Exhibit 10.2
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND AMONG
CERTAIN INVESTORS
AND
PARADIGM ADVANCED TECHNOLOGIES, INC.
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DATED AS OF JUNE 28TH, 2001
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This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the 28th
day of June, 2001 (this "Agreement"), by and between the investor or, if more
than one, investors identified on Schedule A hereto (each an "Investor" or
"Investors"), and Paradigm Advanced Technologies, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to each Investor,
from time to time as provided herein, and each Investor shall purchase his
Proportionate Share of up to $10,750,000 of the Common Stock (as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Bid Price" shall be the price based on the average
of the three lowest Bid Prices during each of the Initial Valuation Period and
Subsequent Valuation Period.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg, L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing the
twelfth (12th) Trading Day following the Optional Purchase Date related to such
Closing, provided all conditions to such Closing have been satisfied on or
before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the $10,750,000 up to which
the Investors have agreed to provide to the Company in order to purchase Put
Shares pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investors shall have purchased
Put Shares pursuant to this Agreement for an aggregate Purchase Price of
$10,750,000, (y) the date this Agreement is terminated pursuant to Section 2.5,
or (z) the date occurring twenty-four (24) months from the date of commencement
of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, $.0001
par value per share.
Section 1.9 "Common Stock Equivalents" shall mean any securities that are
convertible into
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or exchangeable for Common Stock or any warrants, options or other rights to
subscribe for or purchase Common Stock or any such convertible or exchangeable
securities.
Section 1.10 "Condition Satisfaction Date" See Section 7.2.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the regulations promulgated thereunder.
Section 1.14 "Finder" See Section 13.4.
Section 1.15 "Investment Amount" shall mean the dollar amount (within the
range specified in Section 2.2) to be invested by the Investor to purchase Put
Shares with respect to any Optional Purchase Date as notified by the Company to
the Investor in accordance with Section 2.2 hereof.
Section 1.16 "Legend" See Section 9.1.
Section 1.17 "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 (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.18 "Maximum Put Amount" shall mean the lesser of (i) ten
percent (10%) of the Bid Prices for the ten Trading Days immediately preceding
the Optional Purchase Date ("Initial Valuation Period") multiplied by the
reported daily trading volume of the Common Stock on the Principal Market for
each such Trading Day, (ii) ten percent (10%) of the Bid Prices for the ten
Trading Days immediately following the Optional Purchase Date ("Subsequent
Valuation Period") multiplied by the reported daily trading volume of the Common
Stock on the Principal Market for each such Trading Day, (iii) $1,000,000, or
(iv) amounts remaining available on the Commitment Amounts for which Optional
Purchase Notices have not been given. The Maximum Put Amount represents the
aggregate of all Proportionate Shares of all Investors.
Section 1.19 "Minimum Put Amount" shall mean $100,000 to all Investors in
the aggregate for each Optional Purchase Notice.
Section 1.20 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "Optional Purchase Date" shall mean the Trading Day during
the Commitment Period that an Optional Purchase Notice to sell Common Stock to
the Investor is deemed delivered
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pursuant to Section 2.2(b) hereof.
Section 1.22 "Optional Purchase Notice" shall mean a written notice to
the Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.23 "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 mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.24 "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 1.25 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the OTC Bulletin Board, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock. As of the date of this Agreement, the
OTC Bulletin Board is the Principal Market.
Section 1.26 "Proportionate Share" shall mean the proportion of the
Commitment Amount agreed to be purchased by each Investor as set forth on
Schedule A.
Section 1.27 "Purchase Price" as used in this Agreement shall mean the
following: For each of the Initial Valuation Period and Subsequent Valuation
Period (or such other periods during which the Purchase Price is calculated in
accordance with the terms and conditions of this Agreement) the Purchase Price
shall be the percentage of the Average Bid Price determined as follows:
Average Bid Price Percentage
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(a) $0.00-$0.74 90%
(b) $0.75-$0.99 89%
(c) $1.00-$1.24 88%
(d) $1.25-$1.49 87%
(e) $1.50-$1.74 86%
(f) $1.75-$1.99 85%
(g) $2.00-$2.24 84%
(h) $2.25-$2.49 83%
(i) $2.50-$2.74 82%
(j) $2.75-$2.99 81%
(k) $3.00 or more 80%
Section 1.28 "Put" shall mean each occasion the Company elects to
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount as determined by the Company and as limited
by this Agreement of the Company's Common Stock, subject to the terms of this
Agreement, which tender must be given to each Investor for such Investor's
Proportionate Share.
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Section 1.29 "Put Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has occurred or may occur in accordance with the
terms and conditions of this Agreement.
Section 1.30 "Registrable Securities" shall mean the Put Shares and
Warrant Shares until the Registration Statement has been declared effective by
the SEC and all Put Shares and Warrant Shares have been disposed of pursuant to
the Registration Statement.
Section 1.31 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors as of
the Subscription Date.
Section 1.32 "Registration Statement" shall mean a registration statement
on Form S-1 (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 form shall be available for the
resale of the Registrable Securities to be registered thereunder in accordance
with the provisions of this Agreement and 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 1.33 "Regulation D" shall mean Regulation D of the Securities
Act.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
Section 1.35 "Section 4(2)" shall mean Section 4(2) of the Securities
Act.
Section 1.36 "Securities Act" shall mean the United States Securities Act
of 1933, as amended, and the regulations promulgated thereunder.
Section 1.37 "SEC Documents" shall mean the Company's latest Form 10-KSB
as of the time in question, all Forms 10-QSB and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time as the Company no longer has an obligation to maintain the effectiveness of
a Registration Statement as set forth in the Registration Rights Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.39 "Trading Cushion" shall mean, at any time, the mandatory
thirty (30) calendar days between Optional Purchase Dates and five (5) Trading
Days after the most recent Closing Date.
Section 1.40 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.41 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
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(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and
(b) above, at a price per share less, or for other consideration lower,
than the Bid Price in effect on the Trading Day immediately prior to such
issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the Bid Price
in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way
of return of capital or other than as a dividend payable out of earnings or
surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections
(a) through (f) hereof, inclusive, which in the opinion of the Company's
Board of Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of a Put or
Closing Date.
Upon each occurrence of any one or more of the foregoing Valuation Events, the
Purchase Price and number of Put Shares to be issued shall be adjusted to offset
the dilutive effect of such one or more Valuation Events.
Section 1.42 "Valuation Period" shall mean the period of twenty (20)
Trading Days during which the Purchase Price of the Common Stock is determined,
which period shall be with respect to the Purchase Prices on any Optional
Purchase Date, the ten (10) Trading Days preceding and the ten (10) Trading Days
following the day on which an Optional Purchase Notice is deemed to be
delivered.
Section 1.43 "Warrants" shall mean the common stock purchase warrants of
the Company described in Section 13.1, a form of which is annexed hereto as
Exhibit E. Each Warrant shall evidence the right of the holder to purchase one
Warrant Share.
Section 1.44 "Warrant Exercise Compensation" See Section 13.
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Section 1.45 "Warrant Recipient" See Section 13.1 and Schedule 13.
Section 1.46 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may exercise a Put by the delivery of an
Optional Purchase Notice. The number of Put Shares that the Investor shall
receive pursuant to such Put shall be determined by dividing the relevant
portions of the Investment Amount specified in the Optional Purchase Notice by
the corresponding Purchase Prices for the Valuation Period.
Section 2.2 Mechanics.
(a) Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver an Optional Purchase 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 Optional Purchase Notices shall be neither less than the Minimum Put
Amount in the aggregate to all Investors nor more than the Maximum Put Amount.
The Optional Purchase Notice shall state the commencement date of the Valuation
Period. No later than two Trading Days after the delivery of a Put Notice, the
Company must deliver to the Investor or an agreed upon escrow agent the amount
of Put Shares deliverable at Closing determined based upon the Purchase Price in
effect for the Initial Valuation Period.
(b) Date of Delivery of Optional Purchase Notice. An
Optional Purchase 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 12:00 noon New York time
on a Trading Day or at any time on a day which is not a Trading Day. No Optional
Purchase Notice may be deemed delivered on a day that is not a Trading Day.
(c) Determination of Put Shares Issuable. The Purchase
Price shall be based on the Average Bid Price during the Valuation Period. The
number of Put Shares to be purchased by each Investor with respect to such
Investor's Proportionate Share shall be determined during each Valuation Period
and settled on the Closing Date.
(d) Maximum Optional Purchase Notices/Amount. There shall
be a maximum of twenty-four (24) Optional Purchase Notices given during the term
of this Agreement. Subject to the terms and conditions of this Agreement, the
Company shall have the right to issue each Optional Purchase Notice for an
Investment Amount up to the Maximum Put Amount. The Company may not issue an
Optional Purchase Notice in connection with any amount of shares which would
exceed the amount permitted to be issued without approval of the Company's
shareholders, if such approval is required pursuant to the rules of the
Principal Market.
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(e) Trading Halt Limitations. Unless the Investor elects in
writing to the contrary, the Investor is not required to purchase Put Shares for
any Trading Day during which trading of the Common Stock is suspended or halted
for three or more hours or for any day during which any of the events described
in Section 6.8 has occurred or is continuing. In such case, one-twentieth
(1/20th) of the Investment Amount shall be withdrawn from the Investment Amount
for each such Trading Day. The Investor must notify the Company by facsimile or
otherwise, no later than 6:15 P.M., New York time, on the final Trading Day of
the Valuation Period of the days for which the foregoing elections are made.
Section 2.3 Closings. On each Closing Date for a Put the Company shall
deliver to the Investor or to escrow to the extent a sufficient number of Put
Shares had not been previously delivered pursuant to Section 2.2(a), one (or
more certificates at the Investor's option), representing the Put Shares to be
purchased by the Investor pursuant to Section 2.1 herein, after the Optional
Purchase Date and on or prior to such Closing Date, registered in the name of
the Investor or, at the Investor's option, deposit such certificate(s) into such
account or accounts previously designated by the Investor. The Investor shall
deliver to escrow the Investment Amount specified in the Optional Purchase
Notice by wire transfer of immediately available funds to an account designated
by the Company on or before the Closing Date. In addition, on or prior to the
Closing Date, each of the Company and the Investor shall deliver all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company and delivery
of the certificates to the Investor shall occur out of escrow in accordance with
the escrow agreement referred to in Section 7.2(p) following (x) the Company's
deposit into escrow of the certificates representing the Put Shares and (y) the
Investor's deposit into escrow of the Investment Amount; provided, however, that
to the extent the Company has not paid the fees, expenses and disbursements of
the Investor's counsel in accordance with Section 13.3 after five days written
notice to Company, the amount of such fees, expenses and disbursements shall be
paid in immediately available funds drawn out of the deposited funds, at the
direction of the Investor, to Investor's counsel with no reduction in the number
of Put Shares issuable to the Investor on such Closing Date.
Section 2.4 Liquidated Damages. In the event all the Put Shares have not
been delivered by the Company as of a Closing Date, the Company will pay the
Investor, as liquidated damages for such failure to deliver, and not as a
penalty, five percent (5%) of the applicable Investment Amount for each seven
(7) day period, or part thereof following such failure, in cash, until such
outstanding Put Shares have been delivered. The Escrow Agent shall be directed
to pay such liquidated damages to the Investor out of the Investment Amount
delivered by the Investor to the Escrow Agent.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop trade order by the SEC or Principal
Market or suspension by the SEC of the effectiveness of the Registration
Statement for a consecutive five day calendar period or for an aggregate of
twenty (20) Trading Days during the Commitment Period, for any reason, or (ii)
the Company shall at any time fail to comply with the requirements of Article VI
hereof, subject to any cure period or written notice to cure which may be
permitted or required.
Section 2.6 Initial Drawdown. On the Subscription Date, the Company
will sell to the Investor its proportionate share of an aggregate Put of
$750,000 ("Initial Drawdown"). The Purchase
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Price of the Initial Drawdown shall be 50% of the average of the three lowest
Bid Prices for the ten Trading Days prior to the Subscription Date against
payment therefor. Finder's Fees shall be payable in connection with the Initial
Drawdown. In the event the Company fails to obtain effectiveness of the
Registration Statement within the time period set forth in Section 1.1(b) of the
Registration Rights Agreement, then the payments described in Section 1.1(d) of
the Registration Rights Agreement shall accrue from and after such date in
relation to the Initial Drawdown. On the Subscription Date, the Company shall
deliver to the Investor the legal opinion referred to in Section 7(h) of this
Agreement as such opinion relates to the Initial Drawdown.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) or an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk. The Investor is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and 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
an "affiliate" (as that term is defined in Rule 405 of the Securities Act -
hereinafter "Affiliate") of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to
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any material contract, agreement, instrument, relationship or legal obligation
to which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.6 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor has
been afforded the opportunity to ask questions of the Company and has received
what Investor believes to be satisfactory answers to such inquiries. The Company
is subject to the periodic reporting requirements of the Exchange Act, and
Investor has had access to copies of any such reports that have been requested
by it.
Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or other form of general solicitation or advertising.
Section 3.8 Reliance on Exemptions. Investor understands that the Common
Stock and Warrants are being offered and sold to Investor in reliance on
specific exemptions from the registration requirements of the United States
federal and state securities laws and that the Company is relying on the truth
and accuracy of, and Investor's compliance with, the representations,
warranties, agreements, acknowledgements and understandings of Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of Investor to purchase the Common Stock Warrants.
Section 3.9 Transfer and Resale. The Investor understands that (i) except
as provided in the Registration Rights Agreement, the sale or resale of the Put
Shares and the Warrant Shares has not been registered under the Securities Act
of any state securities laws, and the Put Shares and Warrant Shares may not be
transferred unless (a) the resale of the Put Shares and Warrant Shares has been
registered thereunder; or (b) the Investor shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
reasonably acceptable to the Company) to the effect that the Put Shares and
Warrant Shares to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration; or (c) sold under and in compliance with
Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule
144"); or (d) sold or transferred to an Affiliate of the Investor who agrees to
sell or otherwise transfer the Put Shares and Warrant Shares only in accordance
with the provisions of this Section 3.9 and who is an Accredited Investor (as
defined in Rule 501 of Regulation D); and (ii) neither the Company nor any other
person is under any obligation to register the Put Shares and Warrant Shares
under the Securities Act or any state securities laws (other than pursuant to
this Agreement and the Registration Rights Agreement).
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 and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. 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
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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; (ii) the
execution, issuance and delivery of this Agreement and the Registration Rights
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 Capitalization. The authorized and outstanding capital stock
of the Company as of the Subscription Date is set forth on Schedule 4.3 hereto.
Except as set forth in the SEC Documents or Schedule 4.3, as of the Subscription
Date, there are no options, warrants or rights to subscribe for securities,
rights or obligations convertible into or exchangeable for, or giving any rights
to receive any Capital Shares. All of the outstanding shares of Common Stock of
the Company have been duly and validly authorized and issued and are fully paid
and nonassessable.
Section 4.4 Common Stock. As of the commencement of and throughout the
Commitment Period, the Company will have registered its Common Stock pursuant to
Section 12(b) or 12(g) of the Exchange Act and be in full compliance with all
reporting requirements of the Exchange Act, and the Company will have maintained
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is then listed or quoted on the Principal Market.
Section 4.5 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 rules and
regulations of the SEC promulgated thereunder 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 described above
and/or included in the SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited
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statements, to normal year-end audit adjustments).
Section 4.6 Valid Issuances. If made in accordance with this Agreement,
the sale by the Company of the Put Shares and Warrant will be properly
accomplished pursuant to Section 4(2), Regulation D and/or any applicable state
law. The sale by the Company of the Warrant Shares, if made in accordance with
the terms of the Warrants, will be properly accomplished pursuant to Section
4(2), Regulation D and any applicable state law. When issued, the Put Shares
shall be duly and validly issued, fully paid, and nonassessable. Neither the
sales of the Put Shares and Warrant Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put 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 and Warrant Shares shall not subject
the Investor or holder to personal liability by reason of the possession
thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf, if any, (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
Warrant Shares, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the sale of the Put Shares or the Warrant Shares under the
Securities Act.
Section 4.8 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").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including, without limitation, the issuance of Common
Stock, Warrants and Warrant Shares do not and will not (i) result in a violation
of the Company's Articles of Incorporation or By-Laws or (ii) conflict with, or
constitute a 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
that, for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iv), 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 do not and will
12
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, Principal Market 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.
Section 4.10 No Material Adverse Change. Since the date of the most recent
financial statements included in the SEC Documents, no Material Adverse Effect
has occurred or exists with respect to the Company, except as disclosed in the
SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since the date of
the most recent financial statements included in the SEC Documents and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances. Since the date of
the most recent financial statements included in the SEC Documents, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 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, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents or Schedule 4.14, there are no lawsuits or proceedings
pending or to the best knowledge of the current management and Board of
Directors 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 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company, in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral or written
communication in connection with 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 4.16 Material Non-Public Information. The Company is not in
possession of, nor has
13
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 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
Section 5.2 Selling Limitations. The Investor may sell Common Stock equal
in number to the number of Put Shares reasonably anticipated to be received in
connection with an Optional Purchase Notice during the Valuation Periods
relating to such Optional Purchase Notice. The Investor covenants, however, that
prior to and during such Valuation Periods, neither the Investor nor its
Affiliates shall have a short position in excess of the number of Put Shares
reasonably anticipated to be received in connection with an Optional Purchase
Notice.
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. Subject to stockholder approval
at the Company's annual meeting to be held on July 5, 2001 of a proposal to
increase the number of authorized shares of Common Stock of the Company to 250
million shares of Common Stock, the Company will reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue the Put Shares; such amount of shares of Common Stock to be
reserved shall be calculated based upon the minimum Purchase Price therefor
under the terms of this Agreement.
Section 6.3 Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares and Warrant Shares 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, 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 take all action necessary to continue the listing
and trading of its Common Stock on a 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 such Principal Market.
14
Section 6.4 Exchange Act Registration. The Company shall cause its Common
Stock 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
said Act, and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Company will take all action to continue the listing and
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor shall be free of legends, if permitted pursuant to Section
9.1.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will 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.
Section 6.8 Blackout Period. Subject to the requirements of Regulation FD
under the Exchange Act, the Company will immediately notify the Investor upon
the occurrence of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in 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 the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Optional Purchase Notice during
the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within ten
(10) days after the commencement of each calendar quarter occurring subsequent
to the commencement of the Commitment Period, the Company undertakes to notify
the Investor as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the issuance of
Optional
15
Purchase Notices. Such notification shall constitute only the Company's good
faith estimate and shall in no way obligate the Company to raise such amount, or
any amount, or otherwise limit its ability to deliver Optional Purchase Notices.
The failure by the Company to comply with this provision can be cured by the
Company's notifying the Investor at any time as to its reasonable expectations
with respect to the current calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument 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 6.11 Issuance of Put Shares. The sale and issuance of the Put
Shares and Warrant Shares shall be made in accordance with the provisions and
requirements of applicable state law.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE 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 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 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
an Optional Purchase Notice and the Obligation of the Investor to Purchase Put
Shares. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice, (ii) for each day during the
Valuation Period; and (iii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed with
the SEC a Registration Statement with respect to the resale of the Registrable
Securities that shall have been declared effective by the SEC prior to the first
Optional Purchase Date, but in no event later than the date set forth in the
Registration Rights Agreement and shall have filed a prospectus supplement on
the first trading day after each Closing Date.
16
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement 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 the Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement, either temporarily or permanently, or intends or
has threatened to do so, and (ii) no other suspension of the use or withdrawal
of the effectiveness of the Registration Statement or related prospectus shall
exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company shall be true and
correct in all material respects as of each Condition Satisfaction Date as
though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including each
Condition Satisfaction Date, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which have
been corrected with no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement 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 endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) Adverse Changes. Since the Subscription Date, no event
that had or is reasonably likely to have a Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock (including without limitation the Put
Shares) shall not have been suspended by the SEC, the Principal Market or the
NASD and the Common Stock (including without limitation the Put Shares) shall
have been approved for listing or quotation on and shall not have been delisted
from the Principal Market. The issuance of shares of Common Stock with respect
to the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be
delivered to the Investor, within five (5) Trading Days of the effective date of
the Registration Statement, an opinion of the Company's independent counsel in
the form of Exhibit B hereto, addressed to the Investor; provided, however, that
in the event that such an opinion cannot be delivered by the Company's
independent counsel to the Investor, the Company shall promptly revise the
Registration Statement and shall not deliver an Optional Purchase Notice. If an
Optional Purchase Notice shall have been delivered in good faith without
knowledge by the Company that an opinion of independent counsel can not be
delivered as required, at the option of the Investor, either the applicable
Closing Date shall automatically be postponed for a period of up to five (5)
Trading Days until such an opinion is delivered to the Investor, or such
17
Closing shall otherwise be canceled. Liquidated damages determined pursuant to
Section 2.4 shall be calculated and payable on the Closing Date. The Company's
independent counsel shall also deliver to the Investor upon execution of this
Agreement an opinion in form and substance reasonably satisfactory to the
Investor addressing, among other things, corporate matters and the exemption
from registration under the Securities Act of the issuance of the Registrable
Securities by the Company to the Investor under this Agreement.
(i) Adequacy of Disclosure. No dispute between the Company
and the Investor shall exist pursuant to Section 8.2(c) as to the adequacy of
the disclosure contained in the Registration Statement.
(j) Beneficial Ownership Limitation. On each Closing Date,
the number of Put 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 then owned by the Investor beneficially or deemed beneficially owned by
the Investor, would result in the Investor owning more than 4.99% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Optional Purchase 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
any other shares of Common Stock, if any, owned by the Investor would be more
than 4.99% of the Common Stock following such Closing Date.
(k) Cross Default. The Company shall not be in default of a
material term, covenant, warranty or undertaking of any other agreement to which
the Company and any Investor are parties, nor shall there have occurred an event
of default under any such other agreement
(l) No Knowledge. The Company shall have no knowledge of
any event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) Trading Cushion. Unless waived by the Investor, the
Trading Cushion shall have elapsed since the immediately preceding Optional
Purchase Date and Closing 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 or the laws of any
jurisdiction to which the Company is subject.
(o) Escrow Agreement. If requested by the Company or any
Investor, the parties hereto shall have entered into a mutually approved escrow
agreement for the Purchase Price due hereunder and the Company shall have agreed
to pay the fees and expenses of the Escrow Agent and not be in default of any
such payments.
(p) Voting Restrictions. The Investors shall not be subject
to voting or other
18
restrictions arising under any applicable "anti-takeover" laws, rules or
regulations.
(q) Put Shares Delivery. The Put Shares required to be
delivered pursuant to Section 2.2(a) shall have been timely delivered.
(r) Other Funding. It shall be a condition of the giving of
any Put Notice that the Company shall have actually received from investors
other than the Investors, on or before ninety (90) calendar days after the
Subscription Date, net proceeds of gross offering proceeds of $1,000,000 from
the sale by the Company of transfer restricted Capital Shares (specifically
excluding convertible instruments). Such other securities may not be registered
by the Company in a registration statement at any time and the Company covenants
not to include for sale or resale by the Company or such other investors in
registration statement any such other Capital Shares. Additionally, the terms of
such sale shall be subject to the reasonable approval of all the Investors.
(s) 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.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the 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), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD, Principal Market, or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct due diligence with respect to the Company and the
accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company represents and warrants that the Company
and its officers, directors, employees and agents have not disclosed any
non-public information to the Investor or advisors to or representatives of the
Investor. The Company covenants and agrees that it shall refrain from
19
disclosing, and shall cause its officers, directors, employees and agents to
refrain from disclosing, 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.
(b) The Company acknowledges and understands that the
Investor is entering into this Agreement and the Registration Rights Agreement
at the request of the Company and in good faith reliance on the Company's
representation set forth in Section 4.16 that neither it nor its agents have
disclosed to the Investor any material non-public information.
(c) Nothing contained in this Agreement 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, in violation of
Regulation FD of the Exchange Act provided, subject to its compliance with
Regulation FD of the Exchange Act, however, that notwithstanding anything herein
to the contrary, the Company will, as hereinabove provided, immediately notify
the advisors and representatives of the Investor and, if any, underwriters, of
any event or the existence of any circumstance (without any obligation to
disclose the specific event or circumstance) of which it becomes aware,
constituting non-public information (whether or not requested of the Company
specifically or generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2 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 of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
Section 8.3 Confidentiality. The Company agrees that it will not publicly
or privately disclose the identities of the Investors, Warrant Recipients, or
Finders unless expressly agreed to in writing by the Investor or otherwise
required by law.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF
20
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 PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG PARADIGM
ADVANCED TECHNOLOGIES, INC. AND CERTAIN INVESTORS DATED JUNE
28, 2001. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, or prior to issuance of a
certificate; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor or sales agent confirms to the
transfer agent that the Investor or sales agent has complied with the prospectus
delivery requirement; and
(b) at any time upon any surrender of one or more
certificates evidencing Registrable Securities that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered and containing representations that
(i) the Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor has sold, pledged or
21
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities. Any of the notices referred to above in this
Section 9.1 may be sent by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
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 IX.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement and the Registration
Rights Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement or the Registration Rights Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 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 provisions of this Agreement shall
inure to the benefit of, and be enforceable by, and be binding upon, any
transferee of any of the Common Stock or Warrants purchased or acquired by the
Investor or Warrant Recipient hereunder with respect to the Common Stock held by
such person unless such Common Stock is free from restrictions on further
transfer of such Common Stock.
Section 11.2 Termination. This Agreement shall terminate twenty-four (24)
months after the commencement of the Commitment Period; provided, however, that
the provisions of Articles VI, VIII, IX, X, XI, XII, XIII and XIV shall survive
the termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This Agreement and the
Registration Rights Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by
22
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.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Paradigm Advanced Technologies, Inc.:
Paradigm Advanced Technologies, Inc.
00 Xxxx Xxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxx
X0X 0X0
Telecopier: (000) 000-0000
Attn: President
With a copy to (which communication shall not constitute notice):
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx, Esq.
Telecopier: (000) 000-0000
If to the Investor:
To the address and telecopier number set forth on Schedule A hereto
with a copy to (which communication shall not constitute notice):
23
Xxxxxxx X. Xxxxxxx, Esq.
c/o Grushko & Xxxxxxx, P.C.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 12.2 Indemnification.
(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 the Controlling Persons (as defined in the
Registration Rights Agreement) 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 in any event as such Damages are incurred.
(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 Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) 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 Investor contained
in this Agreement in an aggregate amount not to exceed one-half of each such
Investor's Proportionate Share.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will 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 12.2 (an
"Indemnified Party") might seek indemnity under Section 12.2 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 12.2 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
24
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party will 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 will 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 12.2 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
1. 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
12.3(a), then the Indemnifying Party will 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 will 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
which affects the Indemnified Party, other than the payment of monetary damages,
or that provides for the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to Section 12.2). The
Indemnifying Party will 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 1, 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 1, and except as provided in the
preceding sentence, the Indemnified Party will 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 12.2 with respect to such Third Party Claim.
2. 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 12.3(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 will 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 will 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 2, if
25
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 3 below, the Indemnifying Party will not be required
to bear the costs and expenses of the Indemnified Party's defense pursuant to
this clause 2 or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party will 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 2, and the Indemnifying Party will
bear its own costs and expenses with respect to such participation.
3. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 12.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. In the event any
Indemnified Party should have a claim under Section 12.2 against the
Indemnifying Party that does not involve a Third Party Claim, the Indemnified
Party shall deliver a written notification of a claim for indemnity under
Section 12.2 specifying the nature of and basis for such claim, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 12.2 and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand.
ARTICLE XIII
FEES-EXPENSES-WARRANTS
Section 13.1 Warrants. The parties identified on Schedule 13 hereto
("Warrant Recipients") shall receive in the aggregate 7,500,000 Warrants. A form
of Warrant is annexed hereto as Exhibit E. The Purchase Price (as defined in the
Warrant) shall be equal to one hundred and twenty percent (120%) of the lowest
of the Bid Price for the ten Trading Days preceding the Subscription Date. The
Warrants will be exercisable for five years from the Issue Date as defined in
the Warrant. The Warrant Recipients are granted the registration rights set
forth in the Registration Rights Agreement with respect to the Warrant Shares.
The Company's obligations to the Warrant Recipients is binding even if the
Registration Rights Agreement is not signed by the Warrant Recipients. The
Warrants must be delivered to the Warrant Recipients on the Subscription Date.
All the representations, undertakings and covenants made by the Company relating
to the Put Shares and the holder of the Put Shares are also made by the Company
to and for the benefit of the Warrant Recipients and in relation to the Warrant
Shares.
26
Section 13.2 Timely Delivery. In the event any Warrants are not timely
delivered, the Investor shall have no further obligation to purchase Put Shares
pursuant to this Agreement.
Section 13.3 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, and reasonable expenses
and disbursements of the Investor's counsel in an amount of $10,000 which shall
have been paid prior to the Subscription Date and an additional $7,500 which
shall be paid on the Subscription Date.
Section 13.4 Finders. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the Company or Investor
except as described on Schedule 13 ("Finder"). The Company agrees to pay to the
Finder a fee equal to six percent (6%) ("Finder's Fee") of the Investment Amount
received by the Company as set forth on Schedule 13 hereto and six percent (6%)
of the cash proceeds of Warrant Exercise ("Warrant Exercise Compensation"). Said
sum shall be paid out of the escrow account established for deposit of
Investment Amounts and within five Tradings of the Company's receipt of cash
Warrant Exercise proceeds. A default by the Company of the Company's obligations
to the Finders shall be deemed a default under the Agreement, and shall
terminate the Investor's obligation to comply with any Optional Purchase Notices
provided such default is not due to a failure by an escrow agent to comply with
his obligations. The Company on the one hand, and the Investor, on the other
hand, agree to indemnify the other against and hold the other harmless from any
and all liabilities to any other persons claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions.
Section 13.5 Transfer. At the election and in the sole discretion of any
Finder or Warrant Recipient, the right to receive Finder's Fees and Warrant
Exercise Compensation may be transferred to the Investor or Warrant Recipient
who's investment gives rise to such payment. Upon such transfer, the Investor
may take a credit equal to the Finder's Fee against the Investment Amount that
gives rise to the Finder's Fee. The transferee of Warrant Exercise Compensation
may take a credit against the Purchase Price equal to the Warrant Exercise
Compensation. A Warrant Recipient, at his sole discretion, may transfer either
before or after issuance, all or some of the Warrants to the Investor whose
investment gives rise to the requirement to issue the Warrants. The transferee
of the Warrants will receive all the rights and benefits granted to the Warrant
Recipients pursuant to this Agreement, the Registration Rights Agreement and any
other agreement relating to the Warrants.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 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. This Agreement may be delivered by
telecopier transmission which such copy shall be deemed an original executed
Agreement.
27
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto, the
documents delivered in connection herewith, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 14.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the Bid Price, trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
Section 14.6 Remedies for Breach. The Company and each Investor
acknowledges that the other party's remedy at law for the breach of the
provisions provided in this Agreement is inadequate. Therefore, the Company and
each Investor agrees that a breach or violation of this Agreement by the
Company, on the one hand, and the Investors, on the other hand, will entitle the
other party, as a matter of right, to an injunction or other equitable relief,
issued by any court or arbitration panel of competent jurisdiction, restraining
any further or continued breach or violation of this Agreement. Such right to an
injunction will be cumulative and in addition to, and not in lieu of, any other
remedies to which the Company and the Investors may show themselves justly
entitled.
Section 14.7 Publicity. Except as required by applicable law, neither the
Company nor the Investor shall issue any press release or otherwise make any
public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 14.8 Confidentiality. Investor agrees to maintain the
confidentiality of all information about the Company received from any officer,
employee or agent of the Company, until such time as that confidential
information is released to the public generally as contemplated by Regulation FD
of the Exchange Act other than as a result of any disclosure by Investor.
[THIS SPACE INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By: ______________________________________
-----------------------------------------
ZAKENI LIMITED - Investor
29
SCHEDULE A
PROPORTIONATE SHARE OF
INVESTOR SHARE OF COMMITMENT AMOUNT COMMITMENT AMOUNT
-------- -------------------------- ----------------------
ZAKENI LIMITED $10,750,000.00 100%
A Bahamian corporation
Xxxxxxxxxxxxx 00
Xxxxxxxx 0000
0000, Xxx, Xxxxxxxxxxx
Fax: 000-0000-000-0000
-------------- ----
TOTAL $10,750,000.00 100%
-------------- ----
30
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
WITHIN 5 TRADING DAYS FOLLOWING EFFECTIVE DATE OF
REGISTRATION STATEMENT
TO:
We have acted as counsel to __________________, a ___________ corporation
(the "Company"), in connection with the Private Equity Line of Credit Agreement
between the Company and you, dated as of ______________, 2001 (the "Line of
Credit Agreement"), pursuant to which the Company will issue to you from time to
time shares of Common Stock, $____ par value (the "Put Shares") and the
Registration Rights Agreement between you and the Company, dated __________,
2001 (the "Registration Rights Agreement," and together with the Line of Credit
Agreement, the "Agreements"). This opinion is rendered to you pursuant to
Section 7.2(h) of the Line of Credit Agreement. Capitalized terms used without
definition in this opinion have the meanings given to them in the Line of Credit
Agreement.
In connection with this opinion, we have assumed the authenticity of all
records, documents, and instruments submitted to us as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all records, documents, and instruments submitted
to us as copies. We have also assumed that there are no facts or circumstances
relating to you that might prevent you from enforcing any of the rights to which
our opinion relates. We have based our opinion upon our review of the following
records, documents and instruments:
(a) The Articles of Incorporation of the Company, as amended to date (the
"Articles"), certified by the Secretary of State [the jurisdiction of
incorporation] as of ____________, 2001 and certified to us by an officer of the
Company as being complete and in full force and effect as of the date of this
opinion;
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this opinion
(the "Bylaws");
(c) Records certified to us by an officer of the Company as constituting
all records of proceedings and actions of the Board of Directors and the
shareholders of the Company relating to the transactions contemplated by the
Agreement;
(d) The Agreements;
(e) A certificate related to the good standing of the Company issued by
the Secretary of State of the State of [the jurisdiction of incorporation] dated
__________, 2001;
(f) A Certificate of the Chief Executive Officer of the Company as to
certain factual matters (the "Officer's Certificate");
31
(g) The SEC Documents.
With your consent, we have based our opinion expressed in paragraph 1 below
as to the good standing of the Company solely upon the documents enumerated in
(e) and (f) above.
Where our opinion relates to our "knowledge," such knowledge is based upon
our examination of the records, documents, instruments, and certificates
enumerated or described above and the actual knowledge of attorneys in this firm
who are currently involved in substantive legal representation of the Company on
matters related to the Agreements. With your consent, we have not examined any
records of any court, administrative tribunal or other similar entity in
connection with our opinion expressed in paragraph 2 of Part III below. We have
assumed for purposes of our opinion to the effect that the Put Shares are fully
paid and that the consideration for such Put Shares will be received by the
Company in accordance with the Line of Credit Agreement.
We express no opinion as to any anti-fraud provisions of applicable federal
or state securities laws, any tax, anti-trust, land use, export, safety,
environmental or hazardous materials laws, rules or regulations.
This opinion is limited to the federal laws of the United States of America
and the laws of the States of [jurisdiction of incorporation] and New York. We
disclaim any opinion as to the laws of any other jurisdiction and we further
disclaim any opinion as to any statute, rule, regulation, ordinance, order or
other promulgation of any regional or local governmental body.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the limitations and qualifications expressed below, it is our opinion
that:
1. The Company has been duly incorporated and is validly existing and in
good standing under the laws of the State of [jurisdiction of incorporation] and
has all requisite power and authority to carry on its business and to own, lease
and operate its properties and assets as described in the SEC Documents. To our
knowledge the Company does not have any subsidiaries other than as set forth in
the SEC Documents.
2. To our knowledge, except as described in the SEC Documents, there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or to our knowledge, any officer or
director of the Company in his or her capacity as such, nor to our knowledge has
the Company received any written threat of any such claims, actions, suits,
proceedings or investigations.
3. To our knowledge, except as described in the Company's representations
and warranties contained in Article IV of the Line of Credit Agreement, there
are no outstanding options, warrants, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understanding, or arrangements by which
the Company is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common Stock.
32
4. Subject to the accuracy of your representations in Article III of the
Line of Credit Agreement on the date hereof and on the date of issuance of any
Put Shares and Warrant Shares, and the statement in the Officer's Certificate
that the Company has not offered or sold, and will not offer or sell, any Put
Shares by means of advertising or public solicitation, the issuance of the Put
Shares and Warrant Shares in conformity with the terms of the Line of Credit
Agreement constitutes transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended. The Put Shares and the
Warrant Shares, when issued in compliance with the Line of Credit Agreement and
Registration Rights Agreement, will be duly authorized, validly issued, fully
paid, and non-assessable and free of preemptive rights set forth in the
Articles, Bylaws and any agreement filed as an exhibit to the SEC Documents,
provided, however, that the Put Shares and Warrant Shares may be subject to
restrictions on transfer under state and federal securities laws, but only to
the extent set forth in the Line of Credit Agreement.
5. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and to issue the Put
Shares.
Each of the Agreements has been duly authorized, executed and delivered by
the Company and the consummation by it of the transactions contemplated thereby
has been duly authorized by all necessary corporate action and no further
consent or authorization of the Company's board of directors or shareholders is
required. Each of the Agreements has been duly executed and delivered on the
part of the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement, (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium, and other laws of general applicability relating to or affecting
creditors' rights, (ii) to general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law, and (iii) to
limitations imposed by applicable law or public policy on the enforceability of
the indemnification provisions contained in the Agreements.
6. The execution, delivery and performance of and compliance with the
respective terms of each of the Agreements, and issuance of the Put Shares in
accordance with the Line of Credit Agreement, will not violate any provision of
the Articles or Bylaws or any law applicable to the Company.
7. The holders of the Common Stock will not be subject to the provisions
of the States of [states of incorporation and principal office location]
anti-takeover statutes.
In connection with the registration of the Put Shares and Warrant Shares,
we advised the Company as to the requirements of the Securities Act and the
applicable Rules and Regulations and rendered other legal advice and assistance
in the course of preparation of the Registration Statement and Prospectus,
including review and discussion of the contents thereof. On the basis of the
information that was developed in the course of the performance of such services
considered in the light of our understanding of the Securities Act, including
the requirements of Forms S-1 and SB-2, we have no reason to believe that (i)
the Registration Statement (other than the financial statements and related
statements and schedules, as to which we express no belief) as of its Effective
Date contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or (ii) the Prospectus (other than the
financial statements and related statements and schedules, as to which we
express no belief) as of the Effective Date of the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light
33
of the circumstances under which they were made,
not misleading. The limitations inherent in the independent verification of
factual matters and the character of determinations involved in the registration
process are such, however, that except as set forth in this opinion letter we do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
A. The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally, including without limitation the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
B. Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered in a proceeding in equity or at law.
C. This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, including the
General Qualifications and the Equitable Principles Limitation, and this opinion
letter should be read in conjunction therewith.
This opinion is rendered as of the date first written above, is solely for
your benefit in connection with the Agreement and may not be relief upon or used
by, circulated, quoted, or referred to nor may any copies hereof by delivered to
any other person without our prior written consent. We disclaim any obligation
to update this opinion letter or to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
34
EXHIBIT C
COMPLIANCE CERTIFICATE
__________________________________
The undersigned, _______________, hereby certifies, with respect to the
shares of Common Stock of _____________________ (the "Company") issuable in
connection with the Optional Purchase Notice, dated (the "Notice"), delivered
pursuant to Article II of the Private Equity Line of Credit Agreement, dated
_____________, 2001, by and among the Company and certain Investors (the
"Agreement"), as follows:
1. The undersigned is the duly elected ______________________________ of
the Company.
2. The representations and warranties of the Company set forth in the
Agreement are true and correct in all material respects as though made on and as
of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The amount of Common Stock remaining registered in an effective
registration statement on behalf of each Investor as of this date is set forth
on the schedule hereto.
5. The purchase price of the Common Stock previously issued to each of the
Investors is set forth on the schedule hereto.
The undersigned has executed this Certificate this ____ day of ________,
2001.
________________________________________
By:_____________________________________
Name:
Title:
35
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
_____________________________________
[TRANSFER AGENT]
Dear Sirs:
Reference is made to the Private Equity Line of Credit Agreement (the
"Agreement"), dated as of ________________, 2001 among certain Investors (the
"Investor") and _____________________ (the "Company"). Pursuant to the
Agreement, subject to the terms and conditions set forth in the Agreement the
Investor has agreed to purchase from the Company and the Company has agreed to
sell to the Investor from time to time during the term of the Agreement shares
of Common Stock of the Company, $____ par value (the "Common Stock"). As a
condition to the effectiveness of the Agreement, the Company has agreed to issue
to you, as the transfer agent for the Common Stock (the "Transfer Agent"), these
instructions relating to the Common Stock to be issued to the Investor (or a
permitted assignee) pursuant to the Agreement. All terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file with the
Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investor under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, the Transfer Agent shall deliver to
the Investor the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investor shall request, provided
that:
36
(a) in connection with such event, the Investor (or its permitted assignee)
shall confirm in writing to the Transfer Agent that (i) the Investor confirms to
the transfer agent that it has sold, pledged or otherwise transferred or agreed
to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a transferee that is not an affiliate of the Company; and (ii)
the Investor confirms to the transfer agent that the Investor has complied with
the prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act; or
(c) the Investor, its permitted assignee, or either of their brokers
confirms to the transfer agent that (i) the Investor has held the shares of
Common Stock for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investor (or the Trading Day immediately following if such date is not a Trading
Day), the Investor will not have sold more than the greater of (a) one percent
(1%) of the total number of outstanding shares of Common Stock or (b) the
average weekly trading volume of the Common Stock for the preceding four weeks
during the three months ending upon such delivery date (or the Trading Day
immediately following if such date is not a Trading Day), and (iii) the Investor
has complied with the manner of sale and notice requirements of Rule 144 under
the Securities Act.
Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of __________.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
37
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable Instructions
and shall be entitled to rely upon, and enforce, the provisions hereof.
[THE COMPANY]
By:_________________________________
Name:
Title:
AGREED:
[TRANSFER AGENT]
By:_________________________________
38
EXHIBIT E
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT 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 PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG PARADIGM
ADVANCED TECHNOLOGIES, INC. AND CERTAIN INVESTORS DATED THE SUBSCRIPTION DATE. A
COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY
BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.
Right to Purchase 7,500,000 Shares of Common Stock of Paradigm
Advanced Technologies, Inc. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
(EQUITY LINE)
No. 2001-1 Issue Date: June ____, 2001
PARADIGM ADVANCED TECHNOLOGIES, INC., a corporation organized under the
laws of the State of Delaware (the "Company"), hereby certifies that, for value
received, ZAKENI LIMITED, or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company from and after the Issue Date of this
Warrant and at any time or from time to time before 5:00 p.m., New York time,
through five (5) years after such date (the "Expiration Date"), up to 7,500,000
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.0001 par value per share, of the Company, at a per share purchase price of
$_____ (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Paradigm Advanced Technologies, Inc.
and any corporation which shall succeed or assume the obligations of Paradigm
Advanced Technologies, Inc. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.0001 par value per share, as defined in the Private Equity Line of Credit
Agreement referred to in Section 9 hereof, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or
39
after such date, the holders of which shall have the right, without limitation
as to amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and distributions on
any shares entitled to preference, and the holders of which shall ordinarily, in
the absence of contingencies, be entitled to vote for the election of a majority
of directors of the Company (even if the right so to vote has been suspended by
the happening of such a contingency) and (c) any other securities into which or
for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the date
hereof through and including the Expiration Date, the holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by delivery of an original or fax copy of the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, and surrender of the original Warrant within seven (7) days of exercise
to the Company at its principal office or at the office of its Warrant agent (as
provided hereinafter), accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then exercisable by the Purchase Price (as hereinafter defined) then in effect,
unless cashless exercise is elected by the holder pursuant to Section 2.2.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the holder on
such partial exercise shall be the amount obtained by multiplying (a) the number
of shares of Common Stock designated by the holder in the Subscription Form by
(b) the Purchase Price then in effect, unless cashless exercise is elected by
the holder pursuant to Section 2.2. On any such partial exercise, the Company,
at its expense, will forthwith issue and deliver to or upon the order of the
holder hereof a new Warrant of like tenor, in the name of the holder hereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request, the number of shares of Common Stock for which such Warrant may
still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") for each share of Common
Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively,
40
reported for the last business day immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded in
the over-the-counter market, then the mean of the closing bid and asked prices
reported for the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or in the
absence of agreement by arbitration in accordance with the rules then standing
of the American Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass on the
matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 7 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
41
2.2. Cashless Exercise.
(a) Payment may be made either in (a) cash or by certified or
official bank check or checks payable to the order of the Company equal to the
applicable aggregate Purchase Price, (ii) by delivery of Warrants, Common Stock
and/or Common Stock receivable upon exercise of the Warrants in accordance with
Section (b) below, or (iii) by a combination of any of the foregoing methods,
for the number of Common Shares specified in such form (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the holder per the terms of this Warrant) and the
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash the holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Subscription Form in which event the Company shall
issue to the holder a number of shares of Common Stock computed using the
following formula:
X=Y (A-B)
---
A
Where X= the number of shares of Common Stock to be issued to the holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being exercised (at the date of such calculation)
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
(c) The Holder may not employ the cashless exercise feature described
above at any time that the Warrant Stock to be issued upon exercise is included
at the date of exercise for unrestricted resale in an effective registration
statement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as
42
the case may be, shall receive, in lieu of the Common Stock (or Other
Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrants be delivered to the
Trustee as contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or
43
readjustment is based, including a statement of (a) the consideration received
or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number
of shares of Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Purchase Price and the number of shares of Common Stock
to be received upon exercise of this Warrant, in effect immediately prior to
such adjustment or readjustment and as adjusted or readjusted as provided in
this Warrant. The Company will forthwith mail a copy of each such certificate to
the holder of the Warrant and any Warrant agent of the Company (appointed
pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the Shares. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense but with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. This Warrant is issued pursuant to a Private
Equity Line of Credit Agreement and Registration Rights Agreement dated at or
about June ___, 2001. The terms of the Private Equity Line of Credit Agreement
is incorporated herein by this reference.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Company on such date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of
44
more than 4.99%. The restriction described in this paragraph may be revoked upon
75 days prior notice from the Holder to the Company. The Holder may allocate
which of the equity of the Company deemed beneficially owned by the Subscriber
shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
11. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
12. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
45
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By:_________________________________
Witness:
______________________________
46
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Paradigm Advanced Technologies, Inc.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
____ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
____ $__________ in lawful money of the United States; and/or
____ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
____ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ____________________ whose address is
______________________________________ ____________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:_________________________ ________________________________
(Signature must conform to name
of holder as specified on the
face of the Warrant)
_______________________________
(Address)
Exhibit B
47
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Paradigm Advanced Technologies, Inc. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Paradigm Advanced Technologies, Inc. with full power of substitution in the
premises.
Percentage Number
Transferees Transferred Transferred
----------- ----------- ------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Dated: _________________________________________________________________________
(Signature must conform to name of holder as specified on the face of the
warrant)
Signed in the presence of:
_______________________________ ____________________________________
(Name) (address)
____________________________________
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
_______________________________
(Name)
48
SCHEDULE 13
CASH FINDERS FEE (1) WARRANT EXERCISE
FINDERS CASH FINDERS FEE (1) COMPENSATION (2)
------- -------------------- -----------------
ASSIF S.A. Cash Finder's Fees payable in
A Xxxxxxxx Islands corporation connection with investments by
000 Xxxxxx Xxxxxx, Xxxxx 000 Xxxxxx Limited.
Xxxxxxx, Xxxxxxx, Xxxxxx
X0X 0X0
Fax: 000-000-0000
----------------------------------------------------------------------------------------------------------------------
ZAKENI LIMITED Warrant Exercise
A Bahamian corporation Compensation payable in
Xxxxxxxxxxxxx 00 connection with investments
Postfach 2515 by Xxxxxx Xxxxxxx.
0000, Xxx, Xxxxxxxxxxx
Fax: 000-0000-000-0000
------------ --- --
TOTAL 6% 6%
--- --
(1) Total Finder's Fee represents 6% of the Commitment Amount.
(2) Total Warrant Exercise Compensation represents 6% of the Warrant
Exercise Proceeds.
WARRANT RECIPIENTS PROPORTIONATE SHARE OF WARRANTS
------------------ -------------------------------
ZAKENI LIMITED Warrants issuable in connection with investments
Bahamian corporation by Zakeni Limited.
A Xxxxxxxxxxxxx 00
Xxxxxxxx 0000
0000, Xxx, Xxxxxxxxxxx
Fax: 000-0000-000-0000
------------ ----
TOTAL 100%
----
49
