EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
March 22, 2001 by and between Artificial Life, Inc., a Delaware corporation (the
"Company") and Bluefire Capital, Inc., a Cayman Islands corporation (the
"Purchaser").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $25,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company up to an
aggregate purchase price of thirteen million dollars ($13,000,000) of the Common
Stock; except that, the Commitment Amount shall be up to twenty-five million
dollars ($25,000,000) of Common Stock if at any time beginning one (1) year
after the Effective Date (i) the VWAP equals or exceeds $10 for ten (10)
consecutive Trading Days ("Threshold Period"), (ii) during the Threshold Period
and during the 10 consecutive Trading Days either immediately before or after
the Threshold Period the average daily trading volume equals or exceeds 75,000,
and (iii) on the Trading Day immediately after the Threshold Period the
Company's market cap (based on the average of the VWAPs during the Threshold
Period) equals or exceeds seventy-five million dollars ($75,000,000).
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the
payment, by wire transfer, of the $25,000 fees representing a non-accountable
expense allowance for the Purchaser's legal, adiministrative and due diligence
costs and expenses (the "Initial Closing") shall take place at the offices of
Xxxxxxx Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i)
within fifteen (15) days from the date hereof,
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or (ii) such other time and place or on such date as the Purchaser and the
Company may agree upon (the "Initial Closing Date"). Each party shall deliver
all documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Initial Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly, existing and in good standing under
the laws of the State of Delaware and has all requisite corporate
authority to own, lease and operate its properties and assets and to carry
on its business as now being conducted. The Company does not have any
subsidiaries and does not own more than fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not
have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares pursuant to their respective terms, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required, and
(iii) the Transaction Documents have been duly executed and delivered by
the Company and at the Initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock of which 10,303,469 shares
are issued and outstanding and no shares of preferred stock. All of the
outstanding shares of the Company's Common Stock have been duly and
validly authorized and are fully paid and non-assessable, except as set
forth in the SEC Documents. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the SEC Documents, or on
Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
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preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company. Furthermore, except as
set forth in this Agreement and as set forth in the SEC Documents or on
Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the
Company. Except as set forth on Schedule 2.1(c), the Company is not a
party to any agreement granting registration rights to any person with
respect to any of its equity or debt securities. Except as set forth on
Schedule 2.1(c), the Company is not a party to, and it has no knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. Except as set forth in the SEC Documents or
on Schedule 2.1(c) hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued
prior to the Initial Closing complied with all applicable federal and
state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect.
The Company has made available to the Purchaser true and correct copies of
the Company's articles or certificate of incorporation as in effect on the
date hereof (the "Charter"), and the Company's bylaws as in effect on the
date hereof (the "Bylaws"). The Company has not received any notice from
the Principal Market questioning or threatening the continued inclusion of
the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the
Warrant, the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Purchaser shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. Except as set forth on Schedule 2.1(e), the
execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated herein do
not and will not (i) violate any provision of the Company's Charter or
Bylaws, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note,
bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance
on any property of the Company under any agreement or any commitment to
which the Company is a party or by which the Company is bound or by which
any of its respective properties or assets are bound, or (iv) result in a
violation of any federal, state, local or other foreign statute, rule,
regulation, order, judgment or decree (including any federal or state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of
its subsidiaries are bound or affected, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a
Material Adverse Effect. The
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business of the Company and its subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental
entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company
is not required under any federal, state or local law, rule or regulation
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement,
or issue and sell the Shares in accordance with the terms hereof (other
than any filings which may be required to be made by the Company with the
SEC or state securities administrators subsequent to the Initial Closing
and any registration statement which may be filed pursuant hereto);
provided, however, that for purpose of the representations made in this
sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act, and,
except as disclosed in the SEC Documents or on Schedule 2.1(f) hereto, the
Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has
delivered or made available to the Purchaser, through the XXXXX system or
otherwise, true and complete copies of the SEC Documents filed with the
SEC since December 31, 1998. The Company has not provided to the Purchaser
any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act or the Securities Act, as applicable, and the rules and regulations of
the SEC promulgated thereunder applicable to such documents, and, as of
their respective filing dates, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements under GAAP and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements),
and fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
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(g) Subsidiaries. The SEC Documents or Schedule 2.1(g) hereto sets
forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such subsidiary.
For the purposes of this Agreement, "subsidiary" shall mean any
corporation or other entity of which at least a majority of the securities
or other ownership interests having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the
Company and/or any of its other subsidiaries. All of the issued and
outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable.
There are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any subsidiary
for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of any subsidiary.
(h) No Material Adverse Effect. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10-KSB), whichever is most current, no Material Adverse
Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or on Schedule 2.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would be required to be disclosed on a
balance sheet of the Company or any subsidiary (including the notes
thereto) in conformity with GAAP which are not disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since such date and
which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10- Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure
or announcement prior to the date hereof by the Company but which has not
been so publicly announced or disclosed in the SEC Documents.
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(k) Indebtedness. The SEC Documents or Schedule 2.1(k) hereto sets
forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (A) any liabilities for borrowed money or
amounts owed in excess of $500,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all material guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (C) the present value
of any lease payments in excess of $500,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any
subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property
reflected in the SEC Documents, free of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for those
indicated in the SEC Documents or on Schedule 2.1(1) hereto or such that
do not cause a Material Adverse Effect. All said leases of the Company and
each of its subsidiaries are valid and subsisting and in full force and
effect.
(m) Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any subsidiary which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or
to be taken pursuant hereto or thereto. Except as set forth in the SEC
Documents or on Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of
their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary.
(n) Compliance with Law. The Company and each of its subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(o) Taxes. To the best of the Company's knowledge, the Company has
timely filed all material Tax Returns and notices. The Company has no
knowledge, or any reasonable grounds to know, of any Tax deficiencies of
any nature whatsoever which would, in the aggregate, be reasonably likely
to result in a Material Adverse Effect.
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For purposes of this Section 3.1(o):
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits,
sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment,
social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions
to tax, and interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable
by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or
any subsidiary in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.
(r) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations, which are necessary for the
conduct of its business as now conducted without any conflict with the
rights of others, except as could not reasonably be expected to have a
Material Adverse Effect.
(s) Insurance. Except as disclosed in the SEC Documents or on
Schedule 2.1(s) hereto, the Company carries or will have the benefit of
insurance in such amounts and covering such risks as is adequate for the
conduct of its business and the value of its properties and as is
customary for companies engaging in similar businesses and similar
industries, except as could not reasonably be expected to have a Material
Adverse Effect.
(t) Material Agreements. Except as set forth in the SEC Documents,
or on Schedule 2.1(t) hereto, neither the Company nor any subsidiary is a
party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be
filed with the SEC as an exhibit to a registration statement on Form S-1
or other applicable form (collectively, "Material
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Agreements") if the Company or any subsidiary were registering securities
under the Securities Act. Except as set forth on Schedule 2.1(t), the
Company and each of its subsidiaries has in all material respects
performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and, to
the best of the Company's knowledge are not in default under any Material
Agreement now in effect, the result of which could cause a Material
Adverse Effect. Except as set forth in the SEC Documents, no written or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company's Common Stock.
(u) Transactions with Affiliates. Except as set forth in the SEC
Documents or on Schedule 2.1(u) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $250,000 between
(A) the Company, any subsidiary or any of their respective customers or
suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning 5% or more of the capital stock of the
Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(v) Securities Laws. Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy the Shares or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser),
so as to bring the issuance and sale of the Shares under the registration
provisions of the Securities Act and applicable state securities laws.
Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the Shares.
(w) Employees. Since the date of the December 31, 1999 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(x) Governmental Approvals. Except as set forth in the SEC Documents
or on Schedule 2.1(x) hereto, and except for the filing of any notice
prior or subsequent to any Settlement Date that may be required, upon
terms reasonably acceptable to the Company, under applicable federal or
state securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or post-effective
amendment pursuant to this Agreement, no authorization, consent,
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approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares.
Company acknowledges and agrees that Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that
the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereunder. The Company further represents to
the Purchaser that the Company's decision to enter into this Agreement has
been based solely on (a) the Purchaser's representations and warranties in
Section 2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
Section 2.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under
the laws of the Cayman Islands.
(b) Authorization and Power. The Purchaser has the requisite power
and authority to enter into and perform the Transaction Documents and to
purchase the Shares being sold to it hereunder. The execution, delivery
and performance of the Transaction Documents by Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and at the Initial Closing
shall constitute valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which the Purchaser is a party, or result in a
violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to the Purchaser or
its properties (except for such conflicts, defaults and violations as
would not, individually or in the aggregate, have a
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Material Adverse Effect on Purchaser). The Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or
to purchase the Shares in accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits
of an investment in the Shares by virtue of its experience as an investor
and its knowledge, experience, and sophistication in financial and
business matters and the Purchaser is capable of bearing the entire loss
of its investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth
herein in order to determine the suitability of the Purchaser to acquire
the Shares. The Purchaser is entering into this Agreement for its own
account and not with a view to or for sale in connection with any
distribution at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein,
the Purchaser 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.
(g) Ownership of Common Stock. The Purchaser does not currently
beneficially own any shares of Common Stock or any other security of the
Company, which is convertible into shares of capital stock of the Company.
(h) Information. To the best of their knowledge, the Purchaser and
its advisors, if any, have been furnished with all materials relating to
the business, finances and operations of the Company and material relating
to the offer and sale of the Shares which have been requested by the
Purchaser. The Purchaser and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. The Purchaser has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Shares. Purchaser understands that it (and not the Company) shall be
responsible for its own tax liabilities that may arise as a result of this
investment or the transactions contemplated by this Agreement.
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ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each Draw Down Notice, the
Company will have authorized and reserved, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Draw Down Shares
to be issued in connection with such Draw Down requested under this Agreement.
The Draw Down Shares to be issued under this Agreement, when paid for and issued
in accordance with the terms hereof, shall be duly and validly issued and
outstanding, fully paid and non-assessable, and the Purchaser shall be entitled
to all rights accorded to a holder of Common Stock. Anything in this Agreement
to the contrary notwithstanding, (i) at no time will the Company request a Draw
Down which would result in the issuance of an aggregate number of shares of
Common Stock pursuant to this Agreement which exceeds 19.9% of the number of
shares of Common Stock issued and outstanding on the Initial Closing Date
without obtaining stockholder approval of such excess issuance, or such other
amount as would require stockholder approval under rules of the Principal Market
or otherwise without obtaining stockholder approval of such excess issuance, and
(ii) the Company may not make a Draw Down to the extent that, after such
purchase by the Purchaser, the sum of the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates would result in
beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall
notify the Principal Market, in accordance with its rules and regulations, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares and the
Warrant to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the Exchange Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will
take all action necessary to continue the listing or trading of its Common Stock
on the Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide the Purchaser with copies of any
11
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until the Purchaser has disposed of all of the Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down.
Section 3.6. Accuracy of Registration Statement. On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the instructions or
information furnished in writing to the Company by the Purchaser specifically
for inclusion or omission in the Registration Statement and the prospectus
therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the ability
of the Company to perform its obligations under this Agreement with respect to
any Draw Down Shares or pending Draw Downs.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will promptly notify the Purchaser
in writing and obtain an acknowledgment from Purchaser upon the occurrence of
any of the
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following events in respect of the Registration Statement or related prospectus
in respect of the Shares: (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to which
would require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the filing of a post-effective amendment to, or withdrawal
of, the Registration Statement. The Company shall not deliver to the Purchaser
any Draw Down Notice during the continuation of any of the foregoing events. The
Company shall promptly make available to the Purchaser any such supplements or
amendments to the related prospectus, at which time, provided that the
registration statement and any supplements and amendments thereto are then
effective, the Company may recommence the delivery of Draw Down Notices.
Section 3.11. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees that it
will not enter into any other standby equity-based credit facility, except that,
if the Company is precluded from exercising a Draw Down for 30 consecutive days
during the Commitment Period because of the limitation set forth in Section
3.1(ii) herein, the Company shall have the right to enter into another standby
equity-based credit facility. During the term of this Agreement, the Purchaser
shall have a right of notice and negotiation with respect to any sale of the
Company's securities with registration rights at a price per share less than the
then current market price ("Discount Offering"). In the event that the Company
proposes to arrange for a Discount Offering, it shall provide written notice
("Discount Offering Notice") to Purchaser of such intent, which shall include a
summary of the terms thereof. Within seven (7) days Trading Days of receipt of
the Discount Offering Notice Purchaser shall deliver a written notice
("Purchaser Notice") to the Company stating whether or not it wishes to
negotiate a Discount Offering. If Purchaser agrees to negotiate, Purchaser shall
have the right to negotiate a Discount Offering for
13
a period of twenty (20) Trading Days from the date of receipt of the Purchaser
Notice ("Negotiation Period"). If Purchaser declines to negotiate or is not able
to negotiate a Discount Offering by the expiration of the Negotiation Period the
Company may proceed to consummate a Discount Offering. The foregoing right of
negotiations shall not apply to any sale of securities of the Company for an
aggregate consideration up to $5 million which is committed to prior the
Effective Date.
Section 3.13. Minimum Commitment Amount. During the Commitment Period, the
Company shall make Draw Downs of at least five hundred thousand dollars
($500,000), in the aggregate, pursuant to this Agreement. In the event that the
Company fails to make Draw Downs of at least five hundred thousand dollars
($500,000), in the aggregate, during the Commitment Period, the Company shall
pay the Purchaser, as liquidated damages, within five (5) days from the end of
the Commitment Period, an amount based on the following formula:
$250,000 - [(Aggregate Draw Downs x $250,000)/$500,000]
Section 3.14. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
The Purchaser covenants with the Company as follows:
Section 3.15. Compliance with Law. The Purchaser agrees that its
performance hereunder and its trading activities with respect to shares of the
Company's Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of the
SEC and the Principal Market on which the Company's Common Stock is listed,
including but not limited to, Regulation M of the Securities Act. Without
limiting the generality of the foregoing, the Purchaser agrees that it will,
whenever required by federal securities laws, deliver the prospectus included in
the Registration Statement to any purchaser of Shares from the Purchaser.
Section 3.16. No Short Sales. The Purchaser and its affiliates shall not
engage in short sales of the Company's Common Stock (as defined in applicable
SEC and the Principal Market rules) during the term of this Agreement.
Section 3.17. Confidentiality. Purchaser acknowledges and agrees that the
information set forth in this Agreement, together with any other information
contained in any schedules hereto or in any related agreements, or disclosed in
connection herewith by the Company, is strictly confidential ("Confidential
Information") and accordingly, unless such information is already publicly
disclosed other than through an act of the Purchaser or any of its affiliate,
the Purchaser agrees that none of such information shall be reproduced or used
for any purpose other than in connection with the consideration of the purchase
of the Shares hereunder, nor will any information be transmitted to or discussed
with persons other than the authorized representatives, agents or such advisors
of the Purchaser to whom information is transmitted for such purpose. Purchaser
further acknowledges that the securities laws of the United States
14
restrict persons with material, non-public information about an issuer obtained,
directly or indirectly from such issuer, from purchasing or selling securities
of such issuer or for communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities, and accordingly, the Purchaser will
maintain internal policies and procedures to restrict the flow of material,
non-public information about the Company to such persons.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time, except
for representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Purchaser at or prior
to the Initial Closing and as of each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. With respect to the Initial
Closing only, no action, suit or proceeding before any arbitrator or any
governmental authority shall have been commenced, and no investigation by
any governmental authority shall have been threatened, against the
Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to
restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to
15
purchase the Shares is subject to the satisfaction or waiver, at or before the
Initial Closing, of each of the conditions set forth below. These conditions are
for the Purchaser's sole benefit and may be waived by the Purchaser at any time
in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the
Initial Closing as though made at that time (except for representations
and warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have
been threatened, against the Purchaser or the Company or any subsidiary,
or any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated as of the
Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant certificate to purchase up to 150,000 shares of
Common Stock. The Warrant shall have a term from its initial date of
exercise of 3 years beginning six months from the Initial Closing Date.
The exercise price of the Warrant shall be 110% of the average of the
closing bid prices during the seven (7) Trading Days immediately prior to
the Initial Closing Date. The Common Stock underlying the Warrant will be
registered in the Registration Statement referred to in Section 4.3
hereof. The Warrant shall be in the form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to Accept a
Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to
accept a Draw Down request and to acquire and pay for the Shares is subject to
the satisfaction at or before each Settlement Date, of each of the conditions
set forth below.
16
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied, or the Purchaser shall have waived at the Initial Closing,
the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the SEC and
shall remain effective on each Settlement Date.
(c) No Suspension. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down
Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Principal Market shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal
Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform
the Company's obligations shall have occurred.
(e) Opinion of Counsel. The Purchaser shall have received (i) a
"down-to-date" letter from the Company's counsel, confirming that there is
no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as
to the additional items specified in Exhibit C hereto, and (ii) any other
items set forth in the Escrow Agreement. Such counsel shall also have
furnished to the Purchaser a written statement, addressed to the Purchaser
and dated such Settlement Date, to the effect that (x) such counsel has
acted as counsel to the Company in connection with the Purchase Agreement
and related matters, including the preparation of the Registration
Statement and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead them to believe that the Registration
Statement, as of the Effective Date, or any amendment thereto, contains or
contained any untrue statement of a material fact or omits or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, which statement shall not address
the financial statements and notes thereto and the schedules and other
financial and statistical data derived therefrom included in the
Registration Statement.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
17
(a) The Company, may, in its sole discretion, issue and exercise
draw downs (each a "Draw Down") during the Commitment Period, which Draw
Downs the Purchaser shall be obligated to accept, subject to the terms and
conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period and the Company shall not deliver any Draw Down Notice unless the
appropriate Trading Cushion has expired. The number of shares of Common
Stock purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 7th Trading Days after a Draw
Down Pricing Period commences, on or before the 9th Trading Day
after a Draw Down Pricing Period commences;
(ii) as to the 8th through the 14th Trading Days after a Draw
Down Pricing Period commences, on or before the 16th Trading Day
after a Draw Down Pricing Period; and
(iii) as to the 15th through the 21st Trading Days after a
Draw Down Pricing Period commences, on or before the 23rd Trading
Day after a Draw Down Pricing Period (such settlement periods and
such settlement dates in subsection (i), (ii) and this subsection
(iii) each referred to as a "Settlement Period" and a "Settlement
Date", respectively).
(c) In connection with each Draw Down Pricing Period, the Company
may set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be
$100,000 and the maximum Investment Amount as to each Draw Down shall be
15% of the average of the VWAPs for the Common Stock for the forty (40)
Trading Days immediately prior to the applicable Commencement Date
(defined below) multiplied by the total trading volume in respect of the
Common Stock for such period. Notwithstanding anything herein to the
contrary, in the event the minimum Investment Amount is greater than the
maximum Investment Amount with respect to any Draw Down, as to such Draw
Down only, the minimum Investment Amount shall equal the maximum
Investment Amount, but in no event shall the minimum Investment Amount be
less than $50,000, such that if the maximum Investment Amount is less than
$50,000, the Company shall be precluded from making a Draw Down at such
time.
(e) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x)
1/21st of the Investment Amount, and (y) the Purchase Price on each
Trading Day within the Settlement Period, subject to the following
adjustments:
18
(i) if the VWAP on a given Trading Day is less than the
Threshold Price, then that portion of the Investment Amount to be
paid as to the immediately pending Settlement Date shall be reduced
by 1/21st of the Investment Amount and such Trading Day shall be
withdraw from the Settlement Period;
(ii) if during any Trading Day during the Settlement Period
trading of the Common Stock on the Principal Market is suspended for
more than three (3) hours, in the aggregate, or if any Trading Day
during the Settlement Period is shortened because of a public
holiday, then that portion of the Investment Amount to be paid as to
the immediately pending Settlement Date shall be reduced by 1/21st
of the Investment Amount and such Trading Day shall be withdraw from
the Settlement Period; and
(iii) if the Registration Statement is suspended or sales made
thereunder are suspended in accordance with Section 3(j) or 5(e) of
the Registration Rights Agreement for more than three (3) hours, in
the aggregate, on any Trading Day during the Settlement Period, then
that portion of the Investment Amount to be paid as to the
immediately pending Settlement Date shall be reduced by 1/21st of
the Investment Amount and such Trading Day shall be withdraw from
the Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise,
before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down
Notice, the Draw Down Notice must be delivered to and receipt confirmed by
the Purchaser at least one hour before trading commences on such date. At
no time shall the Purchaser be required to purchase more than the maximum
Investment Amount for a given Draw Down Pricing Period so that if the
Company chooses not to exercise the maximum Investment Amount in a given
Draw Down Pricing Period the Purchaser is not obligated to and shall not
purchase more than the scheduled maximum Investment Amount in a subsequent
Draw Down Pricing Period.
(g) On or prior to each Settlement Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on
the Purchaser's behalf. Upon the Company electronically delivering whole
shares of Common Stock to the Purchaser or its designees via DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. EST,
the Purchaser shall wire transfer immediately available funds to the
Company's designated account on such day, less any fees as set forth in
the Escrow Agreement, which fees shall be wired as directed in the Escrow
Agreement. Upon the Company electronically delivering whole shares of
Common Stock to the Purchaser or its designees DTC account via DWAC after
1:00 p.m. EST, the Purchaser shall wire transfer next day available funds
to the Company's designated account on such day, less any fees as set
forth in the Escrow Agreement,
19
which fees shall be wired as directed in the Escrow Agreement. As to any
Settlement, either party may elect to use the Escrow Agent, in which case
the Shares and the aggregate Purchase Price shall be delivered as set
forth in the Escrow Agreement.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end 36 months from the Effective Date or as otherwise set forth
in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice
if (i) an event resulting in a Material Adverse Effect has occurred and
has not been cured for a period of thirty (30) days after giving notice
thereof, (ii) the Common Stock is de-listed from the Principal Market
unless such de-listing is in connection with the Company's subsequent
listing of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange, or
(iii) the Company files for protection from creditors under any applicable
law.
(b) The Company may terminate this Agreement upon one (1) Trading
Day's notice if the Purchaser shall fail to fund more than one properly
noticed Draw Down within five (5) Trading Days of the end of the
applicable Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company or the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser
(and its directors, officers, affiliates, agents, successors and assigns)
from and
20
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Purchaser as a result of any
inaccuracy in or breach of the representations, warranties or covenants
made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company
and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Company as result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein. Notwithstanding anything to the
contrary herein, the Purchaser shall be liable under this Section 7.1(b)
for only that amount as does not exceed the net proceeds to the Purchaser
as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything
21
in this Article 7 to the contrary, the indemnifying party shall not, without the
Indemnified Party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Each of the parties to this Agreement
shall pay its own fees and expenses related to the transactions contemplated by
this Agreement; except that, the Company shall pay, at the Initial Closing, a
non-accountable expense allowance of $25,000 for the Purchaser's administrative
and due diligence costs and expenses and $10,000 for Purchaser's legal costs and
expenses and any other additional fees as set forth in the Escrow Agreement. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or waivers
of this Agreement, the Escrow Agreement or the Registration Rights Agreement or
incurred in connection with the enforcement of this Agreement, the Escrow
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys' fees and expenses if such subsequent amendment,
modification or waiver is at the request of the Company. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents
contain the entire understanding of the parties with respect to the matters
covered in the Transaction Documents. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment
22
or waiver is sought and no condition to closing any Draw Down in favor of the
Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 0 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Eberhard Schoneburg
Tel: (000) 000-0000
Fax: (000) 000-0000
with copies to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(which shall not constitute One Financial Center
notice) Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: c/o International Management Services Ltd.
Xxxxxxx Xxxxxx
0xx Xxxxx
Xxxxx Xxxxxx Xxxxxxx
Attn: Xxx Xxxxxxx
Fax: (000) 000-0000
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not constitute 000 Xxxx Xxxxxx
xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 8.5. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing
23
waiver in the future or a waiver of any other provisions, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
Section 8.6. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Initial Closing, the assignment by a party
to this Agreement of any rights hereunder shall not affect the obligations of
such party under this Agreement.
Section 8.8. No Third Party Beneficiaries.This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. The Company and the
Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive
24
action shall be awarded its costs, including reasonable attorneys' fees, from
the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party, except that the Company may make any disclosure as required by the
federal securities laws. After the Initial Closing, the Company may issue a
press release or otherwise make a public statement or announcement with respect
to this Agreement or the transactions contemplated hereby or the existence of
this Agreement; provided, however, that prior to issuing any such press release,
making any such public statement or announcement, the Company obtains the prior
consent of the Purchaser, which consent shall not be unreasonably withheld or
delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible,
so long as such construction does not materially adversely effect the economic
rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
25
(a) "Commencement Date" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term
in Section 1.1 hereof.
(c) "Commitment Period" shall mean the period of 36 consecutive
months commencing immediately after the Effective Date.
(d) "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
(e) "Draw Down" shall have the meaning assigned to such term in
Section 5.1(a) hereof.
(f) "Draw Down Notice" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(g) "Draw Down Pricing Period" shall mean a period of twenty-one
(21) consecutive Trading Days beginning on the date specified in the Draw
Down Notice (as defined in Section 5.1(f) herein); provided, however, the
Draw Down Pricing Period shall not begin before the day on which receipt
of such notice is confirmed by the Purchaser.
(h) "Effective Date" shall mean the date the Registration Statement
of the Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
(j) "GAAP" shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are
determined by the Financial Accounting Standards Board and its predecessor
agencies.
(k) "Initial Closing" shall have the meaning assigned to such term
in Section 1.2 hereof.
(l) "Initial Closing Date" shall have the meaning assigned to such
term in Section 1.2 hereof.
(m) "Investment Amount" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(n) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, prospects or financial condition of the
Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole
26
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform
any of its material obligations under this Agreement or the Registration
Rights Agreement or to perform its obligations under any other Material
Agreement (as defined in Section 2.1(u)).
(o) "Principal Market" shall mean initially the Nasdaq National
Market and shall include the OTC Bulletin Board, the American Stock
Exchange, the Nasdaq Small-Cap Market and the New York Stock Exchange if
the Company becomes listed and trades on such market or exchange after the
date hereof.
(p) "Purchase Price" shall mean 86% of the VWAP on the date in
question (the "Purchase Price Percentage); provided, however, if the
average of the VWAPs during a Settlement Period is greater than $8.00 and
equal to or less than $12.00, the Purchase Price Percentage shall be 88%
during such Settlement Period and if the average of the VWAP's during a
Settlement Period is greater than $12.00, the Purchase Price Percentage
shall be 90% during such Settlement Period. Notwithstanding anything to
the contrary herein, any Draw Down occuring during the period that the
Trading Cushion is reduced because of a Special Activity, the Purchase
Price Percentage shall be reduced an additional 3%.
(q) "Registration Statement" shall mean the registration statement
under the Securities Act, to be filed with the Securities and Exchange
Commission for the registration of the Shares pursuant to the Registration
Rights Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement).
(r) "SEC" shall mean the Securities and Exchange Commission.
(s) "SEC Documents" shall mean the Company's latest Form 10-K or
Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K
filed thereafter, and the Proxy Statement for its latest fiscal year as of
the time in question until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
(t) "Securities Act" shall mean the Securities and Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
(u) "Settlement" shall mean the delivery of the Draw Down Shares
into the Purchaser's DTC account in exchange for payment therefor.
(v) "Settlement Date" shall have the meaning assigned to such term
in Section 5.1(b).
(w) "Settlement Period" shall have the meaning assigned to such term
in Section 5.1(b).
27
(x) "Shares" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (the "Draw Down Shares") and
the shares of Common Stock issuable upon exercise of the Warrant (the
"Warrant Shares").
(y) "Special Activity" shall mean any one time charge the Company
expects to incur for any reason, including, without limitation, in
connection with the acquisition of another business.
(z) "Threshold Price" shall mean the price per Share designated by
the Company as the lowest VWAP during any Draw Down Pricing Period at
which the Company shall sell its Common Stock in accordance with this
Agreement.
(aa) "Trading Cushion" (bb) shall mean the mandatory six (6) Trading
Days between Draw Down Pricing Periods. Notwithstanding the foregoing, in
the event the Company gives the Purchaser twenty-one (21) days notice of a
Special Activity, the Trading Cushion shall be adjusted to two (2) Trading
Days for a period of seven (7) consecutive weeks.
(cc) "Trading Day" shall mean any day on which the Principal Market
is open for business.
(dd) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(ee) "VWAP" shall mean the daily volume weighted average price of
the Company's Common Stock on the Principal Market as reported by
Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern
Time to 4:02 p.m. Eastern Time) using the VAP function on the date in
question.
(ff) "Warrant" shall mean the warrant issued to the Purchaser
pursuant to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
28
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of this 22nd day of
March, 2001.
ARTIFICIAL LIFE, INC.
By: /s/ Eberhard Schoneburg
------------------------------------
Eberhard Schoneburg, President & CEO
BLUEFIRE CAPITAL, INC.
By: N.D. Nominees Ltd.
By: /s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx, Authorized Signatory
29
