued and
outstanding and 5,000,000 shares of preferred stock, of which none are issued
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and outstanding. To the knowledge of the Company, all of the outstanding shares
of the Company's Common Stock have been duly and validly authorized and are
fully paid and non-assessable. No shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
The Company is not a party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company. The Company has made
available to the Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof (the "Charter"),
and the Company's bylaws as in effect on the date hereof (the "Bylaws"). The
Company has not received any notice from the Principal Market questioning or
threatening the continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued upon exercise of
the Warrant have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the Warrant,
the Warrant Shares shall be validly issued and outstanding, fully paid and
non-assessable, and the Purchaser shall be entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Charter or Bylaws, (ii) 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 Material Agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company are
bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, could not have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for violations
which singularly or in the aggregate could not have a Material Adverse Effect.
The Company is not required under any federal, state or 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 Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the SEC or state
securities administrators and any registration statement which may be filed
pursuant hereto); provided, however, that for purpose of -------- ------- the
representations made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchaser
herein.
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(f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Exchange Act, and, the Company is
current with all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d)
of the Exchange Act. The Company has delivered or is otherwise available to the
Purchaser, through the XXXXX system, true and complete copies of the SEC
Documents filed with the SEC since December 31, 1998. The Company has not
provided to the Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as applicable, and the rules and regulations
of the SEC promulgated thereunder applicable to such documents, and, as of their
respective filing dates (or permitted extensions thereof), 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 included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements under GAAP and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with GAAP 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 and its Subsidiaries as of 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).
(g) Subsidiaries. The SEC Documents [or Disclosure Schedule attached
hereto] sets forth each Subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
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time owned directly or indirectly by the Company and/or any of its other
Subsidiaries. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any Subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
Subsidiary.
(h) No Material Adverse Effect. Since the date of the financial statement
contained in the most recently filed Form 10-Q (or 10-QSB) or Form 10-K (or
10-KSB), whichever is most current, no Material Adverse Effect has occurred or
exists with respect to the Company.
(i) No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any Subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective businesses
since such date and which, individually or in the aggregate, could not have a
Material Adverse Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the financial
statement contained in the most recently filed Form 10- Q (or 10-QSB) or Form
10-K (or 10-KSB), whichever is most current, no event or circumstance has
occurred or exists with respect to the Company or its businesses, properties,
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.
(k) Indebtedness. The SEC Documents or the Disclosure Schedule attached
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (A) any liabilities for borrowed money or amounts owed in excess of
$500,000 (other than trade accounts payable incurred in the ordinary course of
business), (B) all guaranties, endorsements and contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (C) the present
value of any lease payments in excess of $500,000 due under leases required to
be capitalized in accordance with GAAP. The Company is not in default with
respect to any Indebtedness.
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(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property reflected in the SEC
Documents, free of any mortgages, pledges, charges, liens, security interests or
other encumbrances, except for those that could not have a Material Adverse
Effect. All said real property leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company or any Subsidiary,
threatened against the Company which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any Subsidiary or any of their respective properties or assets,
which action, suit, claim, investigation or proceeding could have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary except those orders, judgments, injunctions,
awards or decrees which would not have a Material Adverse Effect.
(n) Compliance with Law. The Company and each of its Subsidiaries has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their respective
businesses as now being conducted by them unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of its Subsidiaries has filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects, and have been prepared in
compliance in all material respects with all applicable laws; the Company has
paid all Taxes due and owing by it or any Subsidiary (whether or not such Taxes
are required to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
parties; and since December 31, 1999, the charges, accruals and reserves for
Taxes with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are to its knowledge adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that the Company or any Subsidiary is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any Subsidiary; no information
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related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any Subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its Subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election under ss.341 (f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a Subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
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(p) Certain Fees. Except for the fees paid to GKN Securities Corp. Inc.
pursuant to the Escrow Agreement, no brokers, finders or financial advisory fees
or commissions will be payable by the Company or any Subsidiary with respect to
the transactions contemplated by this Agreement.
(q) Operation of Business. The Company and each of the Subsidiaries owns or
possesses all patents, trademarks, service marks, trade names, copyrights,
licenses and authorizations as set forth in the SEC Documents [or the Disclosure
Schedule attached hereto], and all rights with respect to the foregoing, which
to its knowledge would be reasonably necessary for the conduct of its business
as now conducted without any conflict with the rights of others.
(r) Books and Records. The records and documents of the Company and the
Subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the Subsidiaries, the location and
collection of its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company and the Subsidiaries.
(s) Material Agreements. The Company and each of its Subsidiaries has in
all material respects performed all the obligations required to be performed by
them to date under the Material Agreements, have received no notice of default
and, to the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which would cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any Subsidiary limits or shall limit the
payment of dividends on the Company's Common Stock.
(t) Transactions with Affiliates. There are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions exceeding $250,000 between (A) the Company, any
Subsidiary, or any of their respective customers or suppliers on the one hand,
and (B) on the other hand, any officer, employee, consultant or director of the
Company or any of its Subsidiaries, or any person owning 5% or more of the
capital stock of the Company or any Subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(u) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares under the registration provisions
of the Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
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(v) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Neither the
Company nor any Subsidiary is in breach of any employment contract, agreement
regarding proprietary information, noncompetition agreement, nonsolicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, to be employed or
engaged by the Company or such Subsidiary. Since the date of the December 31,
2000 Form 10-K (or 10-KSB), no officer, consultant or key employee of the
Company or any Subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company.
(w) Absence of Certain Developments. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or Form
10-K (or 10KSB), whichever is most current, neither the Company nor any
Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such Subsidiary's business;
(iii)discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
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(vii)suffered any material losses (except for anticipated losses consistent
with prior quarters) or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company or its Subsidiaries.
(x) Governmental Approvals. Except for the filing of any notice prior or
subsequent to any Settlement Date that may be required under applicable federal
or state securities laws (which if required, shall be filed on a timely basis),
including the filing of a registration statement or post-effective amendment
pursuant to this Agreement, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the delivery of the Shares, or for
the performance by the Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. The Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement has been based solely on (a) the
Purchaser's representations and warranties in Section 2.2, and (b) the
independent evaluation by the Company and its own representatives and counsel.
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Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Shares being sold to it hereunder. The execution, delivery and performance
of the Transaction Documents by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and at the Initial Closing shall constitute valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated herein do not and will not (i) violate any provision of the
Purchaser's Charter or Bylaws, (ii) 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 Material Agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Purchaser is a party, (iii) create or impose a lien, charge or encumbrance on
any property of the Purchaser under any agreement or any commitment to which the
Purchaser is a party or by which the Purchaser is bound or by which any of its
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Purchaser or by which any property or asset of the Purchaser
are bound or affected, except, in all cases, for such conflicts, defaults,
termination, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a material adverse effect on the
business or operations of the Purchaser. The Purchaser is not required 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 to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Shares and that it has been
given full access to such records of the Company and the Subsidiaries and to the
officers of the Company and the Subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation. The Purchaser is capable
of evaluating the risks and merits of an investment in the Shares by virtue of
its experience as an investor and its knowledge, experience, and sophistication
in financial and business matters and the Purchaser is capable of bearing the
entire loss of its investment in the Shares.
11
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the suitability of the Purchaser to acquire the Shares.
Article 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down, the
Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, (i) at no time will the
Company request a Draw Down which would result in the issuance of an aggregate
number of shares of Common Stock pursuant to this Agreement which exceeds 19.9%
of the number of shares of Common Stock issued and outstanding on the Initial
Closing Date without obtaining stockholder approval of such excess issuance, or
such other amount as would require stockholder approval under rules of the
Principal Market or otherwise without obtaining stockholder approval of such
excess issuance, and (ii) the Company may not make a Draw Down to the extent
that, after such purchase by the Purchaser, the sum of the number of shares of
Common Stock beneficially owned by the Purchaser and its affiliates would result
in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal Market, in accordance with its rules and regulations, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrant
to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
12
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Purchaser has disposed of all of the
Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a registration statement to be
filed with the SEC in order for a sufficient number of shares of Common Stock to
be registered to cover the Shares to be issued in connection with such Draw
Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders
except for those which could not have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
13
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will promptly notify the Purchaser
in writing upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any 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 Shares 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 the 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 the filing of a post-effective amendment to or the
withdrawal of the Registration Statement would be appropriate. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation of any
of the foregoing events. The Company shall promptly make available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time, provided that the registration statement and any supplements and
amendments thereto are then effective, the Company may recommence the delivery
of Draw Down Notices.
Section 3.11. 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 (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to a Draw
Down Notice sent by the Company pursuant to this Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the then current market price (including securities
convertible, exchangeable, adjustable or which may be reset at a discount to the
current market price at the time of such conversion, exchange, adjustment or
reset) until the earlier of (i) 18 months from the Effective Date, (ii) sixty
14
(60) days after the entire Commitment Amount has been purchased by the
Purchaser, or (iii) the date this Agreement is terminated pursuant to the terms
herein. The foregoing shall not prevent or limit the Company from engaging in
any sale of securities (i) in a registered public offering by the Company which
is underwritten by one or more established investment banks (not including an
"equity line" type of financing), (ii) pursuant to a private placement where the
investors do not have registration rights, (iii) pursuant to any compensatory
plan for a full-time employee or key consultant, (iv) in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money, or (v) to which Purchaser gives its prior
written consent. During the term of this Agreement, the Purchaser shall have a
right of first refusal to undertake and complete such subsequent transaction in
the case of (i), (ii) and (v) above. Such right of first refusal must be
exercised in writing within five (5) Trading Days of the Purchaser's receipt of
notice of the proposed terms of such financing or the right to participate in
such financing shall be waived.
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its Subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.14. Compliance with Law. The Purchaser agrees that its trading
activities with respect to the Shares will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules and
regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Purchaser agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Shares
from the Purchaser.
Article 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) 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 Initial Closing and as
of each Settlement Date as though made at that time, except for representations
and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Initial Closing and as of
each Settlement Date.
15
(c) 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Initial Closing as
though made at that time (except for representations and warranties that speak
as of a particular date).
(b) Performance by the Company. The Company 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
Company at or prior to the Initial Closing.
(c) 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 which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and to the
knowledge of the Company no investigation by any governmental authority shall
have been threatened, against the Purchaser or the Company or any Subsidiary, or
any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated as of the Initial
Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to the
Purchaser a warrant to purchase up to 350,000 shares of Common Stock. The
Warrant shall have a term from its initial date of issuance of 5 years. The
exercise price of the Warrant shall be 110% of the average of the VWAPs during
the 15 Trading Days immediately prior to the Initial Closing Date. The Common
Stock underlying the Warrant will be registered in the Registration Statement
referred to in Section 4.3 hereof. The Warrant shall be in the form of Exhibit E
hereto.
16
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall have
satisfied, or the Purchaser shall have waived at the Initial Closing, the
conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares subject to the Draw Down request shall have been declared
effective by the SEC and shall remain effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have
been suspended by the SEC or the Principal Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the delivery of each Draw Down Notice), and, at any time
prior to such Draw Down Notice, trading in securities generally as reported on
the Principal Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported on the
Principal Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform the
Company's obligations shall have occurred, such occurrences to be determined in
accordance with Section 8.9 herein.
(e) Opinion of Counsel. On the Effective Date, the Purchaser shall have
received (i) a "down-to-date" letter from the Company's counsel, confirming that
there is no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as to the
additional items specified in Exhibit C hereto, and (ii) any other items set
forth in the Escrow Agreement.
Article 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
17
(a) The Company may, in its sole discretion, issue and exercise draw downs
against the Commitment Amount (each a "Draw Down") during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept, subject to the
terms and conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
There shall be a minimum of five (5) Trading Days between Draw Down Pricing
Periods. The number of shares of Common Stock purchased by the Purchaser with
respect to each Draw Down shall be determined as set forth in Section 5.1(e)
herein and settled on:
(i) as to the 1st through the 11th Trading Day during the Draw Down Pricing
Period, on or before the 13th Trading Day after such Draw Down Pricing Period
commences; and
(ii) as to the 12th through the 22nd Trading Day during the Draw Down
Pricing Period commences, on or before the 24th Trading Day after such Draw Down
Pricing Period (such settlement periods and such settlement dates in subsection
(i) and this subsection (ii) each referred to as a "Settlement Period" and a
"Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period, the Company may set
the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000 and
the maximum Investment Amount as to each Draw Down shall be the lesser of (i)
$2,000,000, and (ii) 6.0% of the EQY weighted average price field (as reported
on Bloomberg Financial L.P. using the BLPH function) for the Common Stock for
the 60 calendar days immediately prior to the applicable Commencement Date
(defined below) multiplied by the total trading volume in respect of the Common
Stock for such period. Notwithstanding anything herein to the contrary, in the
event the minimum Investment Amount is greater than the maximum Investment
Amount, as to such Draw Down only, the minimum Investment Amount shall equal the
maximum Investment Amount, but in no event shall the minimum Investment Amount
be less than $50,000, such that if the maximum Investment Amount is less than
$50,000, then the Company shall be precluded from exercising a Draw Down at such
time.
(e) The number of Shares of Common Stock to be issued on each Settlement
Date shall be a number of shares equal to the sum of the quotients (for each
trading day within the Settlement Period) of (x) 1/22nd of the Investment
Amount, and (y)the Purchase Price on each Trading Day within the Settlement
Period, subject to the following adjustments:
18
(i) if the VWAP on a given Trading Day is less than the Threshold Price,
then that portion of the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period;
(ii) if during any Trading Day during the Settlement Period trading of the
Common Stock on the Principal Market is suspended for more than three (3) hours,
in the aggregate, or if any Trading Day during the Settlement Period is
shortened because of a public holiday, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
1/22nd of the Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period; and
(iii) if during any Trading Day during the Settlement Period sales of Draw
Down Shares pursuant to the Registration Statement are suspended by the Company
in accordance with Sections 3(j) or 5(e) of the Registration Rights Agreement
for more than three (3) hours, in the aggregate, during the Settlement Period,
then that portion of the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down notice,
in the form of Exhibit D hereto (the "Draw Down Notice"), via facsimile
transmission in accordance with Section 8.4 as to the amount of the Draw Down
(the "Investment Amount") the Company wishes to exercise and the Threshold
Price, before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down Notice, the
Draw Down Notice must be delivered to and receipt confirmed by the Purchaser at
least one (1) hour before trading commences on such date. At no time shall the
Purchaser be required to purchase more than the maximum Investment Amount for a
given Draw Down Pricing Period so that if the Company chooses not to exercise
the maximum Investment Amount in a given Draw Down Pricing Period the Purchaser
is not obligated to and shall not purchase more than the scheduled maximum
Investment Amount in a subsequent Draw Down Pricing Period.
(g) On or before each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf through DTC's Deposit Withdrawal Agent Commission ("DWAC")
system upon receipt by the Escrow Agent of payment for the Draw Down Shares into
the Escrow Agent's master escrow account, as further set forth in the Escrow
Agreement. The Escrow Agent shall be directed to pay the purchase price to the
Company, net of $1,000 per Settlement as escrow expenses to the Escrow Agent and
any additional fees as set forth in the Escrow Agreement. The Company
understands that a delay in the delivery of the Draw Down Shares into the
Purchaser's DTC account beyond 3 Trading Days after the dates set forth in the
Escrow Agreement could result in economic loss to the Purchaser. Notwithstanding
anything herein to the contrary, as compensation to the Purchaser for such loss,
the Company agrees to pay late payments to the Purchaser for late delivery after
3 Trading Days from such date in accordance with the following schedule (where
"No. Trading Days Late" is defined as the number of Trading Days beyond three 3
Trading Days from the date set forth in the Escrow Agreement on which such Draw
Down Shares are to be delivered into the Purchaser's DTC account via the DWAC
system):
19
Late Payment for Each
$5,000 of Draw Down Shares
No. Trading Days Late Being Purchased
------------------------- -------------------------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
The Company shall pay any payments incurred under this Section 5.1(g) in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company,
including, without limitation, the Purchaser's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery.
Article 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 18 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice if (i)
an event resulting in a Material Adverse Effect has occurred and has not been
cured for a period of thirty (30) days after giving written notice thereof, (ii)
the Common Stock is de-listed from the Principal Market unless such de-listing
is in connection with the Company's subsequent listing of the Common Stock on
the OTC Bulletin Board, Nasdaq National Market, Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, or (iii) the Company
files for protection from creditors under any applicable law.
20
(b) The Company may terminate this Agreement upon one (1) Trading Day's
notice if the Purchaser shall fail to fund a properly noticed Draw Down within
five (5) Trading Days of the end of the applicable Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company or the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
Article 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser (and
its directors, officers, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Purchaser as a result of any material inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any material inaccuracy in
or breach of the representations, warranties or covenants made by the Purchaser
herein. Notwithstanding anything to the contrary herein, the Purchaser shall be
liable under this Section 7.1(b) for only that amount as does not exceed the net
proceeds to the Purchaser as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
21
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
Article 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth in the Escrow
Agreement, each of the parties to this Agreement shall pay its own fees and
expenses related to the transactions contemplated by this Agreement. The Company
shall pay all stamp or other similar taxes and duties levied in connection with
issuance of the Shares pursuant hereto.
22
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire understanding of the parties with respect to the matters covered in
the Transaction Documents. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile 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: 000 0xx Xxxxxx Xxxxx, Xxxxx 000X
Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx Xxxxxx
With copies to: Xxxxxxx Xxxxx & Xxxxx LLP
(which shall not 000 Xxxxx Xxxxxx, xxxxx 5000
constitute notice) Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxx Xxxxxx
If to Purchaser: Cody Holdings Inc.
Harbour House, 2nd Floor
Waterfront Drive
Road Town, Tortola
British Virgin Islands
Attn: Xxxxx Xxxx
Fax: (000) 000-0000
23
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not 000 Xxxx Xxxxxx
xxxxxxxxxx xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith. Section 8.5. Waivers. No waiver by either party 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 provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. 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 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions thereof. The Company and
the Purchaser agree to submit themselves exclusively to the in personam
jurisdiction of the state and federal courts situated within the Southern
District of the State of New York with regard to any controversy arising out of
or relating to this Agreement. Any dispute under this Agreement or any Exhibit
attached hereto shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
24
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser 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 written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible,
so long as such construction does not materially adversely affect the economic
rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
25
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
Article 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term in
Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the Effective
Date and expiring on the earliest to occur of (i) the date on which the
Purchaser shall have exercised an aggregate amount of Draw Downs equal to the
Commitment Amount, (ii) the date this Agreement is terminated in accordance with
the terms hereof, or (iii) the date occurring eighteen (18) months from the
Effective Date.
(d) "Common Stock" shall mean the Company's common stock, $.001 par value
per share.
(e) "Disclosure Schedule" shall mean the schedules prepared by the Company
and attached hereto.
(f) "Draw Down" shall have the meaning assigned to such term in Section
5.1(a) hereof.
(g) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(h) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down Notice
(as defined in Section 5.1(f) herein); provided, however, the Draw Down Pricing
Period shall not begin before the day on which receipt of such notice is
confirmed by the Purchaser.
(i) "DTC" shall have the meaning assigned to such term in Section 5.1(g).
(j) "DWAC" shall have the meaning assigned to such term in Section 5.1(g).
26
(k) "Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared effective by
the SEC.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(m) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(n) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(o) "Initial Closing Date" shall have the meaning assigned to such term in
Section 1.2 hereof.
(p) "Investment Amount" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(q) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties 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 materially interfere with the ability of the Company to perform any
of its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other Material Agreement.
(r) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which is required to be filed with the SEC as an exhibit to any of the SEC
Documents.
(s) "Principal Market" shall mean initially the Nasdaq National Market and
shall include the OTC Bulletin Board, American Stock Exchange, the Nasdaq
Small-Cap Market, and the New York Stock Exchange if the Company becomes listed
and trades on such market or exchange after the date hereof.
(t) "Purchase Price" shall mean, with respect to Shares purchased during
each applicable Settlement Period, 90% of the VWAP on the date in question,
provided that the Purchase Price shall be 93% of the VWAP on the date in
question if the company is listed or trades on a Principal Market other than the
OTC Bulletin Board.
(u) "Registration Statement" shall mean the registration statements under
the Securities Act, to be filed with the Securities and Exchange Commission for
the registration of the Shares pursuant to the Registration Rights Agreement
attached hereto as Exhibit A (the "Registration Rights Agreement).
27
(v) "SEC" shall mean the Securities and Exchange Commission.
(w) "SEC Documents" shall mean the Company's latest Form 10-K or Form
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
(x) "Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
(y) "Settlement" shall mean the delivery of the Draw Down Shares into the
Purchaser's DTC account via DTC's DWAC System in exchange for payment therefor.
(z) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(aa) "Settlement Period" shall have the meaning assigned to such term in
Section 5.1(b).
(bb) "Shares" shall mean, collectively, the shares of Common Stock of the
Company being subscribed for hereunder (the "Draw Down Shares") and the shares
of Common Stock issuable upon exercise of the Warrant (the "Warrant Shares").
(cc) "Threshold Price" shall mean the price per Share designated by the
Company as the lowest VWAP during any Draw Down Pricing Period at which the
Company shall sell its Common Stock in accordance with this Agreement.
(dd) "Trading Day" shall mean any day on which the Principal Market is open
for business.
(ee) "Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement and the Escrow Agreement.
(ff) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time) using the VAP function on the date in question.
(gg) "Warrant" shall mean the warrant issued to the Purchaser pursuant to
Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
28
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this __ day of July,
2001.
NETWORK COMMERCE INC.
By:
--------------------------------------
Xxxxx Xxxx,
Executive Vice President & CFO
CODY HOLDINGS INC.
By:
--------------------------------------
Xxxxx Xxxx, Director
