Exhibit 4.10
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MERCATOR MOMENTUM FUND, L.P.
AND
FAMOUS FIXINS, INC.
DATED AS OF December 27, 2002
21
TABLE OF CONTENTS
PAGE
ARTICLE I: CERTAIN DEFINITIONS...................................................................................26
Section 1.1 "Adjustment Price"..........................................................................26
Section 1.2 "Adjustment Shares".........................................................................26
Section 1.3 "Bid Price".................................................................................26
Section 1.4 "Capital Shares"............................................................................26
Section 1.5 "Closing"...................................................................................26
Section 1.6 "Closing Date"..............................................................................27
Section 1.7 "Commitment Period".........................................................................27
Section 1.8 "Commitment Shares".........................................................................27
Section 1.9 "Common Stock"..............................................................................27
Section 1.10 "Condition Satisfaction Date"...............................................................27
Section 1.11 "Daily Trading Value".......................................................................27
Section 1.12 "Damages"...................................................................................27
Section 1.13 "Effective Date"............................................................................27
Section 1.14 "Exchange Act"..............................................................................27
Section 1.15 "Investment Amount".........................................................................27
Section 1.16 "Legend"....................................................................................27
Section 1.17 "Lowest Price"..............................................................................27
Section 1.18 "Material Adverse Effect"...................................................................27
Section 1.19 "Material Adverse Market Event".............................................................28
Section 1.20 "Maximum Commitment Amount".................................................................28
Section 1.21 "Maximum Put Amount"........................................................................28
Section 1.22 "Minimum Bid Price".........................................................................28
Section 1.23 "Minimum Put Amount"........................................................................28
Section 1.24 "Minimum Time Interval".....................................................................28
Section 1.25 "NASD"......................................................................................28
Section 1.26 "Outstanding"...............................................................................28
Section 1.27 "Person"....................................................................................28
Section 1.28 "Principal Market"..........................................................................28
Section 1.29 "Purchase Price"............................................................................28
Section 1.30 "Put".......................................................................................29
Section 1.31 "Put Date"..................................................................................29
Section 1.32 "Put Notice"................................................................................29
Section 1.33 "Put Notice Period".........................................................................29
Section 1.34 "Put Shares"................................................................................29
Section 1.35 "Registrable Securities"....................................................................29
Section 1.36 "Registration Rights Agreement".............................................................29
Section 1.37 "Registration Statement"....................................................................30
Section 1.38 "Regulation D"..............................................................................30
Section 1.39 "SEC".......................................................................................30
Section 1.40 "SEC Documents".............................................................................30
Section 1.41 "Section 4(2)"..............................................................................30
Section 1.42 "Securities Act"............................................................................30
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Section 1.43 "Subscription Date".........................................................................30
Section 1.44 "Subsidiary"................................................................................30
Section 1.45 "Trading Day"...............................................................................30
Section 1.46 "Underwriter"...............................................................................30
Section 1.47 "Valuation Period"..........................................................................30
ARTICLE II: PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF OBLIGATIONS........................................30
Section 2.1 Investments.................................................................................30
Section 2.2 Mechanics...................................................................................31
Section 2.3 Closings....................................................................................31
Section 2.4 Termination of Agreement and Investment Obligation..........................................31
Section 2.5 The Commitment Fee..........................................................................32
Section 2.6 Adjustment Shares...........................................................................32
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF INVESTOR..........................................................32
Section 3.1 Intent......................................................................................32
Section 3.2 Sophisticated Investor......................................................................32
Section 3.3 Authority...................................................................................33
Section 3.4 Not an Affiliate............................................................................33
Section 3.5 Organization and Standing...................................................................33
Section 3.6 Absence of Conflicts........................................................................33
Section 3.7 Disclosure; Access to Information...........................................................33
Section 3.8 Manner of Sale..............................................................................33
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................33
Section 4.1 Organization of the Company.................................................................33
Section 4.2 Authority...................................................................................34
Section 4.3 Corporate Documents.........................................................................34
Section 4.4 Books and Records...........................................................................34
Section 4.5 Capitalization..............................................................................34
Section 4.6 Registration and Listing of Common Stock....................................................35
Section 4.7 Financial Statements........................................................................35
Section 4.8 SEC Documents...............................................................................35
Section 4.9 Exemption from Registration; Valid Issuances; New Issuances.................................36
Section 4.10 No General Solicitation or Advertising in Regard to this Transaction........................36
Section 4.11 No Conflicts................................................................................36
Section 4.12 No Material Adverse Change..................................................................37
Section 4.13 No Undisclosed Liabilities..................................................................37
Section 4.14 No Undisclosed Events or Circumstances......................................................37
Section 4.15 No Integrated Offering......................................................................37
Section 4.16 Litigation and Other Proceedings............................................................38
Section 4.17 No Misleading or Untrue Communication.......................................................38
Section 4.18 Material Non-Public Information.............................................................38
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ARTICLE V: COVENANTS OF THE INVESTOR.............................................................................38
Section 5.1 No Short Sales..............................................................................38
ARTICLE VI: COVENANTS OF THE COMPANY.............................................................................38
Section 6.1 Registration Rights.........................................................................38
Section 6.2 Reservation of Common Stock.................................................................38
Section 6.3 Listing of Common Stock.....................................................................39
Section 6.4 Exchange Act Registration...................................................................39
Section 6.5 Legends.....................................................................................39
Section 6.6 Corporate Existence.........................................................................39
Section 6.7 Additional SEC Documents....................................................................39
Section 6.8 Notice of Certain Events Affecting Registration; Suspension of Right to Make a Put..........39
Section 6.9 Consolidation; Merger.......................................................................40
Section 6.10 Legal Opinion on Subscription Date..........................................................40
Section 6.11 No Similar Arrangement; Right of First Refusal..............................................40
ARTICLE VII: CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS TO CLOSING.....................................41
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue and Sell Common Stock........41
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a Put Notice and the Obligation of the Investor to
Purchase Put Shares.........................................................................41
Section 7.3 Due Diligence Review; Non-Disclosure of Non-Public Information..............................44
ARTICLE VIII: LEGENDS............................................................................................45
Section 8.1 Legends.....................................................................................45
Section 8.2 No Other Legend or Stock Transfer Restrictions..............................................46
Section 8.3 Investor's Compliance.......................................................................46
ARTICLE IX: INDEMNIFICATION; ARBITRATION.........................................................................46
Section 9.1 Indemnification.............................................................................46
Section 9.2 Method of Asserting Indemnification Claims..................................................47
Section 9.3 Arbitration.................................................................................49
ARTICLE X: MISCELLANEOUS.........................................................................................50
Section 10.1 Transaction Costs...........................................................................50
Section 10.2 Reporting Entity for the Common Stock.......................................................50
Section 10.3 Brokerage...................................................................................50
Section 10.4 Notices.....................................................................................50
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Section 10.5 Assignment..................................................................................51
Section 10.6 Amendment; No Waiver........................................................................51
Section 10.7 Annexes and Exhibits; Entire Agreement......................................................51
Section 10.8 Survival....................................................................................52
Section 10.9 Severability................................................................................52
Section 10.10 Title and Subtitles.........................................................................52
Section 10.11 Counterparts................................................................................52
Section 10.12 Choice of Law...............................................................................52
Section 10.13 Other Expenses..............................................................................52
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STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MERCATOR MOMENTUM FUND, L.P.
AND
FAMOUS FIXINS, INC.
This STOCK PURCHASE AGREEMENT is entered into as of the __th day of December,
2002 (this "Agreement"), by and between MERCATOR MOMENTUM FUND, L.P., a limited
partnership organized and existing under the laws of California and affiliates
it may designate as co-investors (collectively the "Investor") and FAMOUS
FIXINS, INC., a corporation organized and existing under the laws of the State
of New York (the "Company").
WHEREAS, the parties desire that, subject to the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$2,000,000 of shares of the Company's Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the private offering
exemption under Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D")
of the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I: CERTAIN DEFINITIONS
Section 1.1......."Adjustment Price" shall mean ninety-two percent (92%) of the
lowest closing Bid Price of the Company's Common Stock during the 15 Trading
Days following each Closing Date.
Section 1.2......."Adjustment Shares" shall mean all shares issued pursuant to
Section 2.6 below.
Section 1.3......."Bid Price" shall mean the closing bid price as reported under
Section 10.2 of this Agreement.
Section 1.4......."Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of dividends (as and when declared) and
assets (upon liquidation of the Company).
Section 1.5......."Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.6......."Closing Date" shall mean, with respect to a Closing, the
Trading Day specified in the Put Notice related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.
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Section 1.7......."Commitment Period" shall mean the period commencing on the
effectiveness of the Registration Statement and expiring on the earlier to occur
of (i) the date on which the Investor shall have purchased Put Shares pursuant
to this Agreement for an aggregate Purchase Price of the Maximum Commitment
Amount, (ii) the date this Agreement is terminated pursuant to Section 2.4, or
(iii) the date occurring three years from the Subscription Date.
Section 1.8......."Commitment Shares" shall mean any shares of Common Stock that
may be issued pursuant to Section 2.5 below.
Section 1.9......."Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.10......"Condition Satisfaction Date" shall have the meaning set forth
in Section 7.2 of this Agreement.
Section 1.11......"Daily Trading Value" shall mean, on any Trading Day, the Bid
Price multiplied by the trading volume of the Common Stock.
Section 1.12......"Damages" shall mean any and all losses, claims, damages,
liabilities, costs and expenses (including, without limitation, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in defense or settlement of, any action, suit or
proceeding between any indemnified party and any indemnifying party or between
any indemnified party and any third party, or otherwise, or any claim asserted).
Section 1.13......"Effective Date" shall mean the earlier to occur of: (i) the
date on which the SEC has declared effective a Registration Statement
registering resale of Registrable Securities as set forth in Section 7.2(a); and
(ii) the date on which such Registrable Securities first become eligible for
resale pursuant to Rule 144 of the Securities Act.
Section 1.14......"Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder.
Section 1.15......"Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor in accordance with Section 2.2 hereof.
Section 1.16......"Legend" shall have the meaning specified in Section 8.1.
Section 1.17......"Lowest Price" shall mean the lowest closing Bid Prices during
the applicable Valuation Period.
Section 1.18......"Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement or (ii) the Registration Rights
Agreement. Material Adverse Effect shall include, but not be limited to, any
qualification of the Company's financial statements by its auditor, any
restatement of prior financial results, resignation by any Director or failure
to timely file any SEC documents.
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Section 1.19......"Material Adverse Market Event" shall mean a fall in the
NASDAQ Composite Index or Standard and Poors 500 index in excess of 10% in any
Trading Day or in excess of 20% over any 5 consecutive Trading Days.
Section 1.20......"Maximum Commitment Amount" shall mean $2,000,000.
Section 1.21......"Maximum Put Amount" shall be limited to the lesser of (a)
$150,000; (b) the remaining amounts available under the line; (c) an amount
equal to 10% of the total dollar trading volume in Company common stock (based
on the closing bid prices) during the month in questions; or (d) the maximum
amount which the Investor could purchase without being required to file a Form
13D under the Securities Exchange Act of 1934.
Section 1.22......"Minimum Bid Price" shall have the meaning set forth in
Section 7.2(j) of this Agreement.
Section 1.23......"Minimum Put Amount" shall mean $50,000.
Section 1.24......"Minimum Time Interval" shall mean the mandatory twenty-two
(22) Trading Days between any two Put Dates.
Section 1.25......"NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.26......"Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.27......"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.28......"Principal Market" shall mean the NASDAQ National Market, the
NASDAQ Small Cap Market, the American Stock Exchange, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.29......"Purchase Price" shall mean, with respect to a Put, ninety-two
percent (92%) of the Lowest Price.
Section 1.30......"Put" shall mean each occasion the Company elects to exercise
its right to tender a Put Notice requiring the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms and
conditions of this Agreement.
Section 1.31......"Put Date" shall mean the Trading Day during the Commitment
Period that a Put Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
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Section 1.32......"Put Notice" shall mean a written notice to the Investor
setting forth the: (i) intended Closing Date, which shall not be less than seven
(7) nor more than ten (10) Trading Days from the date the Put Notice is
delivered to the Investor; and (ii) Investment Amount that the Company intends
to require the Investor to purchase pursuant to the terms of this Agreement.
Section 1.33......"Put Notice Period" shall mean a period beginning on a Put
Date and ending on a Closing Date; provided that in no event shall a Put Notice
Period be less than seven (7) nor more than ten (10) Trading Days.
Section 1.34......"Put Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement and, in respect of
representations and warranties of the Company and any ongoing registration
obligations, shall also include any Commitment Shares and any Adjustment Shares,
whether or not those are specified or not below.
Section 1.35......"Registrable Securities" shall mean (i) the Put Shares, (ii)
any Commitment Shares; (ii) any Adjustment Shares and (iv) any securities issued
or issuable with respect to any of the foregoing by way of exchange, stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise. As
to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (w) the applicable Registration
Statement has been declared effective by the SEC and all such Registrable
Securities have been disposed of pursuant to the applicable Registration
Statement, (x) all such Registrable Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act("Rule 144") are met,
(y) such time as all such Registrable Securities have been otherwise transferred
to holders who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (z) in the
opinion of counsel to the Company, which counsel shall be reasonably acceptable
to the Investor, all such Registrable Securities may be sold without
registration or the need for an exemption from any registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
Section 1.36......"Registration Rights Agreement" shall mean the registration
rights agreement in the form of Exhibit A hereto.
Section 1.37......"Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate and which form shall be available for the resale of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement and in accordance with the intended
method of distribution of such securities), for the registration of the resale
by the Investor of the Registrable Securities under the Securities Act.
Section 1.38......"Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
29
Section 1.39......"SEC" shall mean the Securities and Exchange Commission.
Section 1.40......"SEC Documents" shall mean the Company's latest Form 10-K as
of the time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.41......"Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.42......"Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.43......"Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.44......"Subsidiary" shall mean any Person in which the Company,
directly or indirectly through Subsidiaries or otherwise, beneficially owns more
than fifty percent (50%) of either the equity interests in, or the voting
control of, such Person.
Section 1.45......"Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.46......"Underwriter" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
a Registration Statement.
Section 1.47......"Valuation Period" shall mean: (i) with respect to an
Effective Date, the five Trading Day period immediately preceding such Effective
Date; and (ii) with respect to a Closing Date, the five Trading Day period
immediately preceding the applicable Put Date, during which the Purchase Price
of the Common Stock is determined.
ARTICLE II: PURCHASE AND SALE OF COMMON STOCK;
TERMINATION OF OBLIGATIONS
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII hereof), on any Put Date the Company
may exercise a Put by the delivery of a Put Notice. The number of Put Shares
that the Investor shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Put Notice by the Purchase Price
with respect to such Put Date.
(b) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the requisite approval of
its shareholders in accordance with the corporate laws of any State or
regulatory or self regulatory authority which may be applicable, no more than
19.9% of the Outstanding shares of Common Stock may be issued and sold pursuant
to Puts without shareholder approval. The Investor's obligation to purchase
shares of the Company's Common Stock under this Agreement during any 30-day
period shall be the lesser of: (i) $150,000; (ii) the remaining amounts
available under the line; (iii) an amount equal to 10% of the total dollar
trading volume in the Company's Common Stock (based on the closing bid prices)
during the 30-days in questions; or (iv) the maximum amount which the Investor
could purchase without being required to file a Form 13D under the Securities
Exchange Act of 1934.
30
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company may
deliver a Put Notice to the Investor, subject to the conditions set forth in
Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered
on (i) the Trading Day it is received by facsimile or otherwise by the Investor
if such notice is received prior to 12:00 noon New York time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 a.m. Pacific Coast time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 CLOSINGS. The Closing Date shall not be less than seven (7)
nor more than ten (10) Trading Days from the date the Put Notice is delivered to
the Investor. On each Closing Date for a Put, (i) the Company shall deliver
irrevocable instructions to the transfer agent to promptly prepare and deliver
to the Investor a share certificate in the name of the Investor and in the
amount of the applicable Put Shares and (ii) the Investor shall deliver to the
Company the Investment Amount specified in the Put Notice by wire transfer of
immediately available funds to the account designated in the Put Notice. In
addition, on or prior to such Closing Date, each of the Company and the Investor
shall deliver to the other party all documents, instruments and writings
required to be delivered or reasonably requested by either of them pursuant to
this Agreement in order to implement and effect the transactions contemplated
herein.
Section 2.4 TERMINATION OF AGREEMENT AND INVESTMENT OBLIGATION. The
Company shall have the right to terminate this Agreement at any time upon thirty
(30) days' written notice to the Investor. The Investor shall have the right to
immediately terminate this Agreement (including with respect to any Put, notice
of which has been given but the applicable Closing Date has not yet occurred) in
the event that: (i) the Registration Statement with respect to the Registrable
Securities is not effective within one hundred and eighty (180) days following
the Subscription Date (The Company shall use all available resources to have
Registration Statement declared effective within 180 days following the
Subscription Date); (ii) a Registration Statement with respect to Registrable
Securities is no longer effective or current at any point during the Commitment
Period; (iii) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period; (iv) the Company shall at any time
fail to comply with the requirements of Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8 or
6.9; (v) a Material Adverse Market Event has occurred; (vi) a regulatory
authority of the self regulatory organization governing broker-dealers takes the
position that the intended purchase of the Common Stock contemplated herein and
its resale by the Investor may cause the Investor to be a statutory underwriter
subject alone or with its agents to the restrictions of Regulation M as
promulgated by the SEC or otherwise restrict or prohibit the resale of the
Common Stock; or (vii) the Company shall otherwise breach the terms of this
Agreement, including payment of the commitment fee provided for in Section 2.5.
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Section 2.5 THE COMMITMENT FEE. A Commitment Fee of $100,000 is due and
payable by the Company to the Investor at the time the parties sign this
Agreement.
Section 2.6 ADJUSTMENT SHARES. If the Adjustment Price shall fall more
than two and a half percent (2.5%) below the Purchase Price in respect of shares
of Common Stock purchased by the Investor on any Closing Date, then the Investor
shall be issued Adjustment Shares equal to the difference between the number of
shares purchased on the last Closing Date and the amount that would have been
purchased if the Purchase Price had been the Adjustment Price. The Adjustment
Shares shall be promptly issued to Investor within 12 Trading Days of the
determination more shares are due the Investor.
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1.......INTENT. The Investor is entering into this Agreement for its
own account and has no present arrangement (whether or not legally binding) at
any time to sell the Registrable Securities to or through any person or entity;
provided, however, that by making the representations herein, the Investor does
not agree to hold the Registrable Securities for any minimum or other specific
term and reserves the right to dispose of the Registrable Securities at any time
pursuant to the Registration Statement and in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2.......SOPHISTICATED INVESTOR. The Investor is an accredited investor
(as defined in Rule 501 of Regulation D), and has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Common Stock. The Investor acknowledges that an investment
in the Common Stock is speculative and involves a high degree of risk.
Section 3.3.......AUTHORITY. Each of this Agreement and the Registration Rights
Agreement has been duly authorized by all necessary action and no further
consent or authorization of the Investor, or its partners, is required. Each of
this Agreement and the Registration Rights Agreement was validly executed and
delivered by the Investor and each is a valid and binding agreement of the
Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.4.......NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5.......ORGANIZATION AND STANDING. Investor is duly organized, validly
existing, and in good standing under the laws of California.
Section 3.6.......ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not (a) violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (b) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
32
any of its assets is bound, (c) conflict with or constitute a material default
thereunder, (d) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (e) require the
approval of any third-party (that has not been obtained) pursuant to any
material contract to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 3.7.......DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that has been requested by Investor. The Investor has
received and reviewed copies of the SEC Documents.
Section 3.8.......MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1.......ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Except as set
forth in the SEC Documents, the Company does not own more than fifty percent
(50%) of the outstanding capital stock of or control any other business entity.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect.
Section 4.2.......AUTHORITY. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue the Put Shares, the Commitment
Shares and the Additional Shares; (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3.......CORPORATE DOCUMENTS. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
33
Section 4.4.......BOOKS AND RECORDS. The minute books and other similar records
of the Company and its subsidiaries as made available to Investor prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all action taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company and the subsidiaries. The stock transfer
ledgers and other similar records of the Company and the subsidiaries as made
available to Investor prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this Agreement in the
capital stock of the Company and the subsidiaries. Neither the Company nor any
subsidiary has any of its Books and Records recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and there
from) are not under the exclusive ownership and direct control of the Company or
a subsidiary.
Section 4.5.......CAPITALIZATION. The authorized capital stock of the Company
consists of 200,000,000 shares of Common Stock, of which 23,360,179 shares are
issued and outstanding, and 0 shares of preferred stock of a wholly-owned
subsidiary, none of which are issued and outstanding. Except for options to
purchase not more than _________ shares of Common Stock with purchase prices
between $. ___ and $___ per share, there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
Section 4.6.......REGISTRATION AND LISTING OF COMMON STOCK. The Company has
registered its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange
Act and is in full compliance with all reporting requirements of the Exchange
Act, and the Company has maintained all requirements for the continued listing
or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the OTC Bulletin Board.
Section 4.7.......FINANCIAL STATEMENTS. Prior to the execution of this
Agreement, the Company has delivered to the Investor true and complete copies of
the following financial statements:
(a) the audited balance sheets of the Company and its consolidated
subsidiaries as of December 31, 2001, and the related audited consolidated
statements of operations, stockholders' equity and cash flows for each of the
fiscal years then ended, together with a true and correct copy of the report of
such audited information by Xxxxxxx & Xxxxx, LLP and all letters from such
accountants with respect to the results of such audits; and
(b) the unaudited balance sheets of the Company and its consolidated
subsidiaries as of September 30, 2002, found in the Company's 10-Q filed on
November 14, 2002 for the quarterly period ended September 30, 2002 and the
related unaudited consolidated statements of operations and stockholders' equity
for the portion of the fiscal year then ended. The financial statements of the
Company delivered to the Investor have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
34
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended(subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 4.8.......SEC DOCUMENTS. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form and substance in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may include summary notes and may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
Section 4.9.......EXEMPTION FROM REGISTRATION; VALID ISSUANCES; NEW ISSUANCES.
The sale and issuance of the Put Shares, the Commitment Shares and the
Additional Shares in accordance with the terms and on the bases of the
representations and warranties set forth in this Agreement, may and shall be
properly issued pursuant to Rule 4(2), Regulation D and/or any applicable state
law. When issued and paid for as herein provided, the Put Shares, the Commitment
Shares and the Additional Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares or the Additional Shares
pursuant to, nor the Company's performance of its obligations under, this
Agreement or the Registration Rights Agreement shall (i) result in the creation
or imposition of any liens, charges, claims or other encumbrances upon the Put
Shares or the Additional Shares or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other rights
to subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares, the Commitment Shares and the Additional Shares shall
not subject the Investor to personal liability by reason of the ownership
thereof. The Put Shares, the Commitment Shares and the Additional Shares have
been duly authorized by the Company, but have not been issued (whether or not
35
subsequently repurchased by the Company) to any Person, and when issued to the
Investor in accordance with this Agreement and will not have been issued
(whether or not subsequently repurchased by the Company) to any Person other
than the Investor.
Section 4.10 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Common Stock
under the Securities Act.
Section 4.11......NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put
Shares, the Commitment Shares and the Additional Shares do not and will not (i)
result in a violation of the Certificate or By-Laws, or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided,
however, that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate does not and will not have a Material Adverse Effect. The
Company is not required under federal, state or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Common Stock in accordance with the terms hereof (other than any SEC, NASD
or state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed pursuant
hereto, and any shareholder approval required by the rules applicable to
companies whose common stock trades on the Principal Market); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
Section 4.12......NO MATERIAL ADVERSE CHANGE. Since September 30, 2002, no event
has occurred that would have a Material Adverse Effect on the Company.
36
Section 4.13......NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations that are material, individually or in the aggregate, other than
those incurred in the ordinary course of the Company's businesses since
September 30, 2002, and which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company.
Section 4.14......NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September 30,
2002, 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.
Section 4.15......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 security or solicited any offers to
buy any security, other than pursuant to this Agreement and the registration
statement required by the 10% Secured Convertible Debenture and Related
Registration Rights Agreement dated December ___, 2002, under circumstances that
would require registration of the Common Stock under the Securities Act.
Section 4.16......LITIGATION AND OTHER PROCEEDINGS. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.
Section 4.17......NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares, the Commitment Shares and the
Additional Shares in connection with the transactions contemplated by this
Agreement, have not made, at any time, any oral communication in connection with
the offer or sale of the same which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.
Section 4.18......MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock, or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V: COVENANTS OF THE INVESTOR
Section 5.1.......NO SHORT SALES. During the thirty (30) days prior to the
Subscription Date, neither the Investor nor any affiliate of the Investor has,
and during the Commitment Period neither the Investor nor any affiliate of the
Investor will (i) engage in any short sale of the Common Stock of the Company
unless Investor has given prior written notice to the Company. Nothing in this
Section 5.1 shall prohibit the Investor or any affiliate from making regular
sales of the Common Stock acquired pursuant to this Agreement or to require any
approvals from the Company.
37
ARTICLE VI: COVENANTS OF THE COMPANY
Section 6.1.......REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2.......RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares, the
Commitment Shares and the Additional Shares; such amount of shares of Common
Stock to be reserved shall be calculated based upon the minimum Purchase Price
for the Put Shares under the terms and conditions of this Agreement. The number
of shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered.
Section 6.3.......LISTING OF COMMON STOCK. The Company shall exercise best
efforts to maintain the listing of the Common Stock on a Principal Market, and
as soon as practicable (but in any event prior to the Closing Date for any Put)
will cause the Put Shares, the Commitment Shares and the Additional Shares with
respect to such Put to be listed on the Principal Market. The Company further
shall, if the Company applies to have the Common Stock traded on any other
Principal Market, include in such application the Put Shares, the Commitment
Shares and the Additional Shares, and shall take such other action as is
necessary or desirable in the opinion of the Investor to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
shall use commercially reasonable efforts to continue the listing and trading of
its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and the Principal Market.
Section 6.4.......EXCHANGE ACT REGISTRATION. After each Registration Statement
becomes effective, the Company shall cause the Common Stock covered by such
Registration Statement to continue to be registered under Section 12(g) or 12(b)
of the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act.
Section 6.5.......LEGENDS. The certificates evidencing the Put Shares, the
Commitment Shares and the Additional Shares shall be free of legends, except as
provided for in Article VIII.
Section 6.6.......CORPORATE EXISTENCE. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7.......ADDITIONAL SEC DOCUMENTS. During the Commitment Period, the
Company shall promptly deliver to the Investor, as and when the originals
thereof are submitted to the SEC for filing, copies of all SEC Documents so
furnished or submitted to the SEC.
38
Section 6.8.......NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT. The Company shall immediately notify the Investor, but in
no event later than two (2) business days by facsimile and by overnight courier,
upon the occurrence of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of Registrable
Securities: (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such 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 a 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; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events. While in possession of material non-public
information received from the Company, the Investor shall not dispose of any
Registrable Securities until such information is disclosed to the public (a
"Restricted Period"); provided that, if such Restricted Period exceeds one
hundred twenty (120) days, the liquidated damages described in Section 1.1(c) of
the Registration Rights Agreement shall be increased to three percent (3.0%)
until such Restricted Period shall have elapsed.
Section 6.9.......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 unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Investor
such shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
Section 6.10......LEGAL OPINION ON SUBSCRIPTION DATE. The Company's independent
counsel shall deliver to the Investor on the Subscription Date an opinion in the
form of Exhibit B, except for paragraph 7 thereof.
Section 6.11......NO SIMILAR ARRANGEMENT; RIGHT OF FIRST REFUSAL. The Company
shall refrain from entering into any other agreements, arrangements or
understandings granting to the Company the right to sell shares of its
securities to one or more investors in similar (Equity Line) placements exempt
from registration under the Securities Act until thirty (30) calendar days after
this Agreement is terminated pursuant to Section 2.4 hereof (the "Exclusivity
Period"). The Exclusivity Period shall not apply to an issuance of securities
exempt from registration under the Securities Act by the Company in connection
with any strategic investment, corporate partnering arrangements, or other
situations in which the investment in the Company is not strictly a financial
one. If the Company, for the purpose of obtaining any additional financing,
wishes to sell shares of its securities in placements exempt from registration
under the Securities Act during the Exclusivity Period (a "Sale") to a party
other than the Investor (the "Third Party"), the Company shall first offer (the
"Offer") to the Investor, in writing, the right to purchase such shares (the
"Offered Shares") at the bona fide price offered by the Third Party (the "Offer
39
Price"). The Offer shall grant the Investor the right during the five (5)
Trading Days immediately following the date of the Offer to elect to purchase
any or all of the Offered Shares. The Company, in connection with such a Sale,
shall refrain from circumventing or attempting to circumvent the Investor's
right of first refusal by way of making such a Sale to any of its affiliates
without first making an Offer to the Investor. If the Investor so exercises its
right to purchase any or all of the Offered Shares, the purchase will be treated
as a Put except that the purchase price for the Offered Shares shall be the
Offer Price. The closing and method of payment shall be as provided for in
Section 2.2 hereof and the Closing Date shall be seven (7) Trading Days after
the Investor exercises such right. If the Investor fails to exercise its right
to purchase any or all of the Offered Shares, then during the thirty (30)
calendar days immediately following the expiration of such right, the Company
shall be free to sell any or all of the Offered Shares to a purchaser for a
purchase price not lower than the Offer Price payable on terms and conditions
that are not more favorable to such purchaser than those contained in the Offer.
In the event that the Company effects a Sale to a Third Party, the Investor may
immediately terminate this Agreement.
ARTICLE VII: CONDITIONS TO DELIVERY OF PUT NOTICES
AND CONDITIONS TO CLOSING
Section 7.1.......CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell
the Put Shares, the Commitment Shares and the Additional Shares to the Investor
incident to each Closing is subject to the satisfaction, at or before each such
Closing, of each of the conditions set forth below.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Investor herein shall be true and correct
in all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.
(b) PERFORMANCE BY THE INVESTOR. The Investor 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 Investor at or prior to such Closing.
Section 7.2.......CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A
PUT NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE PUT SHARES. Following
completion of the Early Put, the right of the Company to deliver 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
applicable Put Date and (ii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
40
(a) TERMINATION EVENTS. None of the Events that are listed in Section 2.4 that
would allow the Investor to terminate this Agreement has occurred.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the Registration Rights
Agreement, the Registration Statement(s) shall have previously become effective
and shall remain effective on each Condition Satisfaction Date and (i) neither
the Company nor the Investor shall have received notice that the SEC has issued
or intends to issue a stop order with respect to a Registration Statement or
that the SEC otherwise has suspended or withdrawn the effectiveness of a
Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Investor is reasonably satisfied that the SEC no longer is considering or
intends to take such action), (ii) no other suspension of the use or withdrawal
of the effectiveness of such Registration Statement or related prospectus shall
exist, and (iii) at least 30 days shall have elapsed since the Initial
Registration Statement (as defined in the Registration Rights Agreement) has
been declared effective by the SEC.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct as of
each Condition Satisfaction Date as though made at each such time (except for
representations and warranties specifically made as of a particular date).
(d) 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 and the Registration Rights Agreement to be performed,
satisfied or complied with by the Company at or prior to each Condition
Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or adopted by any
court or governmental authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement or otherwise has a Material Adverse
Effect, and no actions, suits or proceedings shall be in progress, pending or
threatened by any Person, that seek to enjoin or prohibit the transactions
contemplated by this Agreement or otherwise could reasonably be expected to have
a Material Adverse Effect. For purposes of this paragraph (e), no proceeding
shall be deemed pending or threatened unless one of the parties has received
written or oral notification thereof prior to the applicable Closing Date.
(f) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the
Common Stock shall not have been suspended by the SEC, the Principal Market or
the NASD and the Common Stock shall have been approved for listing or quotation
on and shall not have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder approval requirements of the Principal Market.
(g) LEGAL OPINION. The Company shall have caused to be delivered to the
Investor, within five (5) Trading Days of the effective date of a Registration
Statement, an opinion of the Company's independent counsel in the form of
Exhibit D hereto, addressed to the Investor.
41
(h) DUE DILIGENCE. Pursuant to Section 7.3, the Investor shall not have a
material dispute with the Company as to the adequacy of the disclosure contained
in the Registration Statement.
(i) FIVE PERCENT LIMITATION. On each Closing Date, the number of Put Shares, the
Commitment Shares and the Additional Shares then to be purchased by the Investor
shall not exceed the number of such shares that, when aggregated with all other
shares of Common Stock and Registrable Securities then owned by the Investor
beneficially or deemed beneficially owned by the Investor, would result in the
Investor owning no more than 4.9% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Section 13(d)
of the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section, in the event that the amount of Common Stock outstanding as
determined in accordance with Section 13(d) of the Exchange Act and the
regulations promulgated thereunder is greater on a Closing Date than on the date
upon which the Put Notice associated with such Closing Date is given, the amount
of Common Stock outstanding on such Closing Date shall govern for purposes of
determining whether the Investor, when aggregating all purchases of Common Stock
made pursuant to this Agreement and would own more than 4.9% of the Common Stock
following such Closing Date.
(j) MINIMUM BID PRICE. The Bid Price equals or exceeds $.05 on each of the seven
(7) Trading Days immediately preceding the Subscription Date and on each Trading
Day during any Put Notice Period.
(k) MINIMUM AVERAGE DAILY TRADING VALUE. The average of the Daily Trading Value
during the twenty-two (22) Trading Days immediately preceding the applicable Put
Notice Period equals or exceeds $50,000.
(l) NO KNOWLEDGE. The Company shall have no knowledge of any event more likely
than not to have the effect of causing any Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the 15 Trading Days following the Trading Day on which such notice is
deemed delivered).
(m) MINIMUM TIME INTERVAL. The Minimum Time Interval shall have elapsed since
the immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(o) OTHER. On each Condition Satisfaction Date, the Investor shall have received
and been reasonably satisfied with such other certificates and documents as
shall have been reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in this
Section 7.2, including, without limitation, a certificate in substantially the
form and substance of Exhibit C hereto, executed in either case by an executive
officer of the Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
42
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.
(a) The Company shall make available for inspection and review by the Investor,
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),
and any Underwriter, any Registration Statement or amendment or supplement
thereto or any blue sky, NASD or other filing, all financial and other records,
all SEC Documents and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by 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 such
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 such Registration Statement.
(b) Each of the Company, its officers, directors, employees and agents shall in
no event disclose non-public information to the Investor, advisors to or
representatives of the Investor unless prior to disclosure of such information
the Company identifies such information as being non-public information and
provides the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The Company
may, as a condition to disclosing any non-public information hereunder, require
the Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose non-public information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as herein above provided, immediately notify
the advisors and representatives of the Investor and any Underwriters of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the applicable
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 7.3 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 non-public information in the course of conducting due diligence in
accordance with the terms and conditions of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
43
opinion that based on such due diligence by such persons or entities, that such
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in such Registration Statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE VIII: LEGENDS
Section 8.1.......LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN
A STOCK PURCHASE AGREEMENT, DATED AS OF DECEMBER __, 2002. A
COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH
OBLIGATIONS MAY BE OBTAINED FROM THE ISSUER'S EXECUTIVE
OFFICES.
As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days hereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions, with a copy to the Investor. Other
than as required as a result of change in law, such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Registrable Securities by the Investor to issue certificates
44
evidencing such Registrable Securities free of the Legend during the following
periods and under the following circumstances and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or the Investor:
(a) At any time after the applicable Effective Date, upon surrender of one or
more certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i) the applicable
Registration Statement shall then be effective and (ii) if reasonably requested
by the transfer agent the Investor confirms to the transfer agent that the
Investor has transferred the Registrable Securities pursuant to such
Registration Statement and has complied with the prospectus delivery
requirement.
(b) At any time upon any surrender of one or more certificates evidencing
Registrable Securities that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing representations that the Investor is permitted
to dispose of such Registrable Securities without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act.
Section 8.2.......NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3.......INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE IX: INDEMNIFICATION; ARBITRATION
Section 9.1 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with its controlling persons from and against any Damages, joint or
several, and any action in respect thereof to which the Investor, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such controlling person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement, as such Damages are incurred, unless such Damages result
primarily from the Investor's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement; provided, however, that the
maximum aggregate liability of the Company shall be limited to the amount
actually invested by the Investor under this Agreement, and provided, further,
that in no event shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
45
(b) The Investor agrees to indemnify and hold harmless the Company, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and each Person or entity, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with its controlling persons from and against any Damages, joint or
several, and any action in respect thereof to which the Company, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such controlling person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of the Investor
contained in this Agreement, as such Damages are incurred, unless such Damages
result primarily from the Company's gross negligence, recklessness or bad faith
in performing its obligations under this Agreement; provided, however, that the
maximum aggregate liability of the Investor shall be limited to the amount
actually invested by the Investor under this Agreement, and provided, further,
that in no event shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
Section 9.2.......METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.1 (an "Indemnified
Party") might seek indemnity under Section 9.1 is asserted against or sought to
be collected from such Indemnified Party by a person other than the Company, the
Investor or any affiliate of the Company (a "Third Party Claim"), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 9.1 against any person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 9.1 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant to this Section 9.2(a),
then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
46
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.1). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
clause (i), and except as provided in the preceding sentence, the Indemnified
Party shall bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take over the control
of the defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under Section 9.1 with respect to such
Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Third Party
Claim pursuant to Section 9.2(a), or if the Indemnifying Party gives such notice
but fails to prosecute vigorously and diligently or settle the Third Party
Claim, or if the Indemnifying Party fails to give any notice whatsoever within
the Dispute Period, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party, the Third Party Claim by
all appropriate proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be settled at
the discretion of the Indemnified Party (with the consent of the Indemnifying
Party, which consent will not be unreasonably withheld). The Indemnified Party
will have full control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party and
its counsel in contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third Party
Claim and if such dispute is resolved in favor of the Indemnifying Party in the
manner provided in clause (iii) below, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this clause (ii) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party shall bear its own costs and expenses with respect to
such participation.
47
0000 Xxxxxx Xxxxxx, Xxxxx #000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
Mercator Advisory Group
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 10.5......ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any affiliate of the
Investor or co-investor, provided, however, that any such assignment or transfer
shall relieve the Investor of its duties under this Agreement only upon
performance thereof by any such assignee or transferee.
Section 10.6......AMENDMENT; NO WAIVER. No party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by both parties hereto. The failure of the either party to insist on
strict compliance with this Agreement, or to exercise any right or remedy under
this Agreement, shall not constitute a waiver of any rights provided under this
Agreement, nor estop the parties from thereafter demanding full and complete
compliance nor prevent the parties from exercising such a right or remedy in the
future.
Section 10.7......ANNEXES AND EXHIBITS; ENTIRE AGREEMENT. All annexes and
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.
50
Section 10.8......SURVIVAL. The provisions of Articles VI, VIII, IX and X, and
of Section 7.3, shall survive the termination of this Agreement.
Section 10.9......SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10.....TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.11.....COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 10.12.....CHOICE OF LAW. This Agreement shall be construed under the
laws of the State of California.
Section 10.13.....OTHER EXPENSES. In the event that a dispute between the
parties is not determined by a Board of Arbitration, the non-prevailing party in
any action, suit or proceeding shall bear all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
defense or settlement of such action, suit or proceeding, including of the other
party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the undersigned, there unto duly authorized, as of the date first set forth
above.
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FAMOUS FIXINS, INC.
/s/ S. Xxxxxxx Xxxxxxx
By:
---------------------------------------
Name: S. Xxxxxxx Xxxxxxx
Title: Chief Executive Officer
MERCATOR MOMENTUM FUND, L.P.
By It's General Partner- Mercator
Advisory Group
/s/ Xxxxx Xxxxxxxxx
By:
-------------------
Xxxxx Xxxxxxxxx
Managing Partner
51
