Exhibit 5.1
INVESTMENT AGREEMENT
U.S. MICROBICS, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL
AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF
THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTION 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement") is
made as of the 14th day of March, 2000, by and between U.S. Microbics, Inc., a
corporation duly organized and existing under the laws of the State of Colorado
(the "Company"), and the undersigned Investor executing this Agreement
("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Thirty Five
Million Dollars ($35,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by
the Company, the offer and sale of the Common Stock are being made in reliance
upon the provisions of Regulation D ("Regulation D") promulgated under Section
4(2) of the Act, and/or upon such other exemption from the registration
requirements of the Act as may be available with respect to any or all of the
purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth in Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is open
for trading.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month and for Calendar Months thereafter, beginning on
the earlier of (i) the same numeric day of the next calendar month or (ii) the
last day of the next calendar month. Each Calendar Month shall end on the day
immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this Offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean U.S. Microbics, Inc., a corporation duly organized and
existing under the laws of the State of Colorado.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set forth
in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance Put
Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnitees" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Initial Exercise Price" shall have the meaning set forth in Section 2.4.1.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $500,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean Thirty Five Million Dollars
($35,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"NASD" shall have the meaning set forth in Section 6.9.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"NYSE" shall have the meaning set forth in Section 6.9.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms of
this Agreement, the period beginning on the Business Day immediately following
the Put Date and ending on and including the date which is 20 Business Days
after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Proceeding" shall have the meaning as set forth in Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2, the
form of which is attached hereto as Exhibit D.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.11(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth in
Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the respective Put Share Prices with respect to such Put Shares, subject to
the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth in Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as Exhibit R.
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Act.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.25.
"Six Month Anniversary" shall mean the date that is the same Numeric Day of
the sixth (6th) calendar month after the Investment Date, and the date that is
the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Investor, or (c) the date of an Automatic Termination.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section 2.3.12.
"Third Party Reports" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade during Normal Trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent Instructions" shall mean the Company's instructions to its
transfer agent, substantially in the form attached as Exhibit T, or such other
form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
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Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock and accompanying Warrants as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Puts pursuant to Section 2.3
below.
2.2 Investment Commitment.
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2.2.1 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed by both
Investor and the Company, the Transfer Agent Instructions have been executed by
both the Company and the Transfer Agent, and the other Conditions to Investor's
Obligations set forth in Section 2.2.2 below have been met.
2.2.2 Conditions to Investor's Obligations. As a prerequisite to
the Investment Commitment Closing and the Investor's obligations hereunder, all
of the following (the "Conditions to Investor's Obligations") shall have been
satisfied prior to or concurrently with the Company's execution and delivery of
this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by the
Company and Investor), (ii) the Investment Commitment Opinion of
Counsel (signed by the Company's counsel), (iii) the Transfer
Agent Instructions (executed by the Company and the Transfer
Agent), and (iv) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors authorizing this
transaction, (B) the Company's Certificate of Incorporation, and
(C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company,
shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading
and actually trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk
Factors set forth in the Disclosure Documents (provided for in
Section 3.2.4), as of the Closing there have been no material
adverse changes in the Company's business, prospects or financial
condition since the date of the last balance sheet included in
the Disclosure Documents, including but not limited to incurring
material liabilities; and
(e) the representations and warranties of the Company in
this Agreement shall be true and correct in all material respects
and the conditions to Investor's obligations set forth in this
Section 2.2.2 shall have been satisfied as of such Closing; and
the Company shall deliver an Officer's Certificate to such effect
to the Investor.
2.3 Puts of Common Shares to the Investor.
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2.3.1 Procedure to Exercise a Put. Subject to the Individual Put
Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and the
other conditions and limitations set forth in this Agreement, at any time
beginning on the date on which the Registration Statement is declared effective
by the SEC (the "Effective Date"), the Company may, in its sole and absolute
discretion, elect to exercise one or more Puts according to the following
procedure, provided that each subsequent Put Date after the first Put Date shall
be no sooner than five (5) Business Days following the preceding Pricing Period
End Date:
(a) Delivery of Advance Put Notice. At least ten (10) Business
Days but not more than twenty (20) Business Days prior to any intended Put Date
(unless otherwise agreed in writing by the Investor), the Company shall deliver
advance written notice (the "Advance Put Notice," the form of which is attached
hereto as Exhibit E, the date of such Advance Put Notice being the "Advance Put
Notice Date") to Investor stating the Put Date for which the Company shall,
subject to the limitations and restrictions contained herein, exercise a Put and
stating the number of shares of Common Stock (subject to the Individual Put
Limit and the Maximum Put Dollar Amount) which the Company intends to sell to
the Investor for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase Shares pursuant to such Put Notice (a "Company Designated
Minimum Put Share Price"). The Company Designated Minimum Put Share Price, if
applicable, shall be no greater than 85% of the Closing Bid Price of the
Company's Common Stock on the Advance Put Notice Date. The Company may decrease
(but not increase) the Company Designated Minimum Put Share Price for a Put at
any time by giving the Investor written notice of such decrease not later than
12:00 Noon, New York City time, on the Business Day immediately preceding the
Business Day that such decrease is to take effect. A decrease in the Company
Designated Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number of
shares of Common Stock that the Investor shall be obligated to purchase in a
given Put, and shall equal the lesser of (i) the Intended Put Share Amount, and
(ii) the Individual Put Limit. The "Individual Put Limit" shall equal the lesser
of (i) 15% of the sum of the aggregate daily reported Trading Volumes in the
outstanding Common Stock on the Company's Principal Market, excluding any block
trades of 20,000 or more shares of Common Stock, for all Evaluation Days (as
defined below) in the Pricing Period, (ii) the number of Put Shares which, when
multiplied by their respective Put Share Prices, equals the Maximum Put Dollar
Amount, and (iii) the 9.9% Limitation, but in no event shall the Individual Put
Limit exceed 15% of the sum of the aggregate daily reported Trading Volumes in
the outstanding Common Stock on the Company's Principal Market, excluding any
block trades of 20,000 or more shares of Common Stock, for the twenty (20)
Business Days immediately preceding the Put Date (this limitation, together with
the limitation in (i) immediately above, are collectively referred to herein as
the "Volume Limitations"). The Company agrees not to trade Common Stock or
arrange for Common Stock to be traded for the purpose of artificially increasing
the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i)
the Company Designated Minimum Put Share Price, plus $.10, or (ii) the Company
Designated Minimum Put Share Price divided by .92.
An "Excluded Day" shall mean each Business Day during a Pricing Period
where the lowest intra-day trading price of the Common Stock is less than the
Trigger Price.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the Put Shares (the
"Put Share Price") shall equal the lesser of (i) the Market Price for such Put,
minus $.10, or (ii) 92% of the Market Price for such Put, but shall in no event
be less than the Company Designated Minimum Put Share Price for such Put, if
applicable.
(d) Delivery of Put Notice. After delivery of an Advance Put
Notice, on the Put Date specified in the Advance Put Notice the Company shall
deliver written notice (the "Put Notice," the form of which is attached hereto
as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended Put Share
Amount as specified in the Advance Put Notice (such exercise a "Put"), (iii) the
Company Designated Maximum Put Dollar Amount (if applicable), and (iv) the
Company Designated Minimum Put Share Price (if applicable). In order to effect
delivery of the Put Notice, the Company shall (i) send the Put Notice by
facsimile on the Put Date so that such notice is received by the Investor by
6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to
a courier for overnight delivery to the Investor (or two (2) day delivery in the
case of an Investor residing outside of the U.S.). Upon receipt by the Investor
of a facsimile copy of the Put Notice, the Investor shall, within two (2)
Business Days, send, via facsimile, a confirmation of receipt (the "Put Notice
Confirmation," the form of which is attached hereto as Exhibit H) of the Put
Notice to Company specifying that the Put Notice has been received and affirming
the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the Put Date
for such Put, the Company shall deliver the Required Put Documents (as defined
in Section 2.3.5 below) to the Investor (or to an agent of Investor, if Investor
so directs). Unless otherwise specified by the Investor, the Put Shares shall be
transmitted electronically pursuant to such electronic delivery system as the
Investor shall request; otherwise delivery shall be by physical certificates. If
the Company has not delivered all of the Required Put Documents to the Investor
on or before the Put Date, the Put shall be automatically cancelled, unless the
Investor agrees to delay the Put Date by up to three (3) Business Days, in which
case the Pricing Period begins on the Business Day following such new Put Date.
If the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date (or new Put Date, if applicable), and the
Investor has not agreed in writing to delay the Put Date, the Put is
automatically canceled (an "Impermissible Put Cancellation") and, unless the Put
was otherwise canceled in accordance with the terms of Section 2.3.11, the
Company shall pay the Investor $5,000 for its reasonable due diligence expenses
incurred in preparation for the canceled Put and the Company may deliver an
Advance Put Notice for the subsequent Put no sooner than ten (10) Business Days
after the date that such Put was canceled, unless otherwise agreed by the
Investor.
(f) Limitation on Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and an Intended Put Share Amount may not
include, an amount of Put Shares, which when added to the number of Put Shares
acquired by the Investor pursuant to this Agreement during the 31 days preceding
the Put Date with respect to which this determination of the permitted Intended
Put Share Amount is being made, would exceed 9.99% of the number of shares of
Common Stock outstanding (on a fully diluted basis, to the extent that inclusion
of unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a Pricing Period
than on the Put Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Shares made pursuant to this Agreement in the 31 calendar days
preceding such date, would have acquired more than 9.99% of the Section 13(d)
Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to require the
Investor to purchase any subsequent Put Shares shall terminate permanently
(each, an "Automatic Termination") upon the occurrence of any of the following:
(a) the Company shall not exercise a Put or any Put thereafter
if, at any time, either the Company or any director or executive officer of the
Company has engaged in a transaction or conduct related to the Company that has
resulted in (i) an SEC enforcement action, or (ii) a civil judgment or criminal
conviction for fraud or misrepresentation, or for any other offense that, if
prosecuted criminally, would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put thereafter,
on any date after a cumulative time period or series of time periods, including
both Ineffective Periods and Delisting Events, that lasts for an aggregate of
four (4) months;
(c) the Company shall not exercise a Put or any Put thereafter if
at any time the Company has filed for and/or is subject to any bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors instituted
by or against the Company or any subsidiary of the Company;
(d) the Company shall not exercise a Put after the sooner of (i)
the date that is three (3) years after the Effective Date, or (ii) the Put
Closing Date on which the aggregate of the Put Dollar Amounts for all Puts equal
the Maximum Offering Amount;
(e) the Company shall not exercise a Put after the Company has
breached any covenant in Section 2.6, Section 6, or Section 9 hereof, provided
that, if such breach is curable, then no Automatic Termination shall occur if
the Company has cured such breach within thirty (30) days of the first date on
which the Company becomes aware of such breach, provided further that, the
Company shall not be entitled to initiate any Puts prior to such cure;
(f) if no Registration Statement has been declared effective by
the date that is one (1) year after the date of this Agreement, the Automatic
Termination shall occur on the date that is one (1) year after the date of this
Agreement; and
(g) the Company shall not exercise a Put after any statement by
the SEC that the issuance of Put Shares to the Investor would constitute a
violation of Section 5 of the Act.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows:
(a) notwithstanding the amount of any Put, the Investor shall not
be obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has announced a
subdivision or combination, including a reverse split, of its Common Stock or
has subdivided or combined its Common Stock during the Extended Put Period;
(c) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has paid a dividend
of its Common Stock or has made any other distribution of its Common Stock
during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has made, during
the Extended Put Period, a distribution of all or any portion of its assets or
evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which a Major Transaction has
occurred during the Extended Put Period.
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Investor to
Purchase Put Shares. The right of the Company to deliver an Advance Put Notice
or a Put Notice and the obligation of the Investor hereunder to acquire and pay
for the Put Shares incident to a Closing is subject to the satisfaction, on (i)
the date of delivery of such Advance Put Notice or Put Notice and (ii) the
applicable Put Closing Date, of each of the following conditions:
(a) the Company's Common Stock shall be listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market or the New York Stock Exchange and the Put Shares shall be so
listed, and to the Company's knowledge there is no notice of any suspension or
delisting with respect to the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all obligations
pursuant to the Registration Rights Agreement, including, but not limited to,
the filing of the Registration Statement with the SEC with respect to the resale
of all Registrable Securities and the requirement that the Registration
Statement shall have been declared effective by the SEC for the resale of all
Registrable Securities and the Company shall have satisfied and shall be in
compliance with any and all obligations pursuant to this Agreement and the
Warrants;
(c) the representations and warranties of the Company are true
and correct in all material respects as if made on such date and the conditions
to Investor's obligations set forth in this Section 2.3.4 are satisfied as of
such Closing, and the Company shall deliver an Officer's Certificate to such
effect to the Investor;
(d) the Company shall have reserved for issuance a sufficient
number of Common Shares for the purpose of enabling the Company to satisfy any
obligation to issue Common Shares pursuant to any Put and to effect exercise of
the Warrants;
(e) the Registration Statement is not subject to an Ineffective
Period as defined in the Registration Rights Agreement, the prospectus included
therein is current and deliverable, and to the Company's knowledge there is no
notice of any investigation or inquiry concerning any stop order with respect to
the Registration Statement; and
(f) if the Aggregate Issued Shares after the Closing of the Put
would exceed the Cap Amount, the Company shall have obtained the Stockholder 20%
Approval as specified in Section 6.11, if the Company's Common Stock is listed
on the Nasdaq Small Cap Market or the Nasdaq National Market, and such approval
is required by the rules of such market.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions
to Closing of any Put. The Closing of any Put and Investor's obligations
hereunder shall additionally be conditioned upon the delivery to the Investor of
each of the following (the "Required Put Documents") on or before the applicable
Put Date:
(a) a number of Unlegended Share Certificates (or freely
tradeable electronically delivered shares, as appropriate) equal to the Intended
Put Share Amount, in denominations of not more than 50,000 shares per
certificate;
(b) the following documents: Put Opinion of Counsel, Officer's
Certificate, Put Notice, Registration Opinion, and any report or disclosure
required under Section 2.3.6 or Section 2.5; and
(c) all documents, instruments and other writings required to be
delivered on or before the Put Date pursuant to any provision of this Agreement
in order to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.5.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of Exhibit R (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any Supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Cancellation Notice to the Investor pursuant to Section 2.3.11 by
facsimile and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent auditors to
perform the procedures in accordance with the provisions of Statement on
Auditing Standards No. 71, as amended, as agreed to by the parties hereto, and
reports thereon (the "Bring Down Cold Comfort Letters") as shall have been
reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on the date that is three
(3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have requested
delivery of an Agreed Upon Procedures Report pursuant to Section 2.5.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor. In the event that the Agreed Upon Procedures Report cannot be
delivered by the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the Company shall not
deliver a Put Notice until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares. Subject to
the conditions set forth in this Agreement, following the Investor's receipt of
a validly delivered Put Notice, the Investor shall be required to purchase (each
a "Purchase") from the Company a number of Put Shares equal to the Put Share
Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
by either of them pursuant to this Agreement at or prior to each Closing.
Subject to such delivery and the satisfaction of the conditions set forth in
Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor of Put
Shares shall occur by 5:00 PM, New York City Time, on the date which is five (5)
Business Days following the applicable Pricing Period End Date (or such other
time or later date as is mutually agreed to by the Company and the Investor)
(the "Payment Due Date") at the offices of Investor. On each or before each
Payment Due Date, the Investor shall deliver to the Company, in the manner
specified in Section 8 below, the Put Dollar Amount to be paid for such Put
Shares, determined as aforesaid. The closing (each a "Put Closing") for each Put
shall occur on the date that both (i) the Company has delivered to the Investor
all Required Put Documents, and (ii) the Investor has delivered to the Company
such Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put
Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall pay
to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its Affiliates shall
not engage in short sales of the Company's Common Stock; provided, however, that
the Investor may enter into any short exempt sale or any short sale or other
hedging or similar arrangement it deems appropriate with respect to Put Shares
after it receives a Put Notice with respect to such Put Shares so long as such
sales or arrangements do not involve more than the number of such Put Shares
specified in the Put Notice.
2.3.10 Cap Amount. If the Company becomes listed on the Nasdaq Small
Cap Market or the Nasdaq National Market, then, unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time during a
Pricing Period the Company discovers the existence of Material Facts or any
Ineffective Period or Delisting Event occurs, the Company shall cancel the Put
(a "Put Cancellation"), by delivering written notice to the Investor (the "Put
Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight
courier. The "Put Cancellation Date" shall be the date that the Put Cancellation
Notice is first received by the Investor, if such notice is received by the
Investor by 6:00 p.m., New York, NY time, and shall be the following date, if
such notice is received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put Cancellation Notice
is delivered to Investor after the Put Date, the Put, shall remain effective
with respect to a number of Put Shares (the "Truncated Put Share Amount") equal
to the Individual Put Limit for the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon receipt by the
Investor of a facsimile copy of the Put Cancellation Notice, the Investor shall
promptly send, via facsimile, a confirmation of receipt (the "Put Cancellation
Notice Confirmation," a form of which is attached as Exhibit S) of the Put
Cancellation Notice to the Company specifying that the Put Cancellation Notice
has been received and affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put Cancellation Notice has
been delivered to the Investor after the Put Date, the Pricing Period for such
Put shall end at on the close of trading on the last full trading day on the
Principal Market that ends prior to the moment of initial delivery of the Put
Cancellation Notice (a "Truncated Pricing Period") to the Investor.
2.3.12 Investment Agreement Cancellation. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing written
notice ("Termination Notice") to the Investor, by facsimile and overnight
courier, at any time other than during an Extended Put Period, provided that
such termination shall have no effect on the parties' other rights and
obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is less
than the Intended Put Share Amount, the Investor shall promptly return to the
Company any shares of Common Stock in the Investor's possession that are not
being purchased by the Investor.
2.4 Warrants.
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2.4.1 Commitment Warrants. In partial consideration hereof, following
the execution of the Letter of Agreement dated on or about January 10, 2000
between the Company and the Investor, the Company issued and delivered to
Investor or its designated assignees, warrants (the "Commitment Warrants") in
the form attached hereto as Exhibit U, or such other form as agreed upon by the
parties, to purchase 250,000 shares of Common Stock. The Commitment Warrants
shall be exercisable at a price (the "Commitment Warrant Exercise Price") which
shall initially equal the lowest Closing Bid Price for the five (5) Business
Days immediately preceding January 10, 2000 ("Initial Exercise Price"), or, if
lower, the lowest Closing Bid Price for the five (5) Business Days immediately
preceding the date of execution by the Company of this Investment Agreement, and
shall have reset provisions. Each Commitment Warrant shall have a term beginning
on the date of issuance and ending on date that is five (5) years thereafter.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the
issuance of the Commitment Warrant and the issuance of the common stock upon
exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this Agreement,
the Investor shall retain full ownership of the Commitment Warrant as partial
consideration for its commitment hereunder.
2.4.2 Purchase Warrants. Within five (5) Business Days of the end
of each Pricing Period, the Company shall issue and deliver to the Investor a
warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or such
other form as agreed upon by the parties, to purchase a number of shares of
Common Stock equal to 15% of the Put Share Amount for that Put. Each Purchase
Warrant shall be exercisable at a price (the "Purchase Warrant Exercise Price")
which shall initially equal 110% of the Market Price for the applicable Put, and
shall have semi-annual reset provisions. Each Purchase Warrant shall be
immediately exercisable at the Purchase Warrant Exercise Price, and shall have a
term beginning on the date of issuance and ending on the date that is five (5)
years thereafter. The Warrant Shares shall be registered for resale pursuant to
the Registration Rights Agreement.
2.5 Due Diligence Review. The Company shall make available for inspection
and review by the Investor (the "Due Diligence Review"), advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements 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 the Investor 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 Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company shall not
disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate nonpublic 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 Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and 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 2.5.1 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the Investor's
counsel of all events or circumstances constituting nonpublic information
discovered by such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the opinion 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 the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's counsel shall consult with the Company's independent counsel in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to be
Untrue or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement or 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,
(a) the Company shall file with the SEC an amendment to the
Registration Statement responsive to such alleged untrue statement or omission
and provide the Investor, as promptly as practicable, with copies of the
Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company's independent auditors shall provide to
the Company a letter ("Agreed Upon Procedures Report") outlining the performance
of such "agreed upon procedures" as shall be reasonably requested by the
Investor and the Company shall provide the Investor with a copy of such letter.
2.6 Commitment Payments.
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2.6.1 Non-Usage Fees and Termination Fee. On the last Business
Day of each six (6) Calendar Month period following the Effective Date (each
such period a "Commitment Evaluation Period"), if the Company has not Put the
lesser of (i) $1,000,000 in aggregate Put Dollar Amount or (ii) the Put Dollar
Amount for the Volume Limitation during that Commitment Evaluation Period, then
the Company, in consideration of Investor's commitment costs, including, but not
limited to, due diligence expenses, shall pay to the Investor an amount (the
"Semi-Annual Non-Usage Fee ") equal to the difference of (i) $100,000, minus
(ii) 10% of the aggregate Put Dollar Amount of the Put Shares put to Investor
during that Commitment Evaluation Period. In the event that the Company delivers
a Termination Notice to the Investor or an Automatic Termination occurs, the
Company shall pay to the Investor (the "Termination Fee") the greater of (i) the
Semi-Annual Non-Usage Fee for the applicable Commitment Evaluation Period, or
(ii) the difference of (x) $200,000, minus (y) 10% of the aggregate Put Dollar
Amount of the Put Shares put to Investor during all Puts to date, and the
Company shall not be required to pay the Semi-Annual Non-Usage Fee thereafter.
Notwithstanding anything in this Agreement to the contrary, the Investor
shall not be entitled to receive the Termination Fee contemplated by this
Section 2.6.1 as a result of any Automatic Termination pursuant to Sections
2.3.2 (d), (f) or (g) above, assuming that, in the case of an Automatic
Termination pursuant to Section 2.3.2 (f) above, both of the following have
occurred: (i) the Company has filed the Registration Statement by the Filing
Deadline (as defined in the Registration Rights Agreement), and (ii) the Company
has used its reasonable best efforts to have the Registration Statement declared
effective and has responded to any comments from the Securities and Exchange
Commission within 30 days of receipt thereof.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) Business Days of the date it accrued. No additional Non-Usage
Fees shall accrue after (i) a Company Termination, (ii) an Automatic
Termination, or (iii) a termination of this Agreement under the terms of Section
6.13, provided that any Non-Usage Fees which have accrued prior to the
occurrence of (i), (ii), or (iii) above shall be payable within five (5)
business days of such occurrence. The Company shall not be required to deliver
any payments to Investor under this subsection until Investor has paid all Put
Dollar Amounts that are then due. If the Investor, at any time, is more than
five (5) Business Days late in paying any Put Dollar Amounts that are then due,
the Investor shall not be entitled to the benefits of this Section 2.6.1 until
fifteen (15) Business Days after the date that the Investor pays all Put Dollar
Amounts that are then due.
2.6.2 Suspension Without Accruing Non-Usage Fees. Notwithstanding
the above, beginning on the Effective Date, the Company shall be entitled to
suspend this Offering (each a "Suspension") for up to six (6) periods not to
exceed an aggregate of nine (9) Calendar Months for the purpose of effecting one
or more secondary underwritten offerings or for the purpose of Ineffective
Periods, by giving written notice to the Investor stating the beginning date and
the duration of such Suspension. During the term of such Suspension, the Company
may not deliver any Advance Put Notices or effect any Puts.
The Non-Usage Fees for any Commitment Evaluation Period(s) which occur
during a Suspension will be reduced by 1/6 for each full Calendar Month (or pro
rata for each partial Calendar Month) of the Suspension.
3. Representations, Warranties and Covenants of Investor. Investor hereby
represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's professional
advisor has been granted the opportunity to ask questions of and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which Investor
or Investor's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely on
the advice of, or has consulted with, Investor's own personal tax, investment,
legal or other advisors and has not relied on the Company or any of its
affiliates, officers, directors, attorneys, accountants or any affiliates of any
thereof and each other person, if any, who controls any of the foregoing, within
the meaning of Section 15 of the Act for any tax or legal advice (other than
reliance on information in the Disclosure Documents as defined in Section 3.2.4
below and on the Opinion of Counsel). The foregoing, however, does not limit or
modify Investor's right to rely upon covenants, representations and warranties
of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the year ended September 30,
1999, (ii) the Company's quarterly report on Form 10-QSB for the quarters ended
December 31, 1999, (iii) the Risk Factors, attached as Exhibit J, (the "Risk
Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the
"Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as
Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
The foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in Sections 5 and 6 of
this Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments in
securities other than those of the Company. Investor acknowledges that Investor
is able to fend for Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic risk of Investor's
investment pursuant to this Agreement and that Investor is an "Accredited
Investor" by virtue of the fact that Investor meets the investor qualification
standards set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such investment
is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
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3.3.1 No General Solicitation. The Investment Agreement was not
offered to Investor through, and Investor is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock and Warrants issued at each Put
Closing will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold without
registration under the Act or pursuant to an exemption therefrom. In this
connection, Investor represents that Investor is familiar with Rule 144 under
the Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under
the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of the Securities under the Act
or state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement (whether or not legally binding) at any
time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Common Stock for any minimum or other specific term and reserves the
right to dispose of the Common Stock at any time in accordance with federal and
state securities laws applicable to such disposition.
3.4 Due Authorization.
-----------------
3.4.1 Authority. The person executing this Investment Agreement,
if executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Investor is executing this Agreement. Investor
has reached the age of majority (if an individual) according to the laws of the
state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly organized,
validly existing and in good standing as a limited liability company under the
laws of Georgia with full power and authority to purchase the Securities to be
purchased by Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is itself
a partnership, all persons holding an interest in such partnership, directly or
indirectly, including through one or more partnerships), and the person
executing this Agreement has made due inquiry to determine the truthfulness of
the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom Investor
is so purchasing.
4. Acknowledgments. Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of Investor's
entire investment herein. Investor recognizes that the Disclosure Documents,
this Agreement and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of this
Agreement, the Securities and any component thereof have not been registered
under the Act or any applicable state securities laws by reason of exemptions
from the registration requirements of the Act and such laws, and may not be
sold, pledged (except for any limited pledge in connection with a margin account
of Investor to the extent that such pledge does not require registration under
the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall
comply with the requirements set forth herein), assigned or otherwise disposed
of in the absence of an effective registration of the Securities and any
component thereof under the Act or unless an exemption from such registration is
available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time, or ever, or
remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the Securities are
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Investor to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares shall not
bear a Restrictive Legend. The certificates representing the Warrant Shares
shall not bear a Restrictive Legend unless they are issued at a time when the
Registration Statement is not effective for resale. It is understood that the
certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.8 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under
those securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to Investor (which shall be true at
the signing of this Agreement, and as of any such later date as contemplated
hereunder) and agrees with Investor that, except as set forth in the "Schedule
of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending or,
to its knowledge, threatened or contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the SEC, The National
Association of Securities Dealer, Inc., The Nasdaq Stock Market, Inc. or any
state securities commission, or any other governmental entity, which have not
been disclosed in the Disclosure Documents. None of the disclosed Proceedings,
if any, will have a material adverse effect upon the Company or the market for
the Common Stock. The subsidiaries of the Company are set forth on Schedule 5.1.
5.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure Documents, if applicable), except for changes in
the ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition or prospects since the dates of such Disclosure Documents. The
financial statements as contained in the 10-KSB and 10-QSB have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act), subject,
in the case of unaudited interim financial statements, to customary year end
adjustments and the absence of certain footnotes, and fairly present the
financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the periods then ended,. Without limiting the foregoing, there are no
material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes that are due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the best
of the Company's knowledge, threatened against the Company, except as disclosed
in the Disclosure Documents. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies. The
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants,
when issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws, each
as amended and in effect on and as of the date of the Agreement, or of any
material provision of any material instrument or material contract to which it
is a party or by which it is bound or of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since
the date the Company first became subject to such reporting obligations. The
Company undertakes to furnish Investor with copies of such reports as may be
reasonably requested by Investor prior to consummation of this Offering and
thereafter, to make such reports available, for the full term of this Agreement,
including any extensions thereof, and for as long as Investor holds the
Securities. The Common Stock is duly listed on the O.T.C. Bulletin Board. The
Company is not in violation of the listing requirements of the O.T.C. Bulletin
Board and does not reasonably anticipate that the Common Stock will be delisted
by the O.T.C. Bulletin Board for the foreseeable future. The Company has filed
all reports required under the Exchange Act. The Company has not furnished to
the Investor any material nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of January
31, 2000, is, and the capitalization as of the Closing, subject to exercise of
any outstanding warrants and/or exercise of any outstanding stock options, after
taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K. There
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities. Except as disclosed in
the Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of its or their securities under the Act
(except the Registration Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
knowledge without conducting any special patent investigation, the Company is
not infringing on the intellectual property rights of any third party, nor is
any third party infringing on the Company's intellectual property rights. There
are no restrictions in any agreements, licenses, franchises, or other
instruments that preclude the Company from engaging in its business as presently
conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes and in
the approximate amounts set forth on the Use of Proceeds Schedule set forth as
Exhibit L hereto. These purposes and amounts are estimates and are subject to
change without notice to any Investor.
5.10 No Rights of Participation. No person or entity, including, but
not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has made
no representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges that
this Agreement, the transaction contemplated hereby and the Registration
Statement contemplated hereby have not been approved by the SEC, or any other
regulatory body and there is no guarantee that this Agreement, the transaction
contemplated hereby and the Registration Statement contemplated hereby will ever
be approved by the SEC or any other regulatory body. The Company is relying on
its own analysis and is not relying on any representation by Investor that
either this Agreement, the transaction contemplated hereby or the Registration
Statement contemplated hereby has been or will be approved by the SEC or other
appropriate regulatory body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company is
currently eligible and agrees to maintain its eligibility to register the resale
of its common Stock on a registration statement on a suitable form under the
Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of Nasdaq. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
5.17 Key Employees. Each "Key Employee" (as defined in Exhibit N) is
currently serving the Company in the capacity disclosed in Exhibit N. No Key
Employee, to the best knowledge of the Company and its subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any material liability with respect to any
of the foregoing matters. No Key Employee has, to the best knowledge of the
Company and its subsidiaries, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Colorado law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.22 Other Agreements. The Company has not, directly or indirectly,
made any agreements with the Investor under a subscription in the form of this
Agreement for the purchase of Common Stock, relating to the terms or conditions
of the transactions contemplated hereby or thereby except as expressly set forth
herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.24 Financings. There are no other financings currently pending or
contemplated by the Company.
5.25 Shareholder Authorization. The Company shall, at its next annual
shareholder meeting, use its best efforts to obtain approval of its shareholders
to (i) authorize the issuance of the full number of shares of Common Stock which
would be issuable under this Agreement and eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities with respect to the Company's ability to
issue shares of Common Stock in excess of the Cap Amount (such approvals being
the "20% Approval") and (ii) the increase in the number of authorized shares of
Common Stock of the Company (the "Share Authorization Increase Approval") such
that at least 20,000,000 shares can be reserved for this Offering. In connection
with such shareholder vote, the Company shall use its best efforts to cause all
officers and directors of the Company to promptly enter into irrevocable
agreements to vote all of their shares in favor of eliminating such
prohibitions. As soon as practicable after the 20% Approval and the Share
Authorization Increase Approval, the Company agrees to use its best efforts to
reserve 20,000,000 shares of Common Stock for issuance under this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Agreement are
limited, among other things, based upon the liquidity of the Company's Common
Stock traded on its Principal Market.
6. Covenants of the Company.
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least
the Termination Date, maintain its corporate existence in good standing and,
once it becomes a "Reporting Issuer" (defined as a Company which files periodic
reports under the Exchange Act), remain a Reporting Issuer (provided, however,
that the foregoing covenant shall not prevent the Company from entering into any
merger or corporate reorganization as long as the surviving entity in such
transaction, if not the Company, assumes the Company's obligations with respect
to the Common Stock and has Common Stock listed for trading on a stock exchange
or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due
except for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a registration
rights agreement covering the resale of the Common Shares and the Warrant Shares
substantially in the form of the Registration Rights Agreement attached as
Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell, convey
or otherwise dispose of any of its material assets to any Subsidiary except for
a cash or cash equivalent consideration and for a proper business purpose or
(ii) transfer, sell, convey or otherwise dispose of any of its material assets
to any Affiliate, as defined below, during the Term of this Agreement. For
purposes hereof, "Affiliate" shall mean any officer of the Company, director of
the Company or owner of twenty percent (20%) or more of the Common Stock or
other securities of the Company.
6.5 Rights of First Refusal.
6.5.1 Capital Raising Limitations. During the period from the
date of this Agreement until the date that is ninety (90) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions, other than the transactions set forth on Schedule 6.5.1, without
obtaining the prior written approval of the Investor of the Offering (the
limitations referred to in this subsection 6.5.1 are collectively referred to as
the "Capital Raising Limitations"). For purposes hereof, the following shall be
collectively referred to herein as, the "Equity Securities": (i) Common Stock or
any other equity securities, (ii) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock or other equity securities, or (iii) any
securities of the Company pursuant to an equity line structure or format similar
in nature to this Offering.
6.5.2 Investor's Right of First Refusal. For any private capital
raising transactions of Equity Securities which close after the date hereof and
on or prior to the date that is one (1) year after the Termination Date of this
Agreement, not including any warrants issued in conjunction with this Agreement,
the Company agrees to deliver to Investor, at least ten (10) days prior to the
closing of such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the same
terms as contemplated by such transaction.
6.5.3 Exceptions to the Capital Raising Limitations and Rights of
First Refusal. Notwithstanding the above, the Capital Raising Limitations and
the Rights of First Refusal shall not apply to any transaction involving
issuances of securities in connection with a merger, consolidation, acquisition
or sale of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company or exercise of options by employees, consultants or directors, or
a primary underwritten offering of the Company's Common Stock, or the
transactions set forth on Schedule 6.5.1. The Capital Raising Limitations also
shall not apply to (a) the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities outstanding as
of the date hereof, (b) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan for the benefit of the Company's employees, directors or consultants,
or (c) the issuance of debt securities, with no equity feature, incurred solely
for working capital purposes.
6.5.4 Effect of Late Payment Upon Capital Raising Limitations and
Rights of First Refusal. If the Investor, at any time, is more than five (5)
business days late in paying any Put Dollar Amounts that are then due, the
Investor shall not be entitled to the benefits of Sections 6.5.1 and 6.5.2 above
until the date that is fifteen (15) Business Days after the date that the
Investor has paid such Put Dollar Amounts that are then due ("Capital Raising
Period"). The Company shall be entitled to enter into and effect any transaction
for which a final term sheet is executed during any Capital Raising Period.
6.6 Financial 00-XXX Xxxxxxxxxx, Etc. and Current Reports on Form 8-K.
The Company shall deliver to the Investor copies of its annual reports on Form
10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor
current reports on Form 8-K within two (2) days of filing for the Term of this
Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the Investment
Commitment Closing, receive an opinion letter from the Company's legal counsel,
in the form attached as Exhibit B, or in such form as agreed upon by the
parties, and shall, concurrent with each Put Date, receive an opinion letter
from the Company's legal counsel, in the form attached as Exhibit I or in such
form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any Securities
are issued with a restrictive Legend in accordance with the terms of this
Agreement, the Legend shall be removed and the Company shall issue a certificate
without such Legend to the holder of any Security upon which it is stamped, and
a certificate for a security shall be originally issued without the Legend, if
(a) the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Investor), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the Company
shall ensure that its shares of Common Stock (including all Warrant Shares and
Put Shares) are listed and available for trading on the O.T.C. Bulletin Board.
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the O.T.C. Bulletin Board or to become
eligible for and listed and available for trading on the Nasdaq Small Cap
Market, the Nasdaq National Market, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The Company will
instruct the Transfer Agent of the Common Stock, by delivering instructions in
the form of Exhibit T hereto, to issue certificates, registered in the name of
each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.8 hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3 hereof
to resell the Securities pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws. If
(a) an Investor provides the Company with an opinion of counsel, which opinion
of counsel shall be in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from
registration or (b) an Investor transfers Securities, pursuant to Rule 144, to a
transferee which is an Accredited Investor, the Company shall permit the
transfer, and, in the case of Put Shares and Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to an
Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 6.10, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put that
would cause the Aggregate Issued Shares to exceed the Cap Amount, if required by
the rules of NASDAQ because the Company's Common Stock is listed on NASDAQ, the
Company shall obtain approval of its stockholders to authorize (i) the issuance
of the full number of shares of Common Stock which would be issuable pursuant to
this Agreement but for the Cap Amount and eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities with respect to the Company's ability to
issue shares of Common Stock in excess of the Cap Amount (such approvals being
the "Stockholder 20% Approval").
6.12 Press Release. The Company agrees that the Investor shall have
the right to review and comment upon any press release issued by the Company in
connection with the Offering which approval shall not be unreasonably withheld
by Investor.
6.13 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its commitment
hereunder.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. 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, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent, If assigned, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Investor may assign Investor's rights hereunder, in
connection with any private sale of the Common Stock of such Investor, so long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. 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. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants, whether oral, written, or otherwise except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Atlanta, Georgia.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In any
litigation between the parties hereto, the prevailing party, as found by the
court, shall be entitled to an award of all attorney's fees and costs of court.
Should the court refuse to find a prevailing party, each party shall bear its
own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription.
(a) Wire transfer of Subscription Funds. Investor shall deliver
Put Dollar Amounts (as payment towards any Put Share Price) by wire transfer, to
the Company pursuant to a wire instruction letter to be provided by the Company,
and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel, terminate or revoke
this Agreement or any other agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other agreements shall survive
the death or disability of such Investor and shall be binding upon and inure to
the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the Securities subscribed for
are to be owned by more than one person, the obligations of all such owners
under this Agreement shall be joint and several, and the agreements,
representations, warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs, executors,
administrators, successors, legal representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of securities
purchased hereby will pass to Investor upon the Warrant Closing or any Put
Closing.
9. Indemnification.
In consideration of the Investor's execution and delivery of the Investment
Agreement, the Registration Rights Agreement and the Warrants (the "Transaction
Documents") and acquiring the Securities thereunder and in addition to all of
the Company's other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Investor and all of its
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorne s fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee, in an action by a party other than the Company, as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or documents contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (c) any cause of action,
suit or claim, derivative or otherwise, by any stockholder of the Company based
on a breach or alleged breach by the Company or any of its officers or directors
of their fiduciary or other obligations to the stockholders of the Company, or
(d) claims made by third parties against any of the Indemnitees based on a
violation of Section 5 of the Securities Act caused by the integration of the
private sale of common stock to the Investor and the public offering pursuant to
the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
[INTENTIONALLY LEFT BLANK]
10. Accredited Investor. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, or a corporation, limited duration company,
limited liability company, business trust, or partnership not formed
for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective
investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a director,
executive officer or general partner of a general partner of that
issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each of the
two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity described in
a - b above or is an individual who could check one (1) of the last
three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify]
__________________________________________________________.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 14th day of March, 2000.
------------------------------------ ----------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print ----------------------------------
Please type or print address where
your security is to be delivered
____________________________________ ATTN: _____________________________
Title/Representative Capacity (if applicable)
------------------------------------ -----------------------------------
Name of Company You Represent (if applicable) Street Address
------------------------------------ -----------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
----------------------------- -----------------------------------
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: ATTN:
--------------------------------- ------------------------------
-------------------------------------- -----------------------------------
Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx
-------------------------------------- -----------------------------------
City, State or Province, Country, City, State or Country,
Offshore Postal Code Offshore Postal Code
Telephone: __________________________ Telephone: ________________________
Facsimile: __________________________ Facsimile: ________________________
Facsimile: __________________________ Facsimile: ________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 14th DAY OF MARCH, 2000.
U.S. MICROBICS, INC.
By:
----------------------------------
Xxxxxx X. Xxxxx, President & CEO
Address:
0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000, x102
Facsimile: (000) 000-0000
E- mail: Xxx@Xxxxxxxxxx.xxx
ADVANCE PUT NOTICE
U.S. MICROBICS, INC. (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below, to
Xxxxxx Private Equity, LLC, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Xxxxxx Private Equity, LLC dated on
or about March 14, 2000.
Date of Advance Put Notice:
------------------------------
Intended Put Date :
-------------------------------------
Intended Put Share Amount:
------------------------------
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
U.S. MICROBICS, INC.
By:
-------------------------------------------
Xxxxxx X. Xxxxx, President & CEO
Address:
0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000, x102
Facsimile: (000) 000-0000
E- mail: Xxx@Xxxxxxxxxx.xxx
EXHIBIT E
ADVANCE PUT NOTICE CONFIRMATION
Xxxxxx Private Equity, LLC, the Investor, hereby confirms receipt of U.S.
MICROBICS, INC.'s (the "Company") Advance Put Notice on the Advance Put Date
written below, and its intention to elect to exercise a Put to sell shares of
common stock ("Intended Put Share Amount") of the Company to the Investor, as of
the intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Xxxxxx
Private Equity, LLC dated on or about March 14, 2000.
Date of Confirmation:
-----------------------------------
Date of Advance Put Notice:
------------------------------
Intended Put Date:
--------------------------------------
Intended Put Share Amount:
------------------------------
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
----------------------------------------
Investor's Name
By:
------------------------------------
(Signature)
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Telephone No.:
----------------------------------------
Facsimile No.:
----------------------------------------
EXHIBIT F
PUT NOTICE
U.S. MICROBICS, INC. (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to Xxxxxx Private Equity,
LLC, the Investor, as of the Put Date, at the Put Share Price and for the number
of Put Shares written below, all pursuant to that certain Investment Agreement
(the "Investment Agreement") by and between the Company and Xxxxxx Private
Equity, LLC dated on or about March 14, 2000.
Put Date :_________________
Intended Put Share Amount (from Advance Put Notice): _________
Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
U.S. MICROBICS, INC.
By:
----------------------------------------
Xxxxxx X. Xxxxx, President & CEO
Address:
0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000, x102
Facsimile: (000) 000-0000
E- mail: Xxx@Xxxxxxxxxx.xxx
EXHIBIT G
PUT NOTICE CONFIRMATION
Xxxxxx Private Equity, LLC, the Investor, hereby confirms receipt of U.S.
Microbics, Inc. (the "Company") Put Notice and election to exercise a Put to
sell [[___________________________]] shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company and
Xxxxxx Private Equity, LLC dated on or about March 14, 2000.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
-----------------------------------
Investor's Name
By: _______________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT H
PUT CANCELLATION NOTICE
U.S. MICROBICS, INC. (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Xxxxxx Private Equity, LLC dated on or about March
14, 2000, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice is
delivered to the Investor), provided that such cancellation shall not apply to
the number of shares of Common Stock equal to the Truncated Put Share Amount (as
defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: ________
Number of Shares Put on Put Date: ______
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration
Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
U.S. MICROBICS, INC.
By:
----------------------------------------
Xxxxxx X. Xxxxx, President & CEO
Address:
0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Telephone: (000) 000-0000, x102
Facsimile: (000) 000-0000
E- mail: Xxx@Xxxxxxxxxx.xxx
EXHIBIT Q
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the U.S. Microbics, Inc.'s, and Xxxxxx Private
Equity, LLC dated on or about March 14, 2000, hereby confirms receipt of U.S.
Microbics, Inc.'s (the "Company") Put Cancellation Notice, and confirms the
following:
Date of this Confirmation: _____________
Put Cancellation Date : ________________
INVESTOR(S)
-----------------------------------
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT S
