PRIVATE EQUITY LINE OF CREDIT AGREEMENT
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of May 13, 1998
(the "Agreement"), among the entities listed on Schedule A attached hereto
(referred to as the "Investor" or "Investors"), SETTONDOWN CAPITAL INTERNATIONAL
LTD. (the "Placement Agent") located at Xxxxxxxxx Xxxxx, Xxxxxxxxx Xxxxxx, X.X.
Xxx X. 0000, Xxxxxx, Bahamas, organized and existing under the laws of the
Bahamas, and OBJECTSOFT CORPORATION (Nasdaq Small Cap Stock Market Symbol
"OSFT"), a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
from time to time as provided herein, and the Investors shall purchase (i) for
an aggregate of up to Nine Hundred Thousand ($900,000) Dollars, that number of
shares of Common Stock determined by dividing $900,000 by the Purchase Price (as
defined below) for the Initial Shares (as defined below) on the Subscription
Date (as defined below), (ii) up to $5,000,000 aggregate value of Put Shares (as
defined below), (iii) up to $1,200,000 aggregate value of Preferred Stock (as
defined below), and (iv) Warrants A to purchase an aggregate of up to 42,000
Warrant Shares and Warrants B to purchase an aggregate of 30,000 Warrant Shares
(as defined below); and
WHEREAS, the Company shall issue to the Placement Agent, in return
for services rendered (in addition to the fees set forth in Section 13.7 below):
(a) upon the Closing for the Initial Shares (as defined below), (i) that number
of shares of Common Stock equal to four (4%) percent of the number of shares of
Common Stock issued to the Investors on the Subscription Date, (ii) twenty
thousand (20,000) shares of Common Stock (to be included in the definition of
Registrable Securities below), and (iii) a Warrant A (as defined below) to
purchase 3,000 Warrant Shares (as defined below) per Three Hundred Thousand
($300,000) Dollars funded by the Investors on the Subscription Date; (b) upon
the Closings for the Preferred Stock, that number of shares of Preferred Stock
equal to four (4%) percent of the number of shares of Preferred Stock issued to
the Investors; and
WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the United States Securities Act of 1933, as amended, and the regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.6 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of earnings and assets of
the Company.
Section 1.4 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to, subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.5 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Series C Preferred Stock, as annexed hereto as Exhibit A.
Section 1.6 "Closing" shall mean one of the closings of a purchase
and sale of the Common Stock, Warrants, and Preferred Stock pursuant to Article
II below.
Section 1.7 "Closing Date" shall mean, with respect to the purchase
of the Initial Shares the Closing shall be on the Subscription Date. The Closing
Date for the first tranche of Preferred Stock shall be on a Trading Day
subsequent to the Registration Statement being effective for thirty days subject
to the satisfaction of each of the conditions as set forth in Section 2.11. The
Closing Date for the second tranche of Preferred Stock shall be on a Trading Day
subsequent to the Registration Statement being effective for ninety days subject
to the satisfaction of each of the conditions as set forth in Section 2.11. The
Closing Date for the Put shares shall be on the Fourth Trading Day following
each Put Date. For each Closing Date, all conditions contained in this Agreement
must have been fulfilled at or prior to each Closing Date. In the event such
date shall fall on a holiday or a weekend, then the next business day thereafter
shall be the Closing Date.
Section 1.8 "Commitment Amount" shall mean up to the $7,100,000
which the Investor has agreed to provide to the Company in order to purchase the
Initial Shares, Preferred Shares, and Put Shares pursuant to the terms and
conditions of this Agreement.
Section 1.9 "Commitment Period" shall mean the period commencing on
the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and all of the Investors may mutually agree in writing, and expiring on
the earliest to occur of (x) the date on which the Investors shall have
purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price
of $5,000,000, (y) the date this Agreement is terminated pursuant to Section
2.4, or (z) the date occurring two years after the Effective Date.
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Section 1.10 "Common Stock" shall mean the Company's common stock,
par value $0.0001 per share.
Section 1.11 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2.
Section 1.12 "Damages" shall mean any loss, claim, damage,
liability, costs and expenses which shall include, but not be limited to,
reasonable attorney's fees, disbursements, costs and expenses of expert
witnesses and investigation.
Section 1.13 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the
following, (i) two hundred (200%) percent of the Initial Shares and Warrant
Shares, and (ii) two hundred (200%) percent of that number of shares of Common
Stock issued to the Placement Agent on the Subscription Date as set forth in
Section 13.7 below.
Section 1.14 "Escrow Agent" shall mean the law firm of Xxxxxxxxx,
Xxxxxxxxx & Xxxx, LLP, pursuant to the terms of the Escrow Agreement attached as
Exhibit E.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.16 "First Repricing Date" shall have that meaning set
forth in Section 2.9.
Section 1.17 "Floor Price" shall mean a Bid Price of One Dollar and
Fifty Cents ($1.50) per share of Common Stock.
Section 1.18 "Initial Shares" shall have the meaning set forth in
Section 2.8.
Section 1.19 "Initial Shares Investment Amount" shall mean $900,000.
Section 1.20 "Investment Amount" shall mean, upon proper
notification by the Company to each of the Investors, the dollar amount to be
invested by each of the Investors to purchase Put Shares with respect to any Put
Date in accordance with Section 2.2 hereof.
Section 1.21 "Legend" shall have the meaning set forth in Section
9.1.
Section 1.22 "Market Price" on any given date shall mean the average
of the five lowest Bid Prices of the Common Stock during the Valuation Period.
Section 1.23 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect
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interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation or the Warrants in any material
respect.
Section 1.24 "Maximum Put Amount" shall mean the amount indicated in
the Table below:
--------------------------------------------------------------------------------
Closing Price 30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg.
Daily Trading Daily Trading Daily Trading Daily Trading
Volume 5,000- Volume Volume Volume
25,000 25,001-50,000 50,001-75,000 75,001-Above
--------------------------------------------------------------------------------
$ 1.00 - $ 3.00 $ 100,000 $ 200,000 $ 300,000 $ 400,000
--------------------------------------------------------------------------------
$ 3.01 - $ 6.00 $ 300,000 $ 400,000 $ 500,000 $ 600,000
--------------------------------------------------------------------------------
$ 6.01 - $ 8.00 $ 500,000 $ 600,000 $ 700,000 $ 800,000
--------------------------------------------------------------------------------
$ 8.01 - $10.00 $ 700,000 $ 800,000 $ 900,000 $1,000,000
--------------------------------------------------------------------------------
$10.01 - $12.00 $ 900,000 $1,000,000 $1,100,000 $1,200,000
--------------------------------------------------------------------------------
$12.01 - $14.00 $1,100,000 $1,200,000 $1,300,000 $1,400,000
--------------------------------------------------------------------------------
$14.01 - Above $1,300,000 $1,400,000 $1,500,000 $1,600,000
--------------------------------------------------------------------------------
Section 1.25 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.26 "Outstanding" when used with reference to shares of
Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any
date as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.27 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.28 "Preferred Stock" shall mean the Company's Series C
Preferred Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation attached hereto as Exhibit A.
Section 1.29 "Principal Market" shall mean the Nasdaq National
Market, or the Nasdaq SmallCap Market, whichever is at the time the principal
trading exchange or market for the Common Stock.
Section 1.30 "Purchase Price" shall mean (a) with respect to the
Initial Shares, eighty (80%) percent of the Market Price, (b) with respect to
the Preferred Stock, an amount equal to the "Purchase Price" of each share of
Preferred Stock, as set forth in the Certificate of Designation,
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and (c) with respect to Put Shares, eighty-five (85%) percent (the "Purchase
Price Percentage") of the Market Price upon a Put Date (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement).
Section 1.31 "Put" shall mean each occasion in which the Company
elects to exercise its right to tender a Put Notice requiring the Investors (pro
rata) to purchase shares of the Company's Common Stock, subject to the terms of
this Agreement.
Section 1.32 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to issue and sell Put Shares to the
Investors is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.33 "Put Notice and/or Compliance Certificate" shall mean a
written notice to each of the Investors setting forth the Investment Amount that
the Company intends to Put to the Investors (pro rata), including the
certification that the Company has complied in all material respects with all
obligations and conditions contained in this Agreement, in the form annexed
hereto as Exhibit D.
Section 1.34 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.35 "Registrable Securities" shall mean the Initial Shares,
the Underlying Shares, the Additional Shares, the Repricing Shares, the Warrant
Shares, the Put Shares, and all of the shares of Common Stock issued to the
Placement Agent, (i) in respect of which the Registration Statement (covering
these securities) has not been declared effective by the SEC, (ii) which have
not been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) which have not been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, or (iv)
the sales of which, in the opinion of counsel to the Company, are subject to any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.36 "Registration Rights Agreement" shall mean the
agreement regarding the filing of the Registration Statement for the resale of
the Registrable Securities, entered into between the Company, the Placement
Agent, and the Investors on the Subscription Date annexed hereto as Exhibit A.
Section 1.37 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the
Warrants and in accordance with the
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intended method of distribution of such securities), for the registration of the
resale by the Investors and the Placement Agent of the Registrable Securities
under the Securities Act.
Section 1.38 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.39 "Repricing Shares" shall mean that number of shares of
Common Stock issuable pursuant to Section 2.9 below.
Section 1.40 "Repurchase Price" shall have the meaning as set forth
in Section 2.10 below.
Section 1.41 "Reset Price" shall mean eighty (80%) percent of the
Market Price on the applicable Repricing Date as set forth in Section 2.9 below.
Section 1.42 "SEC" shall mean the Securities and Exchange
Commission.
Section 1.43 "Second Repricing Date" shall have that meaning set
forth in Section 2.9.
Section 1.44 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.45 "Securities" shall mean the Initial Shares, the Put
Shares, the Repricing Shares, the Underlying Shares, the Additional Shares, the
Warrant Shares and any and all Securities issued to the Placement Agent.
Section 1.46 "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.47 "SEC Documents" shall mean the Company's latest Form
10-K (and all amendments thereto) or 10-KSB (and all amendments thereto) as of
the time in question, all Form 10-Qs or 10-QSBs and Form 8-Ks 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.
Section 1.48 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the Initial Shares
shall have been fulfilled.
Section 1.49 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates.
Section 1.50 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
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Section 1.51 "Underlying Shares" shall mean all shares of Common
Stock or other securities issued or issuable pursuant to conversion of the
Preferred Stock.
Section 1.52 "Valuation Event" shall mean an event in which the
Company at any time during a Valuation Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above, at a price per share less, or for other consideration, lower than the Bid
Price in effect immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for
or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put or exercise of the Warrants.
Section 1.53 "Valuation Period" shall mean, (i) with respect to the
Initial Shares, the five (5) Trading Days immediately preceding the Subscription
Date, (ii) with respect to the Purchase Price on any Put Date, the five (5) day
trading period consisting of the three (3) Trading Days immediately preceding
and the one (1) Trading Day following the Trading Day on which a Put Notice is
deemed to be delivered, and the Trading Day on which such notice is deemed to be
delivered; and (iii) with respect to the Repricing Shares, the five (5) day
trading period immediately preceding the applicable Repricing Date; provided,
however, that if a Valuation Event occurs
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during a Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the seventh
Trading Day thereafter.
Section 1.54 "Warrant A" shall have the meaning set forth in Section
2.5 and substantially in the form of Exhibit B.
Section 1.55 "Warrant B" shall have the meaning set forth in Section
2.6 and substantially in the form of Exhibit C.
Section 1.56 "Warrants" shall mean collectively the Warrant A and
Warrant B.
Section 1.57 "Warrant Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to the exercise of Warrant A or
Warrant B.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK, PREFERRED STOCK AND WARRANTS
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice/ Compliance
Certificate in the form attached hereto as Exhibit D. The number of Put Shares
that the Investors shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Put Notice by the Purchase Price
on such Put Date, which number of shares shall not exceed the Maximum Put Amount
on such date.
(b) Maximum Aggregate Amount of Puts and Repricing Shares.
Unless the Company obtains Shareholder approval pursuant to the applicable
corporate governance rules of the Nasdaq Stock Market, (i) the Investors may not
be compelled to make a purchase, and (ii) the Company will not be obligated to
issue any Repricing Shares as set forth in Section 2.9 below, which results in
the issuance to the Investors when aggregated with shares of Common Stock issued
to Placement Agent and all Warrant Shares issuable upon exercise of the Warrants
issuable to the Investors and the Placement Agent, of more than 19.95% of the
outstanding shares of Common Stock (which shall be computed as of the
Subscription Date) as a result of the transactions contemplated by this
Agreement. However, notwithstanding the foregoing, in the event the Company
fails to attain shareholder approval as mentioned herein, the Company agrees
that in lieu of issuing the Repricing Shares, it will pay to the Investors,
immediately, in cash, the dollar value of that number of Repricing Shares that
were to be issued pursuant to Section 2.9 below (such dollar value shall be
based upon the prices of the Common Stock on the applicable Repricing Date).
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Section 2.2 Mechanics For a Put.
(a) Put Notice. At any time after the thirtieth (30th) day
following the Effective Date, the Company may deliver a Put Notice to the
Investors, subject to the conditions set forth in Section 7.2; provided,
however, the Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than $50,000 nor more than the
Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investors if such notice is received prior to 12:00 p.m. Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 p.m. Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 Put Closings. On each Closing Date for a Put (i) the
Company shall deliver to the Escrow Agent for the benefit of the Investors one
or more certificates, at the Investors option, representing the Put Shares to be
purchased by the Investors pursuant to Section 2.1 herein, registered in the
name of the Investors; and (ii) the Investors shall deliver to escrow the
Investment Amount specified in the Put Notice by wire transfer of immediately
available funds to the Escrow Agent on or before the Closing Date. In addition,
on or prior to the Closing Date for a Put, each of the Company, the Placement
Agent, and the Investors shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company, payment of
Placement Agent fees as set forth in Section 13.7 below and delivery of the
certificates to the Investors shall occur on the Closing Date for the applicable
Put in accordance with the Escrow Agreement; provided, however, that to the
extent the Company has not paid the fees, expenses, and disbursements of the
Investors counsel, the Escrow Agent and Placement Agent in accordance with
Section 13.7, the amount of such fees, expenses and disbursements shall be paid
out of the funds that the Escrow Agent is holding for the Company to the
respective parties, in immediately available funds, at the direction of the
Investors, with no reduction in the number of Put Shares issuable to the
Investors on such Closing Date.
The Company may not make a Put to the Investors: (i) until thirty
days after the First Repricing Date, nor (ii) during the seven day period
commencing three days prior to the Second Repricing Date, and ending three days
after a Closing Date for the Second Repricing Date, and including the Closing
Date for the Second Repricing Date.
Section 2.4 Termination of Investment Obligation. The obligation of
the Investors to purchase shares of Common Stock pursuant to a Put shall
terminate permanently (including with respect to a Closing Date that has not yet
occurred but for which a Put Notice has been delivered to the Investors) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of twenty (20)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspensions
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in accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act or (ii)
the Company shall at any time fail to comply with the requirements of Section
6.3, 6.4 or 6.6; provided, that in the case of clause (i) above, the Investors'
obligation to purchase shares of Common Stock shall be reinstated when the
Investors receive copies of the supplemented or amended prospectus contemplated
by the Registration Rights Agreement.
Section 2.5 The Warrants.
(a) Warrant A. On the Subscription Date, the Company will
issue to the Investors and the Placement Agent a Warrant A, exercisable
beginning on the Subscription Date and then exercisable any time over the five
year period there following, to purchase an aggregate of 18,000 Warrant Shares
for the Investors and 9,000 Warrant Shares for the Placement Agent at the
Exercise Price (as defined in the Warrant). Warrant A shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors and Placement Agent
pursuant to the terms of this Agreement and the Escrow Agreement. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement.
(b) Warrant B. On the Subscription Date, the Company will
issue to the Investors (pro rata) a Warrant B exercisable beginning six months
from the Subscription Date and then exercisable any time over the five year
period there following, to purchase an aggregate of 30,000 Warrant Shares at the
Exercise Price (as defined in the Warrant). Warrant B shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors pursuant to the
terms of this Agreement and the Escrow Agreement. The Warrant Shares shall be
registered for resale pursuant to the Registration Rights Agreement.
Section 2.6 Additional Shares. In the event that (a) within five
Trading Days after the date in which the Investors and/or the Placement Agent
receive any of the Securities issued hereunder, a "blackout period" occurs in
accordance with the Sections 3(g) and 3(h) of the Registration Rights Agreement,
and (b) the Bid Price on the Trading Day immediately preceding such "blackout
period" (the "Old Bid Price") is greater than the Bid Price on the first Trading
Day following such "blackout period" (the "New Bid Price"), the Investor and/or
the Placement Agent may sell its Registrable Securities at the New Bid Price
pursuant to an effective Registration Statement, and the Company shall issue to
the Investor and/or the Placement Agent a number of additional shares equal to
the difference between (y) the product of the number of Registrable Securities
held by the Investors and/or the Placement Agent during such "blackout period"
that are not otherwise freely tradeable and the Old Bid Price, divided by the
New Bid Price and (z) the number of Registrable Securities held by the Investor
and/or the Placement Agent during such "blackout period" that are not otherwise
freely tradeable.
Section 2.7 Liquidated Damages. In addition to any other provisions
for liquidated damages in this Agreement or any Exhibit annexed hereto, in the
event that the Company does not deliver unlegended Common Stock in connection
with the sale of such Common Stock by the Investor(s) and/or the Placement Agent
as set forth in Article IX below (due to the action or
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inaction of the Company, or counsel to the Company), within three (3) Trading
Days of surrender by the Investor(s) of the Common Stock certificate in
accordance with the terms and conditions set forth in Article IX below (such
date of receipt is referred to as the "Receipt Date"), the Company shall pay to
the Investor(s), in immediately available funds, upon demand, as liquidated
damages for such failure and not as a penalty, one (1%) percent of the Purchase
Price of the Common Stock undelivered for every day thereafter for the first ten
(10) days and two (2%) percent for every day thereafter that the unlegended
shares of Common Stock are not delivered, which liquidated damages shall run
from the fourth (4th) Trading Day after the Receipt Date. In addition to the
above, the Company will be liable for the aforementioned liquidated damages in
the event the Company fails to notify its transfer agent within two Trading Days
after the Receipt Date authorizing the transfer agent to issue such shares of
unlegended Common Stock as set forth above. The parties hereto acknowledge and
agree that the sum payable pursuant to the Registration Rights Agreement and as
set forth above, and the obligation to issue Registrable Securities under
Section 2.6 above, shall constitute liquidated damages and not penalties. The
parties further acknowledge that the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, and the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
Notwithstanding the above, in the event that the Company does not deliver
unlegended Common Stock in connection with the sale of such Common Stock by the
Investor(s) and/or the Placement Agent as set forth in Article IX below (not due
to the action or inaction of the Company, or counsel to the Company), within
three (3) Trading Days of the Receipt Date), the Company shall pay to the
Investor(s), in immediately available funds, interest (at the then current prime
rate) on the Purchase Price of the Common Stock undelivered for every day
thereafter that the unlegended shares of Common Stock are not delivered. Any and
all payments required pursuant to this paragraph shall be payable only in cash.
Section 2.8 Initial Purchase.
(a) The Company agrees to sell and the Investors agree to
purchase that number of shares of Common Stock (the "Initial Shares") determined
by dividing the Initial Shares Investment Amount by the Purchase Price for the
Initial Shares on the Subscription Date. The Initial Shares will be subject to
repricing as described in Section 2.9 herein.
(b) The right of the Company to receive the Initial Shares
Investment Amount from the Investors, and the right of the Investors to receive
the Initial Shares and Warrants A and B (as set forth in Section 2.5) is subject
to the satisfaction on the Closing Date for the Initial Shares, of each of the
following conditions:
(i) acceptance by the Company, and by all of the
Investors, of this Agreement and all duly executed
Exhibits thereto by an authorized officer of the
Company;
(ii) delivery into escrow by the Investors of good
cleared funds as the Initial Shares Investment
Amount (as more fully set forth in the Escrow
Agreement attached hereto as Exhibit E);
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(iii) all representations and warranties of the
Investors and of the Company contained herein
shall remain true and correct in all material
respects as of the Subscription Date;
(iv) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Common Stock and both the Warrant
A and Warrant B, or shall have the availability of
exemptions therefrom;
(v) the sale and issuance of the Common Stock, both
the Warrant A and Warrant B, and the proposed
issuance of the Common Stock underlying both the
Warrant A and Warrants B shall be legally
permitted by all laws and regulations to which the
Investors and the Company are subject; and all
duly executed Exhibits hereto for the sale of the
Securities;
(vi) delivery of the original Initial Shares, Warrants
A and Warrants B as described herein;
(vii) receipt by the Investors of an opinion of counsel
of the Company as set forth in Exhibit F attached
hereto and instructions to the Transfer Agent as
set forth in Exhibit G annexed hereto; and
(viii)payment of all fees as set forth in Section 13.7
below and the Escrow Agreement.
(c) One half of the Initial Shares may be sold on the
Effective Date and the remaining Initial Shares may be sold at any time after
thirty (30) days after the Effective Date. However, in the event the Effective
Date is after the first anniversary of the Subscription Date, all of the Initial
Shares may be sold after the first anniversary of the Subscription Date.
Section 2.9 Repricing.
(a) First Repricing. Upon the earlier to occur of (i) the
Effective Date, or (ii) one year after the Subscription Date, (also referred to
as the "First Repricing Date") the Company agrees to issue that number of
additional shares of Common Stock (if any) resulting from the deficiency between
one-half of that number of Initial Shares (including those issued to the
Placement Agent) which would have been issued had the Reset Price on the
Effective Date been utilized and one half of the Initial Shares (including those
issued to the Placement Agent) actually issued on the Subscription Date. Such
shares shall be delivered within three (3) Trading Days after the Effective
Date, or three (3) Trading Days after the one year anniversary of the
Subscription Date.
(b) Second Repricing. Upon the thirtieth (30th) calendar day
after the First Repricing Date (the "Second Repricing Date"), the Company agrees
to issue that number of additional shares of Common Stock (if any) resulting
from the deficiency between one-half of that number of Initial Shares (including
those issued to the Placement Agent) which would have been issued had the Reset
Price on the Second Repricing Date been utilized and one-half of the Initial
Shares (including those issued to the Placement Agent) actually issued on the
Subscription Date. Such shares shall be delivered within three (3) Trading Days
after the Second Repricing Date.
12
(c) The Company agrees that in the event there is an
insufficient number of shares of Common Stock being registered in the
Registration Statement for the inclusion of the Repricing Shares, the Company
agrees to file and use its best efforts to cause to be effective, any amendment
necessary to the Registration Statement to include the Repricing Shares. The
Company shall only be required to issue Repricing Shares based upon that number
of shares of Common Stock beneficially held by the Investors and the Placement
Agent on each Repricing Date. In the event the Company is obligated to issue
Repricing Shares, as set forth above, but is unable to issue registered
Repricing Shares as set forth above, the Company agrees that it shall pay to the
Investors, and/or Placement Agent, the dollar value equal to the number of
Repricing Shares to be issued multiplied by the Bid Price on the applicable
Repricing Date. Such payment is to be made, if necessary, within three (3)
Trading Days after the applicable Repricing Date.
Section 2.10 Repurchase. In the event the Bid Price is less than One
Dollar and Fifty Cents ($1.50), the Company may repurchase any number of shares
of Common Stock and Preferred Stock then beneficially owned by the Investors
and/or Placement Agent in whole or in part (repurchased pro rata amongst the
Investors) issued pursuant to this Agreement (except the Put Shares) in cash at
one hundred ten (110%) percent of the Initial Shares Investment Amount (as
adjusted to reflect the issuance of Repricing Shares as set forth in Section 2.9
above), the Investment Amount, the First Tranche Investment Amount or the Second
Tranche Investment Amount, as applicable, (the "Repurchase Price"). Upon receipt
by the Investors and/or the Placement Agent of notice from the Company (the
"Repurchase Notice") of the exercise of its right to repurchase the
aforementioned shares of Common Stock held by the Investors (the "Repurchase
Date"), the Company shall wire transfer the appropriate amount of funds into an
escrow account mutually agreed upon by both the Company, the Investors and/or
the Placement Agent, within three (3) business days of the Repurchase Date. If
the Company has not, within three (3) business days after the Repurchase Date,
deposited into escrow the Repurchase Price for the benefit of the repurchasing
as set forth herein, the Company shall have waived its right to repurchase at
any time, and shall pay to the Investors and/or the Placement Agent, in
immediately available funds, liquidated damages in the amount of ten (10%)
percent of the Repurchase Price. In no event shall the Company (i) be allowed to
send a Repurchase Notice to the Investors and/or the Placement Agent within five
(5) days before a Repricing Date, or within five (5) days after any Repricing
Date, or (ii) be entitled to repurchase any Put Shares.
Section 2.11 Preferred Stock. The Company agrees to sell and the
Investors agree to purchase up to an aggregate principal amount of One Million
Two Hundred Thousand ($1,200,000) Dollars principal amount of Preferred Stock in
two separate tranches as set forth in (a) and (b) below. The number of shares of
Common Stock issuable upon conversion of the Preferred Stock shall be determined
by dividing $1,200,000 by the conversion formula contained in the Certificate of
Designation.
(a) First Tranche. The Investors shall purchase (pro rata)
an aggregate principal amount of Six Hundred Thousand ($600,000) Dollars (the
"First Tranche Investment Amount") principal amount of Preferred Stock, on the
thirtieth (30th) day following the effective date of a Registration Statement
covering the Underlying Shares, upon the satisfaction of the following
conditions:
13
(i) the Investors shall have received certification that the
Company has obtained shareholder approval for the Company's issuance
of more than twenty (20%) percent of its Common Stock in connection
with the transactions contemplated hereby;
(ii) delivery into escrow by the Company of an aggregate
principal amount of Six Hundred Thousand ($600,000) Dollars of
original Preferred Stock, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit F;
(iii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iv) the Investors shall have received a copy of the filed
Certificate of Designation, and any amendments thereto;
(v) the Investors shall have received written proof that the
Registration Statement (which includes all Underlying Shares) has
previously become effective and remains effective for at least
thirty days and is effective during the three Trading Days
immediately prior to the Closing Date for the first tranche, and (A)
neither the Company nor any of the Investors shall have received
notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed
and the Investors are reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (B) no other
suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(vi) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. To the knowledge of the Company, the sale and issuance of
the Preferred Stock shall be legally permitted by all laws and
regulations to which the Company is subject;
(vii) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the
first tranche of the Preferred Stock as though made at each such
time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including the
Closing Date for the first tranche of the Preferred Stock;
(viii) the Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement and all Exhibits hereto, the
Certificate of Designation, the Escrow Agreement, the Registration
Rights Agreement and the Warrants, to be performed, satisfied or
complied
14
with by the Company at or prior to the Closing Date for the first
tranche of the Preferred Stock;
(ix) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(x) since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(xi) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been
delisted from the Principal Market. The issuance of shares of Common
Stock with respect to the Closing for the first tranche of the
Preferred Stock shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have
been contacted by Nasdaq concerning the delisting of the Common
Stock on the Principal Market, and the Company currently meets all
listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the first tranche;
(xii) payment of fees as applicable as set forth in Section
13.7 below; and
(xiii) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have
been reasonably requested by the Investors in order for the
Investors to confirm the Company's satisfaction of the conditions
set forth in this Section, including, without limitation, a
certificate in substantially the form and substance of Exhibit C
hereto, executed in either case by an executive officer of the
Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
(b) Second Tranche. The Investors shall purchase (pro rata)
an aggregate principal amount of Six Hundred Thousand ($600,000) Dollars (the
"Second Tranche Investment Amount") principal amount of Preferred Stock, on the
ninetieth (90th) day following the effective date of a Registration Statement
covering the Underlying Shares, upon the satisfaction of the following
conditions:
(i) the Investors shall have received certification that the
Company has obtained shareholder approval for the Company's issuance
of more than twenty (20%) percent of its Common Stock in connection
with the transactions contemplated hereby;
15
(ii) delivery into escrow by the Company of an aggregate
principal amount of Six Hundred Thousand ($600,000) Dollars of
original Preferred Stock, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit F;
(iii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iv) the Investors shall have received certification from the
Company that the Certificate of Designation previously supplied to
the Investors on the Closing Date for the Initial Shares has not
been altered and remains in full force and effect.
(v) the Investors shall have received written proof that the
Registration Statement (which includes all Underlying Shares) has
previously become effective and remains effective for at least
ninety days and is effective during the three Trading Days
immediately prior to the Closing Date for the second tranche, and
(A) neither the Company nor any of the Investors shall have received
notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed
and the Investors are reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (B) no other
suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(vi) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. The sale and issuance of the Preferred Stock shall be
legally permitted by all laws and regulations to which the Company
is subject;
(vii) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the
second tranche of the Preferred Stock as though made at each such
time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including the
Closing Date for the second tranche of the Preferred Stock;
(viii) the Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants, to
be performed, satisfied or complied with by the Company at or prior
to the Closing Date for the second tranche of the Preferred Stock;
(ix) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental
16
authority of competent jurisdiction that prohibits or directly and
adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have
the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement;
(x) since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(xi) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been
delisted from the Principal Market. The issuance of shares of Common
Stock with respect to the Closing for the first tranche of the
Preferred Stock shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have
been contacted by the NASD concerning the delisting of the Common
Stock on the Principal Market, and the Company currently meets all
listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the second tranche;
(xii) payment of fees as set forth in Section 13.7 below; and
(xiii) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have
been reasonably requested by the Investors in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in
this Section, including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed
in either case by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been
satisfied as at the date of each such certificate.
In no event shall the Investors be obligated to purchase any shares
of Preferred Stock if a Registration Statement including the Underlying Shares,
is not declared effective prior to eighteen (18) months after the Subscription
Date. Notwithstanding Sections 2.11 (a) and (b) herein, the Company has the sole
option of terminating its obligations to issue the Preferred Stock in these
Sections, by giving written notice to the Placement Agent and each of the
Investors at any time prior to twenty (20) days after the effective date of a
Registration Statement covering the Underlying Shares. The Preferred Stock shall
be convertible pursuant to the terms and conditions of the Certificate of
Designation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors represent and warrant to the Company that:
Section 3.1 Intent. Each of the Investors are entering into this
Agreement for its own account and have no present arrangement (whether or not
legally binding) at any time to sell the
17
Common Stock to or through any person or entity; provided, however, that by
making the representations herein, the Investors do not agree to hold the Common
Stock for any minimum or other specific term and reserves the right to dispose
of the Common Stock at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2 Sophisticated Investor. Each of the Investors are
sophisticated investors (as described in Rule 506(b)(2)(ii) of Regulation D) and
accredited investors (as defined in Rule 501 of Regulation D), and the Investors
have such experience in business and financial matters that they are capable of
evaluating the merits and risks of an investment in the Securities. Each of the
Investors acknowledge that an investment in the Common Stock is speculative and
involves a high degree of risk. Each of the Investors has the ability to fund
the purchase of the Preferred Stock and the Put Shares.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by each of the Investors and is a valid and
binding agreement of the Investors enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors are
duly organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investors, or, to
the Investors knowledge, (a) violate any provision of any indenture, instrument
or agreement to which any of the Investors are a party or are subject, or by
which any of the Investors or any of their assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investors to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or to
which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the Investors
have received all documents, records, books and other information pertaining to
Investors investment in the Company that have been requested by Investors,
including the opportunity to ask questions and receive answers. The Company is
subject to the periodic reporting requirements of the Exchange Act, and each of
the Investors has reviewed or received copies of any such reports that have been
requested by it. Each of the Investors represents that it has reviewed the
Company's, (i) Form
18
10-K for the year ended December 31, 1996, (ii) Form 10-K for the year ended
December 31, 1997, including the amendment thereto, filed on or about Xxxxx 00,
0000, (xxx) Form 10-Q's filed for the previous twelve months, and (iv)
prospectus' dated October 22, 1997.
Section 3.8 Manner of Sale. At no time were any of the Investors presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the
Investors further acknowledge and understand that the Securities may not be
transferred, resold or otherwise disposed of except in a transaction registered
under the Securities Act and any applicable state securities laws, or unless an
exemption from such registration is available. Each of the Investors understands
that the certificate(s) evidencing these Securities will be imprinted with a
legend that prohibits the transfer of these Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
Section 3.10 No Legal, Tax or Investment Advice. Each of the
Investors understands that nothing in this Agreement or any other materials
presented to the Investors in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. The Investors have
relied on, and has consulted with, such legal, tax and investment advisors as
it, in their sole discretion, have deemed necessary or appropriate in connection
with its purchase of the Securities.
Section 3.11 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors and the
Placement Agent that:
Section 4.1 Organization of the Company. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted except as
described in the SEC Documents. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not reasonably be expected to have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and, subject to Shareholder approval in
regards to the issuance by the
19
Company of more than 20% of the outstanding shares of Common Stock, perform its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation, and both Warrants A and B and to
issue the Common Stock issued to the Placement Agent, the Initial Shares,
Underlying Shares, Additional Shares, Put Shares, Repricing Shares, Preferred
Stock, both Warrants A and B and the Warrant Shares, (ii) the execution,
issuance and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Certificate of Designation, the Preferred Stock, and both
Warrants A and B by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and, other than the approval by the Company's Shareholders in regards to the
issuance by the Company of more than 20% of the outstanding shares of Common
Stock at a discount, no further consent or authorization of the Company or its
Board of Directors, and (iii) this Agreement, the Registration Rights Agreement,
the Escrow Agreement, the Certificate of Designation, the Preferred Stock, and
both Warrants A and B have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 Capitalization. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, par value $0.0001, of
which 4,082,676 shares are issued and outstanding, and 5,000,000 shares of
Preferred Stock, par value $0.0001, none of which are issued and outstanding.
Except as set forth in the SEC Documents, there are no outstanding Capital
Shares Equivalents. All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable.
Section 4.4 Common Stock. The Company has registered its Common
Stock pursuant to Section 12(b) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq Small Cap
Stock Market.
Section 4.5. SEC Documents. The Company has delivered or made
available to the Investors true and complete copies of the SEC Documents filed
by the Company with the SEC during the twelve (12) months immediately preceding
the Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the
20
SEC Documents comply as to form in all material respects with applicable
accounting requirements 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 generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, the Common Stock issued to the Placement Agent, the Initial Shares,
the Put Shares, the Additional Shares, the Repricing Shares, the Preferred
Stock, the Underlying Shares, the Warrant A, the Warrant B, and the Warrant
Shares will be duly and validly issued, fully paid, and nonassessable. Neither
the issuance of Common Stock and Warrants to the Placement Agent, nor the sales
of the Initial Shares, the Additional Shares, the Put Shares, the Repricing
Shares, the Preferred Stock, the Underlying Shares, the Warrant A, the Warrant
B, or the Warrant Shares, pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation, or Warrants A and B will (i) result
in the creation or imposition by the Company of any liens, charges, claims or
other encumbrances upon the Common Stock issued to the Placement Agent, the
Initial Shares, the Additional Shares, the Put Shares, the Repricing Shares, the
Preferred Stock, the Underlying Shares, the Warrant Shares or any of the assets
of the Company, or (ii) entitle the holders of Outstanding Capital Shares to
preemptive or other rights to subscribe to or acquire the Capital Shares or
other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Initial Shares, Put Shares,
the Additional Shares, the Repricing Shares, the Preferred Stock, the Underlying
Shares, the Warrants A and B, or the Warrant Shares, or (ii) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock issued to the
Placement Agent, the Initial Shares, the Additional Shares, the Put Shares, the
Repricing Shares, the Preferred Stock, the Underlying Shares, the Warrants A and
B, or the Warrant Shares under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to each of the Investors true and correct copies of the Company's
Articles of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated
21
hereby, including without limitation the issuance of the Common Stock, Preferred
Stock, and Warrants A and B, do not and will not (i) result in a violation of
the Company's Articles of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party (with the caveat contained in the
Schedule attached hereto), or (iii) result in a violation of any federal, state
or local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect), nor is the Company otherwise in violation
of, conflict with or in default under any of the foregoing as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate would not reasonably
be expected to have a Material Adverse Effect. the Company is not required under
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 Common Stock, Preferred
Stock, or Warrants A and B, in accordance with the terms hereof (other than any
SEC, NASD, Nasdaq or state securities filings that may be required to be made by
the Company before or subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq Small Cap
Market, including the Nasdaq Small Cap notification form listing the additional
shares of Common Stock issuable hereunder, which the Company shall file with the
Nasdaq Stock Market promptly after the Subscription Date,); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
Section 4.10 No Material Adverse Change. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
and are not disclosed in the SEC Documents or otherwise publicly announced,
other than those set forth in the Company's financial statements or as incurred
in the ordinary course of the Company's businesses since December 31, 1997, and
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December
31, 1997, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or
22
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed in the
SEC Documents.
Section 4.13 No Integrated Offering. To the Company's knowledge,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, other than pursuant to
this Agreement, under circumstances that would require registration of the
Common Stock under the Securities Act, except as set forth in the SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material
Adverse Effect.
Section 4.15 Restrictions On Future Financings. The Company
represents that, unless it obtains the written approval of all of the Investors
(which approval will not be unreasonably withheld), the Company will not enter
into any other equity financing agreement, or arrangement, that would: (a) cause
the Common Stock issued in such financing to be salable and freely tradeable
before sixty (60) days from the last Repricing Date, or (b) affect the
timeliness of the Registration Statement being declared effective.
Notwithstanding the aforementioned, the Company may issue warrants to purchase
two hundred fifty thousand (250,000) shares of Common Stock to AJC Equities
which are exercisable at any time commencing six months after the date they are
issued at an exercise price of Two ($2.00) Dollars per share of Common Share.
ARTICLE V
COVENANTS OF THE INVESTORS
Section 5.1 Compliance with Law. Each of the Investor's trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed.
Section 5.2 Agreement To Vote. For so long as the Company has not
committed a material breach of this Agreement and the Exhibits annexed hereto,
and this Agreement has not been terminated, the Investors agree to vote all
shares of Common Stock beneficially held by them in favor of all nominees to the
Company's board of directors who are nominated by the then current Board of
Directors of the Company.
23
Section 5.3 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
Section 5.4 4.95% Limitation. The number of shares of Common Stock
required to be purchased by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any of the Investors beneficially
or deemed beneficially owned by any of the Investors, would result in any of the
Investors owning more than 4.95% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule 13d-3 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section, in the event that the amount of Common Stock outstanding as
determined in accordance with Rule 13d-3 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
any Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether any of the Investors, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares, would own more than
4.95% of the Common Stock following such Closing. However, the foregoing
limitation shall not apply in the event their is a forced conversion of the
Preferred Stock pursuant to the terms set forth in the Certificate of
Designation.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as any
Registrable Securities remain outstanding and the Company shall comply in all
material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof,
the Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the
Additional Shares, the Repricing Shares, the Underlying Shares, the Put Shares
and the Warrant Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price therefor under the
terms of this Agreement, the Certificate of Designation, the Warrant A, and the
Warrant B. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder and the number of shares so reserved shall
be increased or decreased to reflect potential increases or decreases in the
Common Stock that the Company may thereafter be so obligated to issue by reason
of adjustments to the Preferred Stock, the Warrants A and the Warrant B.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
use its best efforts to maintain the listing of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the commencement
of the Commitment Period) to list the
24
Common Stock issued to the Placement Agent, the Initial Shares, the Additional
Shares, the Put Shares, the Repricing Shares, the Underlying Shares, and the
Warrant Shares. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Principal Market, it will include in such
application the Common Stock issued to the Placement Agent, the Initial Shares,
the Put Shares, the Additional Shares, the Repricing Shares, the Underlying
Shares, and the Warrant Shares, and will take such other action as is reasonably
necessary or desirable in the opinion of the Investors to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will use its best efforts to comply with the listing and trading of its Common
Stock on the Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. In the event the Company receives notification from Nasdaq
concerning delisting of the Common Stock on the Principal Market, the Company
will use its best efforts to comply with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, and will not take any action or file any document (whether or
not permitted by Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to
be sold by the Investors pursuant to Section 9.1 shall be free of legends,
except as set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put, or to have a Closing For the Preferred Stock.
The Company will immediately notify each of the Investors upon the occurrence of
any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities: (i) receipt of
any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in 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
25
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investors any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investors any Put Notice during the
continuation of any of the foregoing events, nor shall a Closing for either the
first or second tranche of Preferred Stock occur during the continuation of any
of the foregoing events.
Section 6.8 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
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of Put Shares, Underlying Shares, and Warrant
Shares. The sale of the Put Shares and the issuance of the Underlying Shares and
the Warrant Shares pursuant to exercise of Warrants A and B, and the conversion
of the Preferred Stock, shall be made in accordance with the provisions and
requirements of Section 4(2) of Regulation D and any applicable state securities
law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, and upon the Closings
for (i) Preferred Stock as set forth in Section 2.11, and (ii) Put Shares as set
forth in Section 7.2 (m) below, an opinion in the form of Exhibit F annexed
hereto.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock Associated With A Put. The obligation hereunder of
the Company to issue and sell the Put Shares to the Investors incident to each
Closing (for Put Shares) is subject to the satisfaction, at or before each such
Closing, of each of the conditions set forth below.
(a) Accuracy of each of the Investors Representation and
Warranties. The representations and warranties of each of the Investors shall be
true and correct in all material respects as of the date of this Agreement and
as of the date of each such Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by
26
this Agreement to be performed, satisfied or complied with by the Investors at
or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to
Deliver a Put Notice and the Obligation of the Investors to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of the
Investors hereunder to acquire and pay for the Put Shares incident to a Closing
(for Put Shares) is subject to the satisfaction, on (i) the date of delivery of
such Put Notice and (ii) the applicable Closing Date for each Put (each a
"Condition Satisfaction Date"), of the conditions in Section 2.1, 2.2, 2.3
above, and each of the following conditions:
(a) Registration of the Common Stock with the SEC. The
Company shall have filed with the SEC a Registration Statement with respect to
the resale of that number of Put Shares indicated in the applicable Put Notice
in accordance with the terms of the Registration Rights Agreement. As set forth
in the Registration Rights Agreement and herein, the Registration Statement
(including all Put Shares in the Put Notice) shall have previously become
effective and shall remain effective during at least the three (3) Trading Days
immediately preceding each Condition Satisfaction Date and each Put Date, and
(i) neither the Company nor any of the Investors shall have received notice that
the SEC has issued or intends to issue a stop order with respect to the
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of the Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and each of the Investors are reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist.
(b) Authority. The Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the Put
Shares, or shall have the availability of exemptions therefrom. The sale and
issuance of the Put Shares shall be legally permitted by all laws and
regulations to which the Company is subject.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company in this Agreement
and all Exhibits attached hereto shall be true and correct in all material
respects as of each Condition Satisfaction Date as though made at each such time
(except for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and circumstances
occurring or existing to and including each Condition Satisfaction Date, except
for any conditions which have temporarily caused any representations or
warranties herein to be incorrect and which have been corrected with no
continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Certificate of Designation, the Warrants A
and Warrants B to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
27
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement or any of the Exhibits annexed
hereto, and no proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by this
Agreement or any of the Exhibits annexed hereto.
(f) Adverse Changes. The Company shall certify in writing
that since the date of filing of the Company's most recent SEC Document, no
event that had or is reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock (including, without limitation, the Put
Shares) is not suspended by the SEC or the Principal Market, and the Common
Stock (including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice from Nasdaq
concerning delisting of the Common Stock on the Principal Market, and the
Company currently meets all listing requirements during the thirty (30) day
period immediately preceding any Closing Date for a Put.
(h) 4.95% Percent Limitation. On each Closing Date for the
Put Shares, the number of Put Shares then to be purchased by any of the
Investors shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any of the Investors beneficially
or deemed beneficially owned by any of the Investors, would result in any of the
Investors owning more than 4.95% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule 13d-3 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 7.2(h), in the event that the amount of Common Stock outstanding as
determined in accordance with Rule 13d-3 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether any of the Investors, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares, would own more than
4.95% of the Common Stock following such Closing.
(i) Minimum Bid Price. The Bid Price equals or exceeds the
Floor Price on the Trading Day immediately preceding the completion of all the
conditions set forth in this Section (as adjusted for stock splits, stock
dividends, reverse stock splits, and similar events);
(j) Minimum Average Trading Volume. The average trading
volume for the Common Stock over the previous thirty (30) calendar days exceeds
20,000 shares per Trading Day.
28
(k) No Knowledge. The Company has no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
(including all Put Shares in the Put Notice) to be suspended or otherwise
ineffective (which event is more likely than not to occur within the ten Trading
Days following the Trading Day on which such Notice is deemed delivered).
(l) Trading Cushion. The Trading Cushion shall have elapsed
since the next preceding Put Date.
(m) Legal Opinion. The Investors shall receive an opinion
from counsel to the Company substantially in the form of Exhibit F annexed
hereto on each Closing for Put Shares.
(n) Other. On each Condition Satisfaction Date, the
Investors shall have received from the Company and been reasonably satisfied
with such other certificates and documents as shall have been reasonably
requested by the Investors in order for the Investors to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2, including, without
limitation, a certificate in substantially the form and substance of Exhibit D
hereto, executed in either case by an executive officer of the Company and to
the effect that all the conditions to such Closing shall have been satisfied as
at the date of each such certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available
for inspection and review by the Investors, advisors to and representatives of
the Investors (who may or may not be affiliated with the Investors and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investors pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by any of the
Investors or any such representative, advisor or underwriter in connection with
such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to
the Investors, advisors to, or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each
29
Investor, and its advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require each of
the Investors advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to any of the Investors or their advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section shall be construed to mean that such persons or entities other
than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION
30
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT
IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF
THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE
COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF CREDIT AGREEMENT DATED
AS OF MAY 14, 1998. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to
the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit G hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor(s) confirm to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor(s)
confirm to the transfer agent that the Investor(s) have complied with the
prospectus delivery requirement. The requirement set forth in subsection
9.1(a)(ii) shall only apply in the event the Company registers the Common Stock
pursuant to a Form S-3 registration statement pursuant to the Registration
Rights Agreement. In the event the Company registers the Common Stock by means
of a registration statement other then a Form S-3 registration statement, than
only the conditions in subsection 9.1(a)(i) and 9.1(a)(iii) herein shall apply.
(b) at any time upon any surrender of one or more
certificates evidencing Registrable Securities that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered and containing representations that
(i) the Investor(s) is permitted to dispose of such Registrable Securities
without limitation as to amount or manner of sale pursuant to Rule 144(k) under
the Securities Act or (ii) the Investor(s) has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities in a manner other than pursuant to an effective
31
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities.
Any of the notices referred to above in this Section 9.1 may be sent
by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 9.1 has been or shall be placed
on the share certificates representing the Common Stock, and no instructions or
"stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article shall
affect in any way any of the Investors obligations under any agreement to comply
with all applicable securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW
Section 10.1 Choice of Law; Venue; Jurisdiction. This Agreement
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York or the state courts of the State of New York
sitting in Manhattan in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. Each party hereby agrees that if another
party to this Agreement obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law. Each party waives its right to a trial by jury.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Common Stock and Preferred Stock (except any transferee (i) who was a purchaser
on the open market, or pursuant to Rule 144, or (ii) who is an owner of less
than ten (10%) percent of the original number of shares of Common Stock issued
hereunder) purchased or acquired by the Investors hereunder with respect to the
Common
32
Stock and Preferred Stock held by such person, and upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any affiliate of the Investors who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the covenants of Article V.
Section 11.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; (ii) the date the
Investors receive an opinion from counsel to the Company that all of the
Registrable Securities may be sold under the provisions of Rule 144; or (iii)
five and one-half year after the commencement of the Commitment Period;
provided, however, that the provisions of Articles III, IV, V, VI (as long as
the Securities are beneficially owned by any of the Investors or the Placement
Agent, or their permitted assigns), VIII, IX, X, XI, and XII, herein, and the
registration rights provisions for the Registrable Securities held by the
Investors and the Placement Agent set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this Agreement.
ARTICLE XII
NOTICES
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable 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 ObjectSoft Corporation:
Xxxxx Xxxxx, President
Continental Plaza III
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
33
With a copy to: Xxxxxx Xxxxxxxx, Esq.
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investors at the addresses set forth on Schedule A
attached hereto.
with a copy to:
(shall not constitute notice) Xxxxx X. Xxxxxxxxx, Esq.
Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 12.2 Indemnification. The Company agrees to indemnify and
hold harmless each of the Investors and each officer, director of the Investors
or person, if any, who controls the Investor within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Investors may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
Each Investor agrees that it will indemnify and hold harmless the
Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be
34
made against the indemnifying party under this Section, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than as to the particular
item as to which indemnification is then being sought solely pursuant to this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is one of the Investors, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investor and the indemnifying
party and the Investor shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Investors (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Investors, it being understood, however, that
the indemnifying party shall, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Investor(s), which firm shall be designated in writing by the Investor(s)). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 12.3 Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 12.2
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 12.2 hereof provide for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
indemnified party, then the Company and the applicable Investor shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions
35
in respect thereof) referred to above in Section 12.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent representation.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and a majority of the Investors, and
the Placement Agent, on the other hand, or the Company on the one hand, and all
of the Investors on the other hand.
Section 13.2 Entire Agreement. This Agreement, the Exhibits or
Attachments hereto, which include, but are not limited to the Certificate of
Designation, Warrant A and B, the Escrow Agreement, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Attachments to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 13.3 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
36
Section 13.6 Replacement of Certificates. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of a certificate representing the Put Shares and (ii) in the case
of any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay on the Closing Date for the Initial
Shares, (i) to the Placement Agent, (a) five (5%) percent of the Initial Shares
Investment Amount in cash, (b) 20,000 shares of Common Stock (which are to be
included in the definition of "Registrable Securities" above), (c) four (4%)
percent of the number of shares of Common Stock issued to the Investors on such
Closing Date, and (d) a Warrant A to purchase 9,000 shares of Common Stock, and
(ii) to Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP, Twenty Thousand ($20,000) Dollars in
cash. The Company also agrees to pay, on the Closing for both the first tranche,
and second tranche of Preferred Stock, (i) to the Placement Agent (a) three (3%)
percent of the First Tranche Investment Amount, and/or the Second Tranche
Investment Amount, as applicable, in cash, and (b) four (4%) percent of the
number of shares of Preferred Stock issued to the Investors on the Closing for
the first tranche and/or the second tranche, as applicable, and (ii) to
Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP, for legal and escrow expenses, the lesser of
one-half of one (0.5%) percent of the gross proceeds, or Five Thousand ($5,000)
Dollars, for each the first tranche and second tranche Closing. In addition to
the fees set forth above, the Company also agrees to pay the following upon the
Closing for each Put (i) to the Placement Agent, six (6%) percent of the gross
proceeds in cash, , and (ii) to Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP, for legal and
escrow expenses, the lesser of one-half of one (0.5%) percent of the gross
proceeds, or Five Thousand ($5,000) Dollars per Closing of Put Shares.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
37
IN WITNESS WHEREOF, the parties hereto have caused this Private
Equity Line of Credit Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
OBJECTSOFT CORPORATION
By /s/ Xxxxx X.X. Xxxxx
----------------------------
Xxxxx X.X. Xxxxx,
President
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By /s/ Xxxxxxx X.X. Xxxxx Xxxxx
----------------------------
Xxxxxxx X.X. Xxxxx Xxxxx
AVALON CAPITAL, INC.
By /s/ Xxxxx Xxxxxxx
----------------------------
Xxxxx Xxxxxxx
AUSTOST ANSTALT XXXXXX
By /s/ Xxxxxx Xxxxx
----------------------------
Xxxxxx Xxxxx
BALMORE FUNDS S.A.
By /s/ Francois Morax
----------------------------
Francois Morax
38
