EXHIBIT 4.15
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
November 21, 2001 by and between On2 Technologies, Inc., a Delaware corporation
(the "Company"), and Crossover Ventures, Inc. (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS.
(a) "AVERAGE DAILY PRICE" shall be the price based on the VWAP
of the Company on the Principal Market.
(b) "DRAW DOWN" shall have the meaning assigned to such term
in Section 6.1(a) hereof.
(c) "DRAW DOWN PRICING PERIOD" shall mean a period of twenty
(20) consecutive Trading Days beginning on the date specified in the
Draw Down Notice (as defined in Section 6.1(e) hereof); PROVIDED,
HOWEVER, the Draw Down Pricing Period shall not begin before the day on
which such notice is received in accordance with Section 9.4 hereof.
(d) "EFFECTIVE DATE" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for
hereby is declared effective by the Securities and Exchange Commission
(the "SEC").
(e) "GAAP" shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are
determined by the Financial Accounting Standards Board.
(f) "INVESTMENT AMOUNT" shall have the meaning assigned to
such term in Section 6.1(e) hereof.
(g) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on
the business, operations, properties, or financial condition of the
Company that is material and adverse to the Company and its
subsidiaries, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with
the ability of the Company to perform any of its material obligations
under this Agreement or the Registration Rights Agreement or to perform
its obligations under any other Material Agreement.
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(g) "PRINCIPAL MARKET" shall mean initially the American Stock
Exchange and shall include the Nasdaq National Market, Nasdaq Small-Cap
Market, and the New York Stock Exchange if the Company becomes listed
and trades on such market or exchange after the date hereof. Principal
Market shall not include the OTC Bulletin Board without the written
consent of the Purchaser.
(h) "PURCHASE PRICE" shall mean with respect to Shares
purchased during each applicable Settlement Period (not including the
Stock):
(i) 90% of the Average Daily Price on the date in
question if the average VWAP during the 10 consecutive Trading
Days immediately prior to the applicable Settlement Period is
less than $2.43; and
(ii) 94% of the Average Daily Price on the date in
question if the average VWAP during the 10 consecutive Trading
Days immediately prior to the applicable Settlement Period is
equal to or greater than $2.43;
PROVIDED, HOWEVER, as to any Draw Downs in connection with a Special Activity
declared solely by the Company, the corresponding Purchase Price percentage
shall be reduced by an additional 3%.
(i) "REGISTRATION STATEMENT" shall mean the registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), to be filed with the Securities and Exchange Commission for the
registration of the Shares pursuant to the Registration Rights
Agreement attached hereto as EXHIBIT A (the "Registration Rights
Agreement").
(j) "SEC DOCUMENTS" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K
filed thereafter, and the Proxy Statement for its most recent annual
meeting of shareholders 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.
(k) "SETTLEMENT PERIOD" shall have the meaning assigned to
such term in Section 6.1(b).
(l) "SHARES" shall mean, collectively, the shares of Common
Stock of the Company being subscribed for hereunder and the Stock.
(m) "SPECIAL ACTIVITY" shall mean any one time charge the
Company expects to incur for any reason, including, without limitation,
in connection with the acquisition of another business, as determined
solely by the Company.
(n) "STOCK" shall have the meaning ascribed to such term in
Section 5.2(f).
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(o) "THRESHOLD PRICE" shall mean the price per share
designated by the Company as the lowest Average Daily Price during any
Draw Down Pricing Period at which the Company will sell its Common
Stock in accordance with Article VI hereof.
(p) "TRADING DAY" shall mean any day on which the Principal
Market is open for business.
(q) "VWAP" shall mean the daily volume weighted average price
of the Company's Common Stock on the Principal Market as reported by
Bloomberg Financial L.P. or any successor thereto, and if Bloomberg is
no longer available, any comparable nationwide subscribed financial
reporting service (based on a trading day from 9:30 am ET to 4:00 pm
ET) using the VAP function on the date in question.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1. PURCHASE AND SALE OF SHARES AND STOCK. Subject to the
terms and conditions of this Agreement, the Company may sell and issue to the
Purchaser and the Purchaser shall be obligated to purchase from the Company up
to an aggregate amount of twenty-three million dollars ($23,000,000) of the
Company's Common Stock (the "Commitment Amount"), $0.01 par value per share (the
"Common Stock"), and the Stock. Notwithstanding anything to the contrary herein,
the Commitment Amount shall be increased to $40,000,000 if after the first
anniversary of the Initial Closing Date (i) the average VWAP during any 10
consecutive Trading Days is equal to or greater than ten dollars ($10) (the "$10
Period"), and (ii) the average trading volume of the Common Stock during any
twenty (20) consecutive Trading Days (which period must include a $10 Period)
equals or exceeds 100,000 shares.
Section 2.2. THE SHARES. The Company covenants to have authorized and
reserved, free of preemptive rights and other similar contractual rights of
stockholders (other than those set forth on Schedule 2.2), a sufficient number
of its shares, computed at the time of the applicable Draw Down, of its Common
Stock to cover the Shares to be issued in connection with all Draw Downs
requested under this Agreement and at the Initial Closing. Anything in this
Agreement to the contrary notwithstanding, (i) at no time will the Company
request a Draw Down which would result in the issuance to the Purchaser of an
aggregate number of shares of Common Stock which exceeds 19.9% of the number of
shares of Common Stock issued and outstanding on the Initial Closing Date
without obtaining stockholder approval of such excess issuance, unless otherwise
permitted by the Principal Market, and (ii) the Company may not make a Draw Down
to the extent that, after such purchase by the Purchaser, the sum of the number
of shares of Common Stock beneficially owned by the Purchaser and its affiliates
would result in beneficial ownership by the Purchaser and its affiliates of more
than 9.9% of the then outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act").
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Section 2.3. PURCHASE PRICE AND INITIAL CLOSING. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the shares of Common
Stock to be issued in connection with each Draw Down at the applicable Purchase
Price. The delivery of executed documents under this Agreement and the other
agreements referred to herein and the payment of the fees set forth in Article
II of the Escrow Agreement, attached as EXHIBIT B hereto (the "Initial
Closing"), shall take place at the offices of Xxxxxxx & Associates, P.C., 00
Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 (i) within five (5) days from
the date hereof, or (ii) such other time and place or on such date as the
Purchaser and the Company may agree upon (the "Initial Closing Date"). Each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Initial
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate
authority to own, lease and operate its properties and assets and to
carry on its business as now being conducted. The Company does not have
any subsidiaries and does not own more than fifty percent (50%) of or
control any other business entity except as set forth in the SEC
Documents. The Company is duly qualified to do business and is in good
standing as a foreign corporation in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to
qualify would not have a Material Adverse Effect.
(b) AUTHORIZATION, ENFORCEMENT. (i) The Company has the
requisite corporate power and corporate authority to enter into and
perform its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement and to issue the Draw Down Shares
pursuant to their respective terms, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Escrow
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of
the Company or its Board of Directors or stockholders is required, and
(iii) this Agreement, the Registration Rights Agreement and the Escrow
Agreement have been duly executed and delivered by the Company and at
the Initial Closing shall constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
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conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly
and validly authorized and reserved for issuance shares of Common Stock
sufficient in number for the issuance of the Shares.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock of which
___________ shares are issued and outstanding and 20,000,000 shares of
preferred stock, par value $0.01 per share, of which 400,000 shares of
Series A Preferred Stock are issued and outstanding, 34,100 shares of
Series B Preferred Stock are issued and outstanding, 1,644,304 shares
of Series C Preferred Stock are issued and outstanding, 924,527 shares
of Series C-II Preferred Stock are issued and outstanding, 2,049,839
shares of Series C-III Preferred Stock, 3,571,429 shares of Series C-VI
Preferred Stock.. On January 19, 2001, the Company entered into a
Deferred Pricing Agreement with The Travelers Indemnity Company
("Travelers"), pursuant to which, upon the earlier of (i) a change of
control or (ii) December 31, 2001, the Company will (A) cancel
Travelers' existing 1,644,304 shares of Series C Preferred Stock and in
its place issue 1,849,057 shares of Series C-IV Preferred Stock and
4,099,678 shares of Series C-V Preferred Stock, and (B) cancel
Travelers' existing warrants to purchase 205,538 shares of common stock
at an exercise price of $8.69 per share and warrants to purchase
205,538 shares of common stock at an exercise price of $10.86 per
share, and in their place issue warrants to purchase 462,264 shares of
common stock with an exercise price of $2.65 and warrants to purchase
1,024,920 shares of common stock with an exercise price of $1.14. All
of the outstanding shares of the Company's Common Stock have been duly
and validly authorized and are fully paid and non-assessable, except as
set forth in the SEC Documents. Except as set forth in this Agreement
and the Registration Rights Agreement and as set forth in the SEC
Documents, or on SCHEDULE 3.1(C) hereto, no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrant, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and as set forth in
the SEC Documents or on SCHEDULE 3.1(C), there are no contracts,
commitments, understandings, or arrangements by which the Company is or
may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of
capital stock of the Company. Except as set forth on SCHEDULE 3.1(C),
the Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt
securities. Except as set forth on SCHEDULE 3.1(C), the Company is not
a party to, and it has no knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of the Company.
Except as set forth in the SEC Documents or on SCHEDULE 3.1(C) hereto,
the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Initial
Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect
thereto which would have a Material Adverse Effect on the Company's
financial condition or operating results. The Company has made
available to the Purchaser true and correct copies of the Company's
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articles or certificate of incorporation as in effect on the date
hereof (the "Charter"), and the Company's bylaws as in effect on the
date hereof (the "Bylaws"). The Company has not received any notice
from the Principal Market questioning or threatening the continued
inclusion of the Common Stock on such market.
(d) ISSUANCE OF SHARES. The Shares to be issued under this
Agreement, when paid for and issued in accordance with the terms
hereof, shall be duly authorized by all necessary corporate action and
shall be validly issued and outstanding, fully paid and non-assessable,
and the Purchaser shall be entitled to all rights accorded to a holder
of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of
the transactions contemplated herein do not and will not (i) violate
any provision of the Company's Charter or Bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party,
(iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company
is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) except with respect
to the permissibility of private equity lines of credit under the
Securities Act, result in a violation of any federal, state, or local
statute, rule, regulation, order, judgment or decree (including any
federal or state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually
or in the aggregate, have a Material Adverse Effect. To the knowledge
of the Company, the business of the Company and its subsidiaries is not
being conducted in violation of any laws, ordinances or regulations of
any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under any federal, state or
local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, or issue and sell the Shares
in accordance with the terms hereof (other than any filings which may
be required to be made by the Company with the SEC or state securities
administrators and any registration statement which may be filed
pursuant hereto); provided that, for purpose of the representation made
in this sentence, the Company is assuming and relying upon the accuracy
of the relevant representations and agreements of the Purchaser herein.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Exchange
Act, and, except as disclosed in the SEC Documents or on SCHEDULE
3.1(F) hereto, the Company has timely
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filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred to
herein as the "SEC Documents"). The Company has delivered or made
available to the Purchaser true and complete copies of the SEC
Documents filed with the SEC since June 16, 1999. The Company has not
provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly
by the Company but which has not been so disclosed, other than with
respect to the transactions contemplated by this Agreement. As of their
respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities
Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with
applicable accounting requirements under GAAP and the published rules
and regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may
be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) SUBSIDIARIES. The SEC Documents or Schedule 3.1(g) hereto
sets forth each subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of the
Company's ownership of the outstanding stock or other interests of such
subsidiary. For the purposes of this Agreement, "subsidiary" shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interests having ordinary voting power
(absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or
binding upon any subsidiary for the purchase or acquisition of any
shares of capital stock of any subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor
any subsidiary is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of the capital
stock of any subsidiary or any convertible securities, rights, warrants
or options of
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the type described in the preceding sentence. Neither the Company nor
any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock
of any subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since the date of the
financial statement contained in the most recently filed Form 10-Q or
Form 10-K, whichever is most current, no Material Adverse Effect has
occurred or exists with respect to the Company, except as disclosed in
the SEC Documents or on SCHEDULE 3.1(H) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the SEC
Documents or on SCHEDULE 3.1(I) hereto, neither the Company nor any of
its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) that would be required to be
disclosed on a balance sheet of the Company or any subsidiary
(including the notes thereto) in conformity with GAAP which are not
disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its subsidiaries' respective
businesses since such date and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the date of
the financial statement contained in the most recently filed Form 10-Q
or Form 10-K, whichever is most current, no event or circumstance has
occurred or exists with respect to the Company or its businesses,
properties, operations or financial condition, that, under applicable
law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
(k) INDEBTEDNESS. The SEC Documents or SCHEDULE 3.1(K) hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company
or any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (A) any liabilities for borrowed money or
amounts owed in excess of $250,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (C) the
present value of any lease payments in excess of $250,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in material default with respect to any
Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property
reflected in the SEC Documents, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for
those indicated in the SEC Documents or on SCHEDULE 3.1(1)
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hereto or such that do not cause a Material Adverse Effect. All said
leases of the Company and each of its subsidiaries are valid and
subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary which
questions the validity of this Agreement or the transactions
contemplated hereby or any action taken or to be taken pursuant hereto
or thereto. Except as set forth in the SEC Documents or on SCHEDULE
3.1(M) hereto, there is no material action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened,
against or involving the Company, any subsidiary or any of their
respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary.
(n) COMPLIANCE WITH LAW. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for
the conduct of their respective businesses as now being conducted by
them unless the failure to possess such franchises, permits, licenses,
consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(o) TAXES. The Company and each subsidiary has filed all
material Tax Returns which it is required to file under applicable
laws; all such Tax Returns are true and accurate in all material
respects and have been prepared in compliance with all applicable laws;
the Company has paid all material Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authorities all material Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other
third parties; and since December 31, 2000, the charges, accruals and
reserves for material Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the
Company are adequate to cover any Tax liabilities of the Company if its
current tax year were treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any
subsidiary is or may be subject to taxation by that jurisdiction. To
the knowledge of the Company, there are no foreign, federal, state or
local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other
review has been received by the Company or any subsidiary from any
foreign, federal, state or local taxing authority. The Company (A) has
not executed or entered into a closing agreement pursuant to Section
7121 of the Internal Revenue Code or any predecessor provision thereof
or any similar provision of state, local or foreign law; and
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(B) has not agreed to or is required to make any adjustments pursuant
to Section 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with any
taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Internal Revenue Code.
The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or
foreign law), (B) as a transferee or successor, (C) by contract or
indemnity or (D) otherwise. The Company is not a party to any tax
sharing agreement. The Company has not made any payments, is not
obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(p) CERTAIN FEES. No brokers, finders or financial advisory
fees or commissions will be payable by the Company or any subsidiary
with respect to the transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchaser by or on behalf
of the Company or any subsidiary by an authorized officer of the
Company or such subsidiary in connection with the transactions
contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not
misleading.
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(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks,
trade names, copyrights, licenses and authorizations as set forth in
the SEC Documents or on SCHEDULE 3.1(R) hereto, and all rights with
respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict to the knowledge of the
Company with the rights of others.
(s) INSURANCE. Except as disclosed in the SEC Documents or on
Schedule 3.1(s) hereto, the Company carries or will have the benefit of
insurance in such amounts and covering such risks as is adequate for
the conduct of its business and the value of its properties.
(t) BOOKS AND RECORDS. To the knowledge of the Company, the
records and documents of the Company and its subsidiaries accurately
reflect in all material respects the information relating to the
business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving
rise to the obligations or accounts receivable of the Company or any
subsidiary.
(u) MATERIAL AGREEMENTS. Except as set forth in the SEC
Documents, or on SCHEDULE 3.1(U) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, a copy of which
would be required to be filed with the SEC as an exhibit to a
registration statement on Form S-1 or other applicable form
(collectively, "Material Agreements") if the Company or any subsidiary
were registering securities under the Securities Act. Except as set
forth on Schedule 3.1(u), the Company and each of its subsidiaries has
in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received
no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result
of which could cause a Material Adverse Effect. Except as set forth in
the SEC Documents or SCHEDULE 3.1(U), no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of
dividends on the Company's Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the
SEC Documents or on SCHEDULE 3.1(V) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $250,000
between (A) the Company, any subsidiaries or, to the Company's
knowledge, any of their respective material customers or suppliers on
the one hand, and (B) on the other hand, any officer, employee,
consultant or director of the Company, or any of its subsidiaries, or,
to the Company's knowledge, any person owning 5% or more of the capital
stock of the Company or any subsidiary or, to the Company's knowledge,
any member of the immediate family of such officer, employee,
consultant, director, stockholder or, to the Company's knowledge, any
corporation or other entity controlled by any such officer, employee,
consultant, director or stockholder, or a
11
member of the immediate family of such officer, employee, consultant,
director or stockholder.
(w) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees, except as set forth in the SEC Documents or on SCHEDULE
3.1(W) hereto. Except as set forth in the SEC Documents or on SCHEDULE
3.1(W) hereto, neither the Company nor any subsidiary is in breach of
any employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant,
relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since the date
of the December 31, 1999 Form 10-KSB, no officer, consultant or key
employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect,
has terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the
Company or any subsidiary.
(x) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in SEC
Documents or on SCHEDULE 3.1(X) hereto, since the date of the financial
statement contained in the most recently filed Form 10-QSB or Form
10-KSB, whichever is most current, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect
thereto;
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except
current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of
the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent),
other than current liabilities paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its
stock, or purchased or redeemed, or made any agreements so to
purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the
ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual
12
property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary
course of business or to the Purchaser or its representatives;
(vii) suffered any material losses or waived any
rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material
amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with
past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $500,000;
(x) entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of
their employment; or
(xiii) effected any two or more events of the
foregoing kind which in the aggregate would be material to the
Company or its subsidiaries.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate
purposes.
(bb) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF SHARES.
Company acknowledges and agrees that Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and
the transactions contemplated hereunder. The Company further
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereunder and any
advice given by the Purchaser or any of its representatives or agents
in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the
Shares. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its own
representatives and counsel.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby makes the following representations and warranties to the
Company:
13
(a) ORGANIZATION AND STANDING OF THE PURCHASER. The Purchaser
is a corporation duly incorporated, validly existing and in good
standing under the laws of the Cayman Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to
purchase the Shares being sold to it hereunder. The execution, delivery
and performance of this Agreement by Purchaser and the consummation by
it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action. This Agreement, the Registration Rights
Agreement and the Escrow Agreement have been duly executed and
delivered by the Purchaser and, at the Initial Closing, shall
constitute valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of
general application.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not
(i) result in a violation of the Purchaser's charter documents or
bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument
to which the Purchaser is a party, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties
(except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or to purchase the
Shares in accordance with the terms hereof.
(d) FINANCIAL RISKS. The Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the
Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary or appropriate to conduct its
due diligence investigation. The Purchaser is capable of evaluating the
risks and merits of an investment in the Shares by virtue of its
experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.
(e) ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities
Act.
14
(f) NOT AN AFFILIATE. Purchaser is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act)
of the Company.
(g) DISCLOSURE; ACCESS TO INFORMATION. Purchaser has reviewed
all documents, records, books and other publicly available information
pertaining to Purchaser's investment in the Company that have been
requested and received by the Purchaser.
(h) MANNER OF SALE. At no time was Purchaser presented with or
solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
(i) UNDERWRITER LIABILITY. Purchaser understands that it is
the position of the SEC that the Purchaser is an underwriter within the
meaning of Section 2(11) of the Securities Act and that the Purchaser
will be identified as an underwriter of the Draw Down shares of Common
Stock in the Registration Statement subject to liability as an
underwriter under the applicable provision of the Securities Act and is
subject to prospectus delivery requirement of the Securities Act.
(j) GENERAL. The Purchaser understands that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the suitability of the Purchaser to
acquire the Shares.
(k) DISCLOSURE. To the best of the Purchaser's knowledge,
neither this Agreement nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Purchaser
by an authorized officer of the Purchaser in connection with the
transactions contemplated by this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements made herein or therein, in
the light of the circumstances under which they were made herein or
therein, not misleading.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1. SECURITIES COMPLIANCE. If applicable, the Company shall
notify the Principal Market, in accordance with their rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares to the
Purchaser or subsequent holders.
15
Section 4.2. REGISTRATION AND LISTING. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted herein
and the Registration Rights Agreement. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide the Purchaser with copies of any correspondence to or from
such Principal Market which questions or threatens delisting of the Common
Stock, within three (3) Trading Days of the Company's receipt thereof, until the
Purchaser has disposed of all of their Shares.
Section 4.3. ESCROW ARRANGEMENT. The Company shall enter into an escrow
arrangement with an escrow agent mutually agreed to by the Company and the
Purchaser (the "Escrow Agent") in the Form of EXHIBIT B hereto respecting
payment against delivery of the Shares.
Section 4.4. REGISTRATION RIGHTS AGREEMENT. The Company shall enter
into the Registration Rights Agreement in the Form of EXHIBIT A hereto. Before
the Purchaser shall be obligated to accept a Draw Down request from the Company,
the Company shall have caused a sufficient number of shares of Common Stock to
be registered to cover the Shares to be issued in connection with such Draw Down
and at the Initial Closing.
Section 4.5. ACCURACY OF REGISTRATION STATEMENT.On each Settlement
Date, the Registration Statement and the prospectus therein shall not contain
any untrue statement of a material fact or omit to state any material fact to be
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and on such Settlement Date or date of filing of the Registration Statement and
the prospectus therein will not include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus therein in reliance upon and in conformity with the
information furnished in writing to the Company by the Purchaser specifically
for inclusion in the Registration Statement and the prospectus therein.
Section 4.6. COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 4.7. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which entries
16
will be made in accordance with GAAP consistently applied, reflecting all
financial transactions of the Company and its subsidiaries, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section 4.8. OTHER AGREEMENTS/BEST EFFORTS. The Company shall not enter
into any agreement the terms of which such agreement would restrict or impair
the ability of the Company to perform its obligations under this Agreement. The
Company agrees (i) to use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the agreements related hereto; (ii) to execute any documents,
instruments or conveyances of any kind that may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder; and (iii) to cooperate with the Purchaser in connection with the
foregoing.
Section 4.9. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO REQUEST A DRAW DOWN. THE COMPANY WILL IMMEDIATELY NOTIFY
THE PURCHASER IN WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS IN
RESPECT OF THE REGISTRATION STATEMENT OR RELATED PROSPECTUS IN RESPECT OF THE
SHARES: (i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Purchaser any such supplement or amendment
to the related prospectus. THE COMPANY SHALL NOT DELIVER TO THE PURCHASER ANY
DRAW DOWN NOTICE IF ANY OF THE FOREGOING EVENTS SHALL HAVE OCCURRED UNLESS ANY
SUCH EXISTING EVENT(S) SHALL NOT CAUSE THE SUSPENSION OF SALES OF SHARES
PURSUANT TO THE REGISTRATION STATEMENT DURING THE CORRESPONDING DRAW DOWN
PRICING PERIOD AND DURING THE PERIOD OF TEN (10) CONSECUTIVE TRADING DAYS
IMMEDIATELY FOLLOWING THE END OF SUCH DRAW DOWN PRICING PERIOD.
17
Section 4.10. CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11. LIMITATION ON FUTURE FINANCING. The Company agrees that
it will not enter into any new standby equity-based credit facility during the
term of this Agreement.
The Purchaser covenants with the Company as follows:
Section 4.12. COMPLIANCE WITH LAW. Section 4.13.The Purchaser'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. Without limiting the generality of the
foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
Section 4.13 ESCROW ARRANGEMENT. The Purchaser shall enter into an
escrow arrangement with an escrow agent mutually agreed to by the Company and
the Purchaser in the Form of EXHIBIT B hereto respecting payment against
delivery of the Shares.
Section 4.14. REGISTRATION RIGHTS AGREEMENT. The Purchaser shall enter
into the Registration Rights Agreement in the Form of EXHIBIT A hereto.
Section 4.15. ACCURACY OF REGISTRATION STATEMENT.On each Settlement
Date, the information furnished in writing to the Company by the Purchaser
specifically for inclusion or omission in the Registration Statement and the
prospectus therein shall not contain any untrue statement of a material fact or
omit to state any material fact to be required to be stated therein or necessary
in order to make the statements therein not misleading in light of the
circumstances under which they were made.
Section 4.16. OTHER AGREEMENTS/BEST EFFORTS. The Purchaser shall not
enter into any agreement the terms of which such agreement would restrict or
impair the ability of the Purchaser to perform its obligations under this
Agreement. The Purchaser agrees (i) to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and the agreements related hereto; (ii) to
execute any documents, instruments or conveyances of any kind that may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder; and (iii) to cooperate with the Company
in connection with the foregoing.
18
Section 4.17 NO SHORT SALES. The Purchaser and its affiliates
shall not engage in net short sales of the Company's Common Stock (as defined in
applicable SEC and the Principal Market rules) during the term of this
Agreement.
ARTICLE V
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 5.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES. The obligation hereunder of the Company to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Initial Closing, and as of each Settlement Date of each of the conditions
set forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Purchaser
shall be true and correct in all material respects as of the date when
made and as of the Initial Closing and as of each Settlement Date as
though made at that time, except for representations and warranties
that speak as of a particular date.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to
the Initial Closing and as of each Settlement Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced by any third party, and no investigation by any
governmental authority shall have been threatened, against the
Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Purchaser seeking to restrain, prevent
or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
Section 5.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
CLOSE. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
19
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of
the Initial Closing as though made at that time (except for
representations and warranties that speak as of a particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced by any third party, and no investigation by any
governmental authority shall have been threatened, against the
Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to
restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) OPINION OF COUNSEL, ETC. At the Initial Closing, the
Purchaser shall have received an opinion of counsel to the Company,
dated the date of the Initial Closing, in the form of EXHIBIT C hereto.
(f) STOCK. In lieu of an aggregate minimum Commitment Amount,
the Company shall have issued to the Purchaser 100,000 shares of Common
Stock (the "Stock").
Section 5.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
ACCEPT A DRAW DOWN AND PURCHASE THE SHARES. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) SATISFACTION OF CONDITIONS TO INITIAL CLOSING. The Company
shall have satisfied, or the Purchaser shall have waived at the Initial
Closing, the conditions set forth in Section 5.2 hereof.
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement registering the Shares shall have been declared effective by
the SEC and shall be effective on each Settlement Date.
(c) NO SUSPENSION. Trading in the Company's Common Stock or
trading in securities generally whose trades are reported on the
Principal Market shall not
20
have been suspended or limited by the SEC or the Principal Market and
minimum prices shall not have been established on securities generally
whose trades are reported on the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the delivery of each Draw
Down Notice).
(d) MATERIAL ADVERSE EFFECT. No event which has a Material
Adverse Effect and no Consolidation Event where the successor entity
has not agreed to perform the Company's obligations shall have
occurred.
(e) OPINION OF COUNSEL. The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there
is no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion
as to the additional items specified in EXHIBIT C hereto.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1. DRAW DOWN TERMS. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) For a period of 36 months commencing immediately after the
Effective Date (the "Commitment Period"), the Company may, in its sole
discretion, issue and exercise a draw down (a "Draw Down") during each
Draw Down Pricing Period, which Draw Down the Purchaser will be
obligated to accept.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. There shall be at least five (5) Trading Days between
Draw Down Pricing Periods (such time between Draw Down Pricing Periods,
the "Trading Cushion"); EXCEPT THAT, in the event the Company gives the
Purchaser twenty-one (21) days notice of a Special Activity, the
Trading Cushion shall be adjusted to two (2) Trading Days for a period
of ten (10) consecutive weeks and the Purchase Price shall be adjusted
as set forth in Section 1.1(h) herein as to any Draw Downs occurring
during such ten (10) week period. The number of shares of Common Stock
purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 6.1(d) herein and settled in
accordance with Section 6.1(f) on, (i) as to the 1st through the 10th
Trading Days after a Draw Down Pricing Period commences (the "First
Settlement Period"), on the 12th Trading Day after a Draw Down Pricing
Period commences, and (ii) as to the 11th through the 20th Trading Days
after a Draw Down Pricing Period commences (the "Second Settlement
Period"), the 22nd Trading Day after a Draw Down Pricing Period (each,
a "Settlement Date" and the First and Second Settlement Periods
collectively referred to as "Settlement Periods"). In connection with
each Draw Down Pricing Period, the Company must set the Threshold Price
in the Draw Down Notice.
21
(c) The minimum Investment Amount shall be, if the average of
the VWAPs during the 10 Trading Day period immediately prior to the
Draw Down Pricing Period ("Minimum Price") is greater than $0.30,
$300,000, if the Minimum Price is equal to or less than $0.30 and
greater than $0.20, $200,000 and if the Minimum Price is equal to or
less than $0.20 and greater than $0.10, $100,000. In the event that the
Minimum Price is greater than $0.30, the maximum Investment Amount
shall be equal to the greater of (i) $500,000, and (ii) the amount
determined by the following formula: 4.5% of the average of the VWAPs
for the Common Stock for the thirty (30) day period immediately prior
to the applicable Commencement Date (defined below) multiplied by the
total trading volume in respect of the Common Stock for the three (3)
month period immediately prior to the applicable Commencement Date. In
the event the Minimum Price is equal to or less than $0.30, the maximum
Investment Amount shall be equal to the greater of (i) the minimum
Investment Amount set forth in the first sentence above, and (ii) the
amount determined by the following formula: 4.5% of the average of the
VWAPs for the Common Stock for the thirty (30) day period immediately
prior to the applicable Commencement Date (defined below) multiplied by
the total trading volume in respect of the Common Stock for the three
(3) month period immediately prior to the applicable Commencement Date.
Notwithstanding anything herein to the contrary, the Company shall be
precluded from exercising a draw down during any periods where the
Minimum Price is less than $0.10.
(d) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x)
1/20th of the Investment Amount and (y) the Purchase Price on each
Trading Day within such Settlement Period, subject to the following
adjustments:
(i) if the Average Daily Price on a given Trading Day
is less than the Threshold Price, then the Investment Amount
will be reduced by 1/20th and that day shall be withdrawn from
the Settlement Period; and
(ii) if trading of the Common Stock on the Principal
Market is suspended for more than three (3) hours, in the
aggregate, or the Registration Statement is not effective, on
any Trading Day during the Settlement Period, the Investment
Amount shall be reduced by 1/20th and that day shall be
withdrawn from the applicable Settlement Period.
(e) The Company must inform the Purchaser by delivering a draw
down notice, in the form of EXHIBIT D hereto (the "Draw Down Notice"),
via facsimile transmission in accordance with Section 9.4 as to the
amount of the Draw Down (the "Investment Amount") the Company wishes to
exercise before the first day of the Draw Down Pricing Period (the
"Commencement Date"). If the Commencement Date is to be the date of the
Draw Down Notice, the Draw Down Notice must be delivered to and receipt
confirmed in accordance with Section 9.4 hereof at least one hour
before trading commences on such date. At no time shall the Purchaser
be required to purchase more
22
than the maximum Investment Amount for a given Draw Down Pricing Period
so that if the Company chooses not to exercise the maximum Investment
Amount permitted in a given Draw Down Pricing Period the Purchaser is
not obligated to and shall not purchase more than the scheduled maximum
Investment Amount in a subsequent Draw Down Pricing Period.
(f) On or before each Settlement Date, the Shares purchased by
the Purchaser shall be electronically delivered to the Purchaser or its
designees via The Depository Trust Company's ("DTC") Fast Automated
Securities Transfer program through its Deposit Withdrawal Agent
Commission ("DWAC") system and the Purchaser shall wire transfer
immediately available funds to the Company's designated account on such
day. In the event the Purchaser elects to use the Escrow Agent, the
Shares shall be credited by the Company to the DTC account designated
by the Purchaser via DWAC upon receipt by the Escrow Agent of payment
for the Draw Down into the Escrow Agent's master escrow account as
provided in the Escrow Agreement. The Escrow Agent shall be directed to
pay the purchase price to the Company, net of Seven Hundred Fifty
Dollars ($750) per Settlement as escrow expenses to the Escrow Agent.
The delivery of the Shares into the Purchaser's DTC account in exchange
for payment therefor shall be referred to herein as "Settlement".
(g) Notwithstanding anything to the contrary herein, the
Company shall be precluded from exercising a Draw Down under this
Agreement during the pendency of a draw down under the other draw down
facility with the Investor, dated December 1, 2000 ("Prior Draw Down
Facility") and the Company shall not draw down under the Prior Draw
Down Facility during the pendency of a Draw Down hereunder.
ARTICLE VII
TERMINATION
Section 7.1. TERMINATION. Unless otherwise terminated in accordance
with Section 7.2 herein, the term of this Agreement shall be thirty-six (36)
months from the Effective Date; PROVIDED, HOWEVER, that the termination will not
affect any obligations arising prior to the date of such termination.
Section 7.2. OTHER TERMINATION.
(a) This Agreement shall be terminated upon one (1) Trading
Day's notice if (i) an event resulting in a Material Adverse Effect has
occurred and has not been cured for a period of 60 days, (ii) the
Common Stock is de-listed from the Principal Market unless such
de-listing is in connection with the listing of the Common Stock on the
Nasdaq National Market, Nasdaq SmallCap Market, or the New York Stock
Exchange, or (iii) the Company files for protection from creditors
under any applicable law.
23
(b) The Company may terminate this Agreement upon one (1)
Trading Day's notice if the Purchaser shall fail to fund more than one
properly noticed Draw Down within three (3) Trading Days of a
Settlement Date.
Section 7.3. EFFECT OF TERMINATION. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. GENERAL INDEMNITY. The Company agrees to indemnify and
hold harmless the Purchaser and its directors, officers, affiliates, agents,
successors and assigns ("Purchaser Indemnified Parties") from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorney's fees, charges and
disbursements) incurred by the Purchaser Indemnified Parties as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein. The Purchaser agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
("Company Indemnified Parties") from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Company Indemnified Parties as result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
Notwithstanding anything to the contrary herein, except for gross negligence or
willful misconduct, the Purchaser shall be liable under this Section 8.1 for
only that amount as does not exceed the gross proceeds to such Purchaser as a
result of the sale of Shares pursuant to the Registration Statement.
INDEMNIFICATION PROCEDURE. Promptly after receipt by an indemnified
party under this Article VIII of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Article VIII, 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 except to the extent of actual prejudice demonstrated by the
indemnifying party. 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
24
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 Article VIII 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, 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 indemnified party and the indemnifying party
and the indemnified party 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 indemnified
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party, 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 indemnified party, which firm shall be designated in writing
by the indemnified party and be approved by the indemnifying party). 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.
All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party; provided, that the indemnifying party may
require such indemnified party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such indemnified
party is not entitled to indemnification hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1. FEES AND EXPENSES. Each party shall pay all of its own
fees and expenses related to the transactions contemplated by this Agreement;
PROVIDED, that the Company shall pay, prior to or at the Initial Closing, all
attorneys and escrow fees and expenses inclusive of disbursements and
out-of-pocket expenses) incurred by the Purchaser of $10,000 in connection with
the preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder. Notwithstanding anything to the contrary
herein, the
25
Company shall pay all reasonable fees and expenses incurred by the Purchaser in
connection with any subsequent amendments, modifications or waivers of this
Agreement, the Escrow Agreement or the Registration Rights Agreement or incurred
in connection with the enforcement of this Agreement, the Escrow Agreement and
the Registration Rights Agreement, including, without limitation, all reasonable
attorneys' fees and expenses if such subsequent amendment, modification or
waiver is at the request of the Company. The Company shall pay all stamp or
other similar taxes and duties levied in connection with issuance of the Shares
pursuant hereto.
Section 9.2. SPECIFIC ENFORCEMENT. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.3. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with
the Registration Rights Agreement and the Escrow Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought and no condition to closing any Draw Down in favor
of the Purchaser may be waived by the Purchaser.
Section 9.4. NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: On2 Technologies, Inc.
000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Main: 917.237.0500
Fax: 000.000.0000
Attn: General Counsel
email: xxxxxx@xx0.xxx
26
With copies to: XxXxxxx-Xxxxx LLP
notice): 0 Xxxx 00xx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: 0xx Xxxxx
Xxxxxxx Xxxxxx
X.X. Xxx 00 XX
Xxxxxx Xxxx
Cayman Islands
Attn: Xxx Xxxxxxx
Fax: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 9.5. WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6. HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns;
PROVIDED, HOWEVER, that the Purchaser may not assign this Agreement or any of
its rights or obligations hereunder. The parties hereto may not amend this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company and each Purchaser to be affected by the amendment. After
Initial Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8. NO THIRD PARTY BENEFICIARIES.This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9. GOVERNING LAW/ARBITRATION.This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. The Company and the
Purchaser agree to submit itself to the IN PERSONAM jurisdiction of the state
and federal courts situated within the Southern District of the State of New
York with regard to any controversy arising out of or relating to this
27
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including attorney's fees, from the non-prevailing party.
Section 9.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.
Section 9.11. PUBLICITY. Prior to the execution of this Agreement,
neither the Company nor the Purchaser shall issue any press release or otherwise
make any public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement. After the
execution of this Agreement, the Company may issue a press release or otherwise
make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided,
however, that prior to issuing any such press release, making any such public
statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 9.12. SEVERABILITY. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed
28
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible, so long as
such construction does not materially adversely effect the economic rights of
either party hereto.
Section 9.13. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 9.14. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
*******************
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first set
forth above.
ON2 TECHNOLOGIES, INC.
By:
---------------------------------
Xxxxxxx XxXxxxxx, President & CEO
CROSSOVER VENTURES, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Xxxxxxx XxXxxxxx, President & CEO
CROSSOVER VENTURES, INC.
By:
---------------------------------
Name:
Title:
30
