TEXAS COMMERCIAL RESOURCES, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN
THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT D.
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SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement")
is made as of July 1, 2002, by and between Texas Commercial Resources, Inc., a
corporation duly organized and existing under the laws of the State of Texas
(the "Company"), and the undersigned Investor executing this Agreement
("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for
a maximum aggregate offering amount of $8,000,000 (the "Maximum Offering
Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by
the Company, the offer and sale of the Common Stock are being made in reliance
upon the provisions of Regulation D ("Regulation D") promulgated under the Act,
Section 4(2) of the Act, and/or upon such other exemption from the registration
requirements of the Act as may be available with respect to any or all of the
purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Business Day" shall mean any day during which the Principal Market is open
for trading.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month and for Calendar Months thereafter, beginning on
the earlier of (i) the same numeric day of the next calendar month or (ii) the
last day of the next calendar month. Each Calendar Month shall end on the day
immediately preceding the beginning of the next succeeding Calendar Month.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the Principal
Market for such security reported by such exchange or market, or, if no closing
bid price is reported for such security, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the
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Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor in
this offering and any fees and costs associated therewith shall be paid by the
Company.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the OTC Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Extended Put Period" shall mean the period of time between the Advance Put
Notice Date until the Pricing Period End Date.
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel as to the Investment Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(a) no longer hold a majority of the shares of Common Stock of the Company or
(b) no longer have the ability to elect the board of directors of the Company (a
"Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive
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solely Common Stock or no consideration (if the Company is the surviving entity)
or solely common stock of such other entity (if such other entity is the
surviving entity), such transaction shall not be deemed to be a Major
Transaction (provided the surviving entity, if other than the Company, shall
have agreed to assume all obligations of the Company under this Agreement and
the Registration Rights Agreement). For purposes hereof, an entity shall have
Substantially Similar Trading Characteristics as the Company if the average
daily dollar Trading Volume of the common stock of such entity is equal to or in
excess of $500,000 for the 90th through the 31st day prior to the public
announcement of such transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the volume weighted average price ("VWAP") for
the five days having the lowest daily VWAP for the Common Stock on the Principal
Market during the Pricing Period for the applicable Put.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel and the Registration Opinion.
"Pricing Period" shall mean, unless otherwise shortened under the terms of
this Agreement, the period beginning on the Business Day immediately following
the Put Date and ending on and including the date which is 20 Business Days
after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
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"Principal Market" shall mean the OTC Bulletin Board, the Nasdaq Small Cap
Market, the Nasdaq National Market, the American Stock Exchange or the New York
Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the respective Put Share Prices with respect to such Put Shares, subject to
the limitations herein.
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
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parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Act.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Six Month Anniversary" shall mean the date that is the same Numeric Day of
the sixth (6th) calendar month after the Investment Date, and the date that is
the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
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"Termination Date" shall mean the earlier of (i) the date that is two (2)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Investor, and (c) the date of an Automatic Termination.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on the
Principal Market during any Business Day, and shall expressly exclude any shares
trading during "after hours" trading.
"Transfer Agent Instructions" shall mean the Company's instructions to its
transfer agent, substantially in the form attached as Exhibit I, or such other
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form as agreed upon by the parties.
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"VWAP" shall mean the volume-weighted average of the prices at which a
security has traded on the security's Principal Market during the relevant time
period.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
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Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock and accompanying Warrants as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Puts pursuant to Section 2.3
below.
2.2 Investment Commitment.
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2.2.1 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed by both
Investor and the Company, the Transfer Agent Instructions have been executed by
both the Company and the Transfer Agent, and the other Conditions to Investor's
Obligations set forth in Section 2.2.2 below have been met.
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2.2.2 Conditions to Investor's Obligations. As a prerequisite
to the Investment Commitment Closing and the Investor's obligations hereunder,
all of the following (the "Conditions to Investor's Obligations") shall have
been satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by the
Company and Investor), (ii) the Investment Commitment Opinion of
Counsel (signed by the Company's counsel), (iii) the Transfer
Agent Instructions (executed by the Company and the Transfer
Agent), and (iv) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors authorizing this
transaction, (B) the Company's Certificate of Good Standing,
Articles of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have
been received by the Investor;
(c) the Company agrees that the Company's Common Stock shall be
listed for trading and actually trading on a Principal Market
prior to the first Put Date;
(d) other than continuing losses, if any, described in the Risk
Factors set forth in the Disclosure Documents (provided for in
Section 3.2.4), as of the Closingthere have been no material
adverse changes in the Company's business prospects or financial
condition since the date of the last balance sheet included in
the Disclosure Documents, including but not limited to incurring
material liabilities; and
(e) the representations and warranties of the Company in this
Agreement shall be true and correct in all material respects and
the conditions to Investor's obligations set forth in this
Section 2.2.2 shall have been satisfied as of such Closing; and
the Company shall deliver an Officer's Certificate, signed by an
officer of the Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
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2.3.1 Procedure to Exercise a Put. Subject to the Individual
Put Limit, the Maximum Offering Amount, the 9.9% Limitation, and the Cap Amount
(if applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
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(a) Delivery of Advance Put Notice. At least ten (10)
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Business Days but not more than twenty (20) Business Days prior to any intended
Put Date (unless otherwise agreed in writing by the Investor), the Company shall
deliver advance written notice (the "Advance Put Notice," the form of which is
attached hereto as Exhibit F, the date of such Advance Put Notice being the
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"Advance Put Notice Date") to Investor stating the Put Date for which the
Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock which the
Company intends to sell to the Investor for the Put (the "Intended Put Share
Amount").
The Company may, at its option, also designate in any
Advance Put Notice a minimum purchase price per Put Share at which the Investor
may purchase Shares pursuant to such Put Notice (a "Company Designated Minimum
Put Share Price"). The Company Designated Minimum Put Share Price, if
applicable, shall be no greater than 80% of the Closing Bid Price of the
Company's common stock on the Advance Put Notice Date. The Company may decrease
(but not increase) the Company Designated Minimum Put Share Price for a Put at
any time by giving the Investor written notice of such decrease not later than
12:00 Noon, New York City time, on the Business Day immediately preceding the
Business Day that such decrease is to take effect. A decrease in the Company
Designated Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect.
In order to effect delivery of the Advance Put Notice, the
Company shall (i) send the Advance Put Notice by facsimile on such date so that
such notice is received by the Investor by 6:00 p.m., New York, NY time, and
(ii) surrender such notice on such date to a courier for overnight delivery to
the Investor (or two (2) day delivery in the case of an Investor residing
outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the
Advance Put Notice, the Investor shall, within five (5) Business Days, send, via
facsimile, a confirmation of receipt (the "Advance Put Notice Confirmation," the
form of which is attached hereto as Exhibit G) of the Advance Put Notice to the
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Company specifying that the Advance Put Notice has been received and affirming
the intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number
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of shares of Common Stock that the Investor shall be obligated to purchase in a
given Put, and shall equal the lesser of (i) the Intended Put Share Amount, (ii)
the Individual Put Limit, or that number of shares that could be purchased
without exceeding the Maximum Offering Amount, the 9.9% limitation, or the Cap
Amount, if applicable. The "Individual Put Limit" shall equal 15% of the sum
of the aggregate daily reported Trading Volumes in the outstanding Common Stock
on the Company's Principal Market, excluding any block trades of 20,000 or more
shares of Common Stock, for all Evaluation Days (as defined below) in the
Pricing Period. Company agrees not to trade Common Stock or arrange for Common
Stock to be traded for the purpose of artificially increasing the Individual Put
Limit.
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For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i)
the Company Designated Minimum Put Share Price divided by 90% or (ii) the
Company Designated Minimum Put Share Price plus $.10.
An "Excluded Day" shall mean each Business Day during a Pricing Period
where at least "Y" shares of Common Stock trade at a price that is less than the
Trigger Price, where "Y" is the lesser of (i) 10,000 shares, or (ii) 15% of the
daily reported Trading Volume in the outstanding Common Stock on the Company's
Principal Market on such Business Day.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the Put Shares
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(the "Put Share Price") shall equal the lesser of (i) the Market Price for such
Put, minus $0.10, or (ii) 90% of the Market Price for such Put, but shall in no
event be less than the Company Designated Minimum Put Share Price for such Put,
if applicable.
(d) [Reserved]
(e) Delivery of Required Put Documents. On or before the Put
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Date for such Put, the Company shall deliver the Required Put Documents (as
defined in Section 2.3.5 below) to the Investor (or to an agent of Investor, if
Investor so directs). Unless otherwise specified by the Investor, the Put
Shares of Common Stock shall be transmitted electronically pursuant to such
electronic delivery system as the Investor shall request; otherwise delivery
shall be by physical certificates. If the Company has not delivered all of the
Required Put Documents to the Investor on or before the Put Date, the Put shall
be automatically cancelled, unless the Investor agrees to delay the Put Date by
up to three (3) Business Days, in which case the Pricing Period begins on the
Business Day following such new Put Date. If the Company has not delivered all
of the Required Put Documents to the Investor on or before the Put Date (or new
Put Date, if applicable), and the Investor has not agreed in writing to delay
the Put Date, the Put is automatically canceled (an "Impermissible Put
Cancellation") and, unless the Put was otherwise canceled in accordance with the
terms of Section 2.3.11, the Company shall pay the Investor $5,000 for its
reasonable due diligence expenses incurred in preparation for the canceled Put
and the Company may deliver an Advance Put Notice for the subsequent Put no
sooner than ten (10) Business Days after the date that such Put was canceled,
unless otherwise agreed by the Investor.
(f) Limitation on Investor's Obligation to Purchase Shares.
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Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and an Intended Put Share Amount may not
include, an amount of Put Shares, which when added to the number of unexercised
Warrants would exceed
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9.99% of the number of shares of Common Stock outstanding (on a fully diluted
basis, to the extent that inclusion of unissued shares is mandated by Section
13(d) of the Exchange Act) on the Put Date for such Pricing Period, as
determined in accordance with Section 13(d) of the Exchange Act (the "Section
13(d) Outstanding Share Amount"). Each Put Notice shall include a representation
of the Company as to the Section 13(d) Outstanding Share Amount on the related
Put Date. In the event that the Section 13(d) Outstanding Share Amount is
different on any date during a Pricing Period than on the Put Date associated
with such Pricing Period, then the number of shares of Common Stock outstanding
on such date during such Pricing Period shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Shares made pursuant to
this Agreement in the 31 calendar days preceding such date, would have acquired
more than 9.99% of the Section 13(d) Outstanding Share Amount. The limitation
set forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to
require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination") upon the occurrence of any of the
following:
(a) if, at any time, either the Company or any director or
executive officer of the Company has engaged in a transaction or conduct related
to the Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) on any date after a continuous time period, including
both Ineffective Periods and Delisting Events, that lasts for an aggregate of
four (4) months or a cumulative series of time periods, including both
Ineffective Periods and Delisting Events, that lasts for an aggregate of six (6)
months;
(c) if at any time the Company has filed for and/or is
subject to any bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors instituted by or against the Company or any subsidiary of the
Company;
(d) after the sooner of (i) the date that is two (2) years
after the Effective Date, or (ii) the Put Closing Date on which the aggregate of
the Put Dollar Amounts for all Puts equal the Maximum Offering Amount;
(e) after the Company has breached any covenant in Section
2.6, Section 6 (other than Section 6.8), or Section 9 hereof; or
(f) if no Registration Statement has been declared effective
by the date that is one (1) year after the date of this Agreement, the Automatic
Termination shall occur on the date that is one (1) year after the date of this
Agreement.
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2.3.3 Put Limitations. The Company's right to exercise a Put
shall be limited as follows:
(a) notwithstanding the amount of any Put, the Investor
shall not be obligated to purchase any additional Put Shares once the aggregate
Put Dollar Amount paid by Investor equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has announced a
subdivision or combination, including a reverse split, of its Common Stock or
has subdivided or combined its Common Stock during the Extended Put Period;
(c) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has paid a
dividend of its Common Stock or has made any other distribution of its Common
Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has made,
during the Extended Put Period, a distribution of all or any portion of its
assets or evidences of indebtedness to the holders of its Common Stock;
(e) The Company shall not enter into any transaction(s)
during an Extended Put period that would, under any circumstance, require that
the prospectus under which the shares are put to the investor to become
ineffective and to require amendment before it can properly be used in
connection with the sale of such shares.
2.3.4 Conditions Precedent to the Right of the Company to
Deliver an Advance Put Notice or a Put Notice and the Obligation of the Investor
to Purchase Put Shares. The right of the Company to deliver an Advance Put
Notice or a Put Notice and the obligation of the Investor hereunder to acquire
and pay for the Put Shares incident to a Closing is subject to the satisfaction,
on (i) the date of delivery of such Advance Put Notice or Put Notice and (ii)
the applicable Put Closing Date, of each of the following conditions:
(a) the Company's Common Stock shall be listed and available for
trading on Principal Market and the Put Shares shall be so
listed, and to the Company's knowledge there is no notice of any
suspension or delisting with respect to the trading of the shares
of Common Stock on such market or exchange, provided that nothing
herein shall prevent the Company from concurrently listing its
Common Stock on more than one national exchange.;
(b) the Company shall have satisfied any and all obligations pursuant
to the Registration Rights Agreement, including, but not limited
to,
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the filing of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities and the
requirement that the Registration Statement shall have been
declared effective by the SEC for the resale of all Registrable
Securities and the Company shall have satisfied and shall be in
compliance with any and all obligations pursuant to this
Agreement and the Warrants;
(c) the representations and warranties of the Company are true and
correct in all material respects as if made on such date and the
conditions to Investor's obligations set forth in this Section
2.3.4 are satisfied as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the Company, to
such effect to the Investor;
(d) the Company shall have reserved for issuance a sufficient number
of Common Shares for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares pursuant to any Put
and to effect exercise of the Warrants;
(e) the Registration Statement is not subject to an Ineffective
Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and to
the Company's knowledge there is no notice of any investigation
or inquiry concerning any stop order with respect to the
Registration Statement; and
(f) if the Aggregate Issued Shares after the Closing of the Put would
exceed the Cap Amount, the Company shall have obtained the
Stockholder 20% Approval as specified in Section 6.10, if the
Company's Common Stock is listed on the Nasdaq Small Cap Market
or National Market, and such approval is required by the rules of
the Nasdaq.
2.3.5 Documents Required to be Delivered on the Put Date as
Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
(a) a number of Unlegended Share Certificates (or freely
tradeable electronically delivered shares, as appropriate) equal to the Intended
Put Share Amount, in denominations of not more than 50,000 shares per
certificate;
(b) the following documents: any report or disclosure
required under Section 2.3.6 or Section 2.5;
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(c) a "Put Notice" confirming the same, dates and amounts as
the Advance Put Notice, in the form of Exhibit H.
(d) all documents, instruments and other writings required
to be delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the
Investor, whenever required by Section 2.3.6(b) or by Section 2.5.3 (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel in substantially the form of Exhibit J, the "Registration Opinion". If
a Registration Opinion cannot be delivered by the Company's independent counsel
to the Investor when requested due to the existence of Material Facts or an
Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
Supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires knowledge of
such Material Facts or any Ineffective Period occurs, the Company shall promptly
notify the Investor and shall deliver a Put Cancellation Notice to the Investor
pursuant to Section 2.3.11 by facsimile and overnight courier by the end of that
Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the parties
hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement
(ii) in the event that the Investor shall have
requested delivery of an Agreed Upon Procedures Report pursuant to Section
2.5.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this
Section 2.3.6(b) cannot be delivered by the Company's independent auditors, the
Company shall, if necessary, promptly revise the Registration Statement and the
Company shall not deliver a Put Notice until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required to
purchase (each a "Purchase") from the Company a number of Put Shares equal to
the Put Share Amount, in the manner described below.
13
2.3.8 Mechanics of Put Closing. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is seven
(7) Business Days following the applicable Pricing Period End Date (or such
other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On each or
before each Payment Due Date, the Investor shall deliver to the Company, in the
manner specified in Section 8 below, the Put Dollar Amount to be paid for such
Put Shares, determined as aforesaid. The closing (each a "Put Closing") for
each Put shall occur on the date that both (i) the Company has delivered to the
Investor all Required Put Documents,and (ii) the Investor has delivered to the
Company such Put Dollar Amount and any Late Payment Amount, if applicable (each
a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar
Amount for such Put Closing on or before the Payment Due Date, then the Investor
shall pay to the Company, in addition to the Put Dollar Amount, an amount (the
"Late Payment Amount") at a rate of X% per month, accruing daily, multiplied by
such Put Dollar Amount, where "X" equals one percent (1%) per month following
the date in question, and increases by an additional one percent (1%) for each
month that passes after the date in question, provided, however, that in no
event shall the amount of interest that shall become due and payable hereunder
exceed the maximum amount permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in or cause others on its behalf to engage in sales
of the Company's Common Stock for which the Investor does not have the right or
duty to purchase shares from the Company to cover such sales; provided, however,
that the Investor may enter into any short exempt sale or any short sale or
other hedging or similar arrangement it deems appropriate with respect to Put
Shares and Warrants after it receives a Put Notice so long as such sales or
arrangements do not involve more than the number of such Put Shares or Warrants
that the Investor has a right or duty to purchase from the Company.
2.3.10 Cap Amount. If the Company becomes listed on the Nasdaq
Small Cap Market or the Nasdaq National Market, then, unless the Company has
obtained Stockholder 20% Approval as set forth in Section 6.10 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares
exceed the maximum number of shares of Common Stock (the "Cap Amount") that the
Company can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
14
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time during
-----------------------------
a Pricing Period the Company discovers the existence of Material Facts or any
Ineffective Period or Delisting Event occurs, the Company shall cancel the Put
(a "Put Cancellation"), by delivering written notice to the Investor (the "Put
Cancellation Notice"), attached asExhibit K, by facsimile and overnight courier.
---------
The "Put Cancellation Date" shall be the date that the Put Cancellation Notice
is first received by the Investor, if such notice is received by the Investor by
6:00 p.m., New York, NY time, and shall be the following date, if such notice is
received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put
-----------------------------
Cancellation Notice is delivered to Investor after the Put Date, the Put, shall
remain effective with respect to a number of Put Shares (the "Truncated Put
Share Amount") equal to the lesser of the Individual Put Limit for the Truncated
Pricing Period, or the Intended Put share Amount divided by 20 and multiplied by
the number of Evaluation Days in the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon receipt
-------------------------------------
by the Investor of a facsimile copy of the Put Cancellation Notice, the Investor
shall promptly send, via facsimile, a confirmation of receipt (the "Put
Cancellation Notice Confirmation," a form of which is attached as Exhibit L) of
---------
the Put Cancellation Notice to the Company specifying that the Put Cancellation
Notice has been received and affirming the Put Cancellation Date.
(d) TruncatedPricing Period. If a Put Cancellation
-------------------------
Notice has been delivered to the Investor after the Put Date, the Pricing Period
for such Put shall end at on the close of trading on the day of the initial
delivery of the Put Cancellation Notice (a "Truncated Pricing Period") to the
Investor.
2.3.12 Investment Agreement Cancellation. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other rights
and obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event that the
number of Shares purchased by the Investor pursuant to its obligations hereunder
is less than the Intended Put Share Amount, the Investor shall promptly return
to the Company any shares of Common Stock in the Investor's possession that are
not being purchased by the Investor unless the Company elects to immediately or
contiguously deliver a new Advanced Put Notice.
15
2.4 Warrants
--------
In partial consideration hereof, the Company issued and delivered
to Investor or its designated assignees, warrants (the "Warrants") in the form
attached hereto as Exhibit M, or such other form as agreed upon by the parties,
---------
to purchase 750,000 shares of Common Stock. The Warrants shall be exercisable
at a price (the "Warrant Exercise Price") which shall initially equal $0.40 per
share, and shall have reset provisions. Each Warrant shall be immediately
exercisable at the Warrant Exercise Price, and shall have a term beginning on
the date of issuance and ending on the date that is five (5) years thereafter.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the
issuance of the Warrant and the issuance of the common stock upon exercise of
the Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is not
filed, and regardless of whether or not the Registration Statement is approved
or denied by the SEC, the Warrants are exercisable as to one-half of the Warrant
Shares ten business days after the Company has received the Closing Documents
from Holder, i.e., the end of the Due Diligence Period, as the same may be
extended, as referenced in the Discretionary Drawdown Offering Term Sheet
Agreement dated on or about January 25, 2002, between Holder and Company. This
Warrant is exercisable as to an additional one-eighth of the Warrant Shares
after each of the first four six-month anniversary dates of the Date of
Issuance.
If the Company does not execute the Closing Documents, the
Warrants shall be exercisable for no more than one-half of the Warrant Shares,
and if the Company terminates the Discretionary Drawdown Offering transaction in
writing before the end of the Due Diligence Period, the Warrants shall not be
exercisable for any shares of the Company and shall be returned to the Company
by the Holder.
2.5 Due Diligence Review. The Company shall make available for
----------------------
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration
Statement,or amendments or supplements thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys
16
to conduct initial and ongoing due diligence with respect to the Company and the
accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company shall
not disclose nonpublic information to the Investor or to its advisors or
representatives in violation of Reg. FD. Nothing herein shall require the
Company to disclose nonpublic information to the Investor or its advisors or
representatives, and the Company represents that it does not disseminate
nonpublic information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting information (whether or
not requested of the Company specifically or generally during the course of due
diligence by and such persons or entities), which, if not disclosed in the
Prospectus included in the Registration Statement, would cause such Prospectus
to include a material misstatement or to omit a material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
2.5.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the Investor's
counsel of all events or circumstances constituting nonpublic information
discovered by such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's counsel shall consult with the Company's independent counsel in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to be
Untrue or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement or a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading,
(a) the Company shall file with the SEC an amendment to
the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with copies of
the Registration Statement and related Prospectus, as so amended, or
17
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company's independent auditors shall provide to
the Company a letter ("Agreed Upon Procedures Report") outlining the performance
of such "agreed upon procedures" as shall be reasonably requested by the
Investor and the Company shall provide the Investor with a copy of such letter.
2.6 Commitment Payments.
--------------------
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $300,000 in aggregate Put Dollar Amount during that
Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-Usage Fee ") equal to the
difference of (i) $30,000, minus (ii) 10% of the aggregate Put Dollar Amount of
the Put Shares put to Investor during that Commitment Evaluation Period;
provided, however, that no Semi-Annual Non-Usage Fee shall be payable for a
Commitment Evaluation Period if the Company is precluded from exercising a Put
or Puts during that period by reason of the Maximum Offering Amount, the 9.9%
Limitation, or the Cap Amount. In the event that the Company delivers a
Termination Notice to the Investor or an Automatic Termination occurs (other
than by reason of Section 2.3.2(d)), the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Semi-Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x) $60,000,
minus (y) 5% of the aggregate Put Dollar Amount of the Put Shares put to
Investor during all Puts to date, and the Company shall not be required to pay
the Semi-Annual Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
--------------------
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
--------------------------------------------------------------
Investigation.
-------------
3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from
18
representatives of the Company, its officers, directors, employees and agents
concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which Investor
or Investor's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely
on the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not
limit or modify Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the most recent three years, if
applicable, (ii) the Company's quarterly report on Form 10-QSB for the last four
quarters, if any, (iii) the Risk Factors, provided by the Company, (the "Risk
Factors") (iv) the Company's subsidiaries and Affiliates (the "Schedule of
Subsidiaries and Affiliates.") and any related transactions (v) the
Capitalization Schedule of the Company's currently issued and outstanding stock
and/or warrants, , (the "Capitalization Schedule") and (vi) the Use of Proceeds
Schedule as anticipated by the Company, (the "Use of Proceeds Schedule"); (b)
Investor has read, reviewed, and relied solely on the documents described in (a)
above, the Company's representations and warranties and other information in
this Agreement, including the exhibits, documents prepared by the Company which
have been specifically provided to Investor in connection with this Offering
(the documents described in this Section 3.2.4 (a) and (b) are collectively
referred to as the "Disclosure Documents"), and an independent investigation
made by Investor and Investor's representatives, if any; (c) Investor has, prior
to the date of this Agreement, been given an opportunity to review material
contracts and documents of the Company which have been filed as exhibits to the
Company's filings under the Act and the "Exchange Act and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor any written representation or assurance from the Company
other than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investor's right to
rely upon covenants, representations and
19
warranties of the Company in Sections 5 and 6 of this Agreement. Investor
acknowledges and agrees that the Company has no responsibility for, does not
ratify, and is under no responsibility whatsoever to comment upon or correct any
reports, analyses or other comments made about the Company by any third parties,
including, but not limited to, analysts' research reports or comments
(collectively, "Third Party Reports"), and Investor has not relied upon any
Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments in
securities other than those of the Company. Investor acknowledges that Investor
is able to fend for Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic risk of Investor's
investment pursuant to this Agreement and that Investor is an Accredited
Investor by virtue of the fact that Investor meets the investor qualification
standards set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such investment
is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
---------------------------------------
3.3.1 No General Solicitation. The Investment Agreement was not
offered to Investor through, and Investor is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands that the
Investment Agreement is and the Common Stock issued under this Agreement will
be, characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction exempt
from the registration requirements of the federal securities laws and that under
such laws and applicable regulations such securities may not be transferred or
resold without registration under the Act or pursuant to an exemption therefrom.
In this connection, Investor represents that Investor is familiar with Rule 144
under the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.3.3 Disposition. Investor further agrees not to sell,
transfer, assign, or pledge the Securities (except for any bona fide pledge
arrangement to the extent that such pledge does not require registration under
the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall
comply with the requirements set forth herein), or to otherwise dispose of all
or any portion of the Securities unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such proposed
disposition and
20
such disposition is made in accordance with such registration statement and in
compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of the Securities under the Act
or state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account
and the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Common Stock for any minimum or other specific term and reserves the
right to dispose of the Common Stock at any time in accordance with federal and
state securities laws applicable to such disposition.
3.4 Due Authorization.
------------------
3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing this
Agreement. Investor has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly organized,
validly existing and in good standing as a limited liability company under the
laws of Texas with full power and authority to purchase the Securities to be
purchased by Investor and to execute and deliver this Agreement.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. An investment in the Company involves
---------------------
substantial risks, including the potential loss of Investor's entire investment
herein. Investor recognizes that the Disclosure Documents, this Agreement and
the exhibits hereto do not purport to contain all the information, which would
be contained in a registration statement under the Act;
21
4.2 No Government Approval. No federal or state agency has passed
------------------------
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of
---------------------------------------------
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
--------------------------
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
--------------------------------
any registration statement will become effective at the scheduled time, or ever,
or remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the Securities are
------------------
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Investor to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares and
-------
Warrant Shares shall not bear a Restrictive Legend if they are issued at a time
when there is an effective Registration Statement is for the resale of the
shares. It is understood that the certificates evidencing any shares issued at
a time when the Registration Statement is not effective for resale, subject to
legend removal under the terms of Section 6.7 below, shall bear the following
legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under
those securities laws or pursuant to an exemption therefrom."
22
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and represents to Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit E:
----------
5.1 Organization, Good Standing, and Qualification. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas , USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and its subsidiaries taken
as a whole. The Company is not the subject of any pending, threatened or, to
its knowledge, contemplated investigation or administrative or legal proceeding
(a "Proceeding") by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission, The
National Association of Securities Dealer, Inc., The Nasdaq Stock Market, Inc.,
any securities exchange or any state securities commission, or any other
governmental entity, which have not been disclosed in the Disclosure Documents.
None of the disclosed Proceedings, if any, will have a material adverse effect
upon the Company or the market for the Common Stock. Subsidiaries and
Affiliates as shown in the Disclosure Document:
5.2 Corporate Condition. The Company's condition is, in all material
-------------------
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure Documents, if applicable), except for changes in
the ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition, or prospects since the dates of such Disclosure Documents. The
financial statements as contained in the 10-KSB and 10-QSB, if any, have been
prepared in accordance with generally accepted accounting principles,
consistently applied (except as otherwise permitted by Regulation S-X of the
Exchange Act), subject, in the case of unaudited interim financial statements,
to customary year end adjustments and the absence of certain footnotes, and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended,. Without limiting the foregoing,
there are no material liabilities, contingent or actual, that are not disclosed
in the Disclosure Documents (other than liabilities incurred by the Company in
the ordinary course of its business, consistent with its past practice, after
the period covered by the Disclosure Documents). The Company has paid all
material taxes that are due, except for taxes that it reasonably disputes.
There is no material claim, litigation, or administrative proceeding pending or,
to the best of the Company's knowledge, threatened against the Company, except
as disclosed in the Disclosure Documents. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not
23
omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made. No event or
circumstance exists relating to the Company, which under applicable law,
requires public disclosure but which has not been so publicly announced or
disclosed.
5.3 Authorization. All corporate action on the part of the Company
-------------
by its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
The Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
-----------------------------------
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
------------------------------------
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery
and performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement,
24
(b) violate the Company's Certificate of Incorporation or By-Laws or (c) violate
any statute, rule or governmental regulation applicable to the Company which
violation would have a material adverse effect on the Company's business or
prospects.
5.6 Reporting Company. The Company shall be subject to the reporting
-----------------
requirements of the Exchange Act and the Company shall file all reports required
by the Exchange Act after the date the Company first becomes subject to such
reporting obligations. The Company undertakes to furnish Investor with copies of
such reports as may be reasonably requested by Investor prior to consummation of
this Offering and thereafter, to make such reports available, for the full term
of this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is, or will be prior to the first Put
Date, duly listed and actually trading on a Principal Market. The Company is
not in violation of the listing requirements of such exchange or market and does
not reasonably anticipate that the Common Stock will be delisted by that
exchange or market in the foreseeable future. The Company has filed all reports
required under the Exchange Act. The Company has not furnished to the Investor
any material nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of the date
--------------
of execution of this Agreement, after taking into account the offering of the
Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, will be, as set forth in the Capitalization
Schedule as set forth in Exhibit C. There are no securities or instruments
---------
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities. Except as disclosed in the Capitalization Schedule,
as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 No Rights of Participation. No person or entity, including, but
----------------------------
not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.9 Company Acknowledgment. THE COMPANY HEREBY ACKNOWLEDGES THAT
-----------------------
INVESTOR MAY ELECT TO HOLD THE SECURITIES FOR VARIOUS PERIODS OF TIME, AS
PERMITTED BY THE TERMS OF THIS AGREEMENT, THE WARRANTS, AND OTHER AGREEMENTS
CONTEMPLATED HEREBY, AND THE COMPANY FURTHER ACKNOWLEDGES THAT INVESTOR HAS MADE
NO REPRESENTATIONS OR WARRANTIES, EITHER WRITTEN OR
25
ORAL, AS TO HOW LONG THE SECURITIES WILL BE HELD BY INVESTOR OR REGARDING
INVESTOR'S TRADING HISTORY OR INVESTMENT STRATEGIES.
5.10 No Advance Regulatory Approval. The Company acknowledges
---------------------------------
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.11 Underwriter's Fees and Rights of First Refusal. The Company is
-----------------------------------------------
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.12 Availability of Suitable Form for Registration. The Company is
-----------------------------------------------
currently eligible and agrees to maintain its eligibility to register the resale
of its Common Stock on a registration statement on a suitable form under the
Act.
5.13 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 of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of Nasdaq. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.14 Foreign Corrupt Practices. Neither the Company, nor any of its
-------------------------
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
26
5.15 Representations Survival. The foregoing representations,
-------------------------
warranties and agreements shall survive any Put Closing and the issuance of the
shares of Common Stock thereby.
5.16 Tax Status. The Company has made or filed all federal and state
----------
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.17 Transactions With Affiliates. Except as set forth in the
------------------------------
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.18 Application of Takeover Protections. The Company and its
--------------------------------------
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Texas law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.19 Other Agreements. The Company has not, directly or
-----------------
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.20 Major Transactions. There are no other major transactions
--------------------
currently pending or contemplated by the Company.
27
5.21 Financings. There are no other financings currently pending
-----------
or contemplated by the Company.
5.22 Shareholder Authorization. The Company shall, at its next
--------------------------
annual shareholder meeting following its listing on either the Nasdaq Small Cap
Market or the Nasdaq National Market, or at a special meeting to be held as soon
as practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 10,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval
and the Share Authorization Increase Approval, the Company agrees to use its
best efforts to reserve 10,000,000 shares of Common Stock for issuance under
this Agreement.
5.23 Acknowledgment of Limitations on Put Amounts. THE COMPANY
-------------------------------------------------
UNDERSTANDS AND ACKNOWLEDGES THAT THE AMOUNTS AVAILABLE UNDER THIS INVESTMENT
AGREEMENT ARE LIMITED, AMONG OTHER THINGS, BASED UPON THE LIQUIDITY OF THE
COMPANY'S COMMON STOCK TRADED ON ITS PRINCIPAL MARKET.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the
---------------------
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least
-----------------------------
the Termination Date, maintain its corporate existence in good standing and,
once it becomes a "Reporting Issuer" (defined as a Company which files periodic
reports under the Exchange Act), remain a Reporting Issuer (provided, however,
that the foregoing covenant shall not prevent the Company from entering into any
merger or corporate reorganization as long as the surviving entity in such
transaction, if not the Company, assumes the Company's obligations with respect
to the Common Stock and has Common Stock listed for trading on a stock exchange
or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due
except for taxes which the Company disputes.
28
6.3 Registration Rights. The Company will enter into a registration
--------------------
rights agreement covering the resale of the Common Shares and the Warrant Shares
substantially in the form of the Registration Rights Agreement attached as
Exhibit A.
----------
6.4 Rights of First Offer.
------------------------
6.4.1 Capital Raising Limitations. During the period from the
date of this Agreement until the Termination Date, the Company shall not issue
or sell, or agree to issue or sell Equity Securities (as defined below), for
cash in private capital raising transactions without obtaining the prior written
consent of the Investor of the Offering (the limitations referred to in this
subsection 6.4.1 are collectively referred to as the "Capital Raising
Limitations"), which consent shall not be unreasonably withheld. For purposes
hereof, the following shall be collectively referred to herein as, the "Equity
Securities": (i) Common Stock or any other equity securities, (ii) any debt or
equity securities which are convertible into, exercisable or exchangeable for,
or carry the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering. Notwithstanding the
above, the Company may issue or sell Equity Securities without the Investor's
written approval (subject to the Right of First Offer described
below)("Unauthorized Equity Securities"), upon ten (10) days advance written
notice to Investor, provided that:
A. If such Unauthorized Equity Securities entitle the holder thereof to a
reset in price based upon the market price of the Company's Common Stock at
some date (each, a "Reset Date") after issuance, then the Company may not
initiate any Put for which any day of the Pricing Period would fall on or
within ten (10) Business Days either before or after any such Reset Date;
and
B. If such Unauthorized Equity Securities are convertible into shares of
Common Stock based upon the market price of the Company's Common Stock at
some date (each, a "Conversion Date") after issuance, then there shall be
no Company Designated Minimum Put Share Price with respect to any Put for
which the Put Date occurs on any date that such convertible securities are
immediately convertible into a number of shares of Common Stock that would
exceed the sum of the aggregate daily reported Trading Volumes in the
outstanding Common Stock on the Company's Principal Market, excluding any
block trades of 20,000 or more shares of Common Stock, for the seven (7)
Business Days immediately preceding such Put Date.
6.4.2 Investor's Right of First Offer. Prior to closing
any private capital raising transactions of Equity Securities after the date
hereof and on or prior to the date that is after the Termination Date of this
Agreement, not including any warrants issued in conjunction with this Investment
Agreement, the Company agrees, prior to negotiating with or reaching an
agreement with any other potential investor regarding such capital raising
transactions, to negotiate in good faith with the Investor for at least
29
ten (10) Business Days regarding an additional private equity investment into
the Company upon mutually agreeable terms.
6.4.3 Exceptions to Rights of First Offer. Notwithstanding the
above, the Rights of First Offer shall not apply to any transaction involving
issuances of securities in connection with a merger, consolidation, acquisition
or sale of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company or exercise of options by employees, consultants or directors, or
a primary underwritten offering of the Company's Common Stock. The Capital
Raising Limitations also shall not apply to (a) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants or in connection with any equipment leasing
or loan agreement, or debt financing from a bank or similar financial or lending
institution, or (c) the issuance of debt securities, with no equity feature,
incurred solely for working capital purposes. If the Investor, at any time, is
more than five (5) business days late in paying any Put Dollar Amounts that are
then due, the Investor shall not be entitled to the benefits of Sections 6.4.1
and 6.4.2 above until the date that the Investor has paid all Put Dollar Amounts
that are then due.
6.5 Financial 00-XXX Xxxxxxxxxx, Etc. and Current Reports on Form
-----------------------------------------------------------------
8-K. The Company shall deliver to the Investor copies of its annual reports on
Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
6.6 Opinion of Counsel. Investor shall, concurrent with the
--------------------
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as Exhibit B, or in such form as agreed upon
---------
by the parties.
6.7 Removal of Legend. If the certificates representing any
-------------------
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell
all Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
30
6.8 Listing. Subject to the remainder of this Section 6.8, the
-------
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on a Principal
Market. Thereafter, the Company shall comply in all material respects with the
Company's reporting, filing and other obligations under the By-Laws or rules of
the Nasdaq Stock Market and such exchanges, as applicable.
6.9 The Company's Instructions to Transfer Agent. The Company
------------------------------------------------
will instruct the Transfer Agent of the Common Stock, by delivering instructions
in the form of Exhibit I hereto, to issue certificates, registered in the name
---------
of each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and the Company shall cause the Transfer Agent
to issue such certificates without a Legend. Nothing in this Section shall
affect in any way Investor's obligations and agreement set forth in Sections
3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor transfers
Securities, pursuant to Rule 144, to a transferee which is an accredited
investor, the Company shall permit the transfer, and, in the case of Put Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.9 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.9, that an
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.10 Stockholder 20% Approval. Prior to the closing of any Put that
--------------------------
would cause the Aggregate Issued Shares to exceed the Cap Amount, if required by
the rules of Nasdaq Stock Market because the Company's Common Stock is listed on
Nasdaq Stock Market, the Company shall obtain approval of its stockholders to
authorize (i) the issuance of the full number of shares of Common Stock which
would be issuable pursuant to this Agreement but for the Cap Amount and
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities with
respect to the Company's ability to issue shares of Common Stock in excess of
the Cap Amount (such approvals being the "Stockholder 20% Approval").
31
6.11 Press Release. The Company agrees that the Investor shall have
---------------
the right to review and approve upon any press release to be issued by the
Company in connection with the Offering which approval shall not be unreasonably
withheld by Investor.
6.12 Change in Law or Policy. In the event of a change in law, or
--------------------------
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder or to sell the shares obtained under this
Agreement without restriction, this Agreement shall be automatically terminated
and no Termination Fee shall be due, provided that notwithstanding any
termination under this section 6.12, the Investor shall retain full ownership of
the Warrant as partial consideration for its commitment and its consulting,
legal and other services rendered hereunder.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
----------------------------------------------------------------
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration Statement,
this Agreement shall continue in full force and effect without said provision;
provided that if the removal of such provision materially changes the economic
benefit of this Agreement to the Investor, this Agreement shall terminate under
the provisions of Section 6.12.
7.2 Successors and Assigns. This Agreement shall not be assignable
------------------------
and the Investor shall not have the right under any circumstance to transfer its
obligations under this Agreement to any other party.
7.3 Execution in Counterparts Permitted. This Agreement may be
--------------------------------------
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
------------------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
---------------------
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or
32
by facsimile or upon receipt if by overnight or two (2) day courier, addressed
to the parties at the addressesand/or facsimile telephone number of the parties
set forth at the end of this Agreement or such other address as a party may
request by notifying the other in writing; provided, however, that in order for
any notice to be effective as to the Investor such notice shall be delivered and
sent, as specified herein, to all the addressesand facsimile telephone numbers
of the Investor set forth at the end of this Agreement or such other address
and/or facsimile telephone number as Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
--------
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
-----------------------------------------------
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants, whether oral, written, or otherwise except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
------------------------------------------------
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Houston, Texas. Texas
law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In
any litigation between the parties hereto, the prevailing party, as found by the
court, shall be entitled to an award of all attorney's fees and costs of court.
Should the court refuse to find a prevailing party, each party shall bear its
own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
------------
(a) Wire transfer of Subscription Funds. Investor may deliver Put
Dollar Amounts (as payment towards any Put Share Price) by wire
transfer, to the Company pursuant to a wire instruction letter to
be provided by the Company, and signed by the Company.
33
(b) Irrevocable Subscription. Investor hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted by
Investor, that this Agreement is irrevocable and that Investor is
not entitled to cancel, terminate or revoke this Agreement or any
other agreements executed by such Investor and delivered pursuant
hereto, and that this Agreement and such other agreements shall
survive the death or disability of such Investor and shall be
binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal
representatives and assigns. If the Securities subscribed for are
to be owned by more than one person, the obligations of all such
owners under this Agreement shall be joint and several, and the
agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators,
successors, legal representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of
----------------------------
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
9. Indemnification.
In consideration of the Investor's execution and delivery of the Investment
Agreement, the Registration Rights Agreement and the Warrants (the "Transaction
Documents") and acquiring the Securities thereunder and in addition to all of
the Company's other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Investor and all of its
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document, (c) any cause of action, suit or claim, derivative or
otherwise, by any stockholder of the Company based on a breach or alleged breach
by the Company or any of its officers or directors of their fiduciary or other
obligations to the stockholders of the Company, or (d) claims made by third
parties against any of the Indemnitees based on a violation of Section 5 of the
Securities Act caused by the
34
integration of the private sale of common stock to the Investor and the public
offering pursuant to the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company (or the Investor, as applicable) shall
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which it would be required to make if such foregoing
undertaking was enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
10. Accredited Investor. Investor is an Accredited Investor because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, or a corporation, limited duration
company, limited liability company, business trust, or
partnership not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a director,
executive officer or general partner of a general partner of that
issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
35
[ ] had an individual income in excess of $200,000 in each of the
two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year.
(d) [X] an entity each equity owner of which is an entity described in a
- b above or is an individual who could check one (1) of the last
three (3) boxes under subparagraph (c) above.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 25th day of July, 2002
Texas Commercial Resources, Inc.
By: /s/ .
--------------------------------------
B. Xxxxx Xxxxxx, Vice President
Address: 0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Investor:
Goldbridge Capital, LLC.
0000 Xxxxxxx Xx., Xxx. 000
Xxxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
By: /s/ .
--------------------------------------
Name: Xxxxx X. Xxxxxxx, President
36
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
37
EXHIBIT B
OPINION OF COUNSEL
38
EXHIBIT C
CAPITALIZATION SCHEDULE
39
EXHIBIT D
DISCLOSURE DOCUMENTS
D.1 ANNUAL REPORTS
D.2 QUARTERLY REPORTS
D.3 RISK FACTORS
D.4 SUBSIDIARIES AND AFFILIATES
D.5 CAPITALIZATION SCHEDULE
D.6 USE OF PROCEEDS SCHEDULE
40
EXHIBIT E
SCHEDULE OF EXCEPTIONS
41
EXHIBIT F
ADVANCE PUT NOTICE
Texas Commercial Resources, Inc., (the "Company") hereby intends, subject to the
Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to Goldbridge Capital, LLC, the Investor, as of the Intended
Put Date written below, all pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the Company and Goldbridge Capital, LLC
dated July 25, 2002.
Date of Advance Put Notice:
----------------
Intended Put Date :
------------------------
Intended Put Share Amount:
-----------------
Company Designation Minimum Put Share Price
(Optional):
-------------------------------------------
Texas Commercial Resources, Inc.,
By:
(Name) , (Title)
Address:
Company Contact
-------------------------------------
-------------------------------------
Telephone
---------------------------
Facsimile
---------------------------
42
EXHIBIT G
CONFIRMATION OF ADVANCE PUT NOTICE
Goldbridge Capital, LLC, the Investor, hereby confirms receipt of Texas
Commercial Resources, Inc., (the "Company") Advance Put Notice on the Advance
Put Date written below, and its intention to elect to exercise a Put to sell
shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Investor dated July 25, 2002.
Date of Confirmation:
----------------------
Date of Advance Put Notice:
----------------
Intended Put Date:
-------------------------
Intended Put Share Amount:
-----------------
Company Designation Minimum Put Share Price
(Optional):
-------------------------------------------
INVESTOR(S)
Goldbridge Capital, LLC
Investor's Name
By:
---------------------------------
(Signature)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Telephone No.:
-----------------------------
Facsimile No.:
-----------------------------
43
EXHIBIT H
PUT NOTICE
Texas Commercial Resources, Inc., (the "Company") hereby elects to exercise a
Put to sell shares of common stock ("Common Stock") of the Company to Goldbridge
Capital, LLC, the Investor, as of the Put Date, at the Put Share Price and for
the number of Put Shares written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and the
Investor dated July 25, 2002.
Put Date :
---------------------
Intended Put Share Amount (from Advance Put
Notice): Common Shares
--------------------------------
Company Designation Minimum Put Share Price
(Optional):
---------------------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
Texas Commercial Resources, Inc.,
By:
(Name), (Title)
Address:
44
EXHIBIT I
TRANSFER AGENT INSTRUCTIONS
45
EXHIBIT J
REGISTRATION OPINION
46
EXHIBIT K
PUT CANCELLATION NOTICE
Texas Commercial Resources, Inc., (the "Company") hereby cancels the Put
specified below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Goldbridge Capital, LLC dated July
25, 2002, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice is
delivered to the Investor), provided that such cancellation shall not apply to
the number of shares of Common Stock equal to the Truncated Put Share Amount
(as defined in the Investment Agreement).
Cancellation Date:
------------------------------
Put Date of Put Being Canceled:
--------------
Number of Shares Put on Put Date:
------------
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective
Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
Texas Commercial Resources, Inc.
By:
(Name), (Title)
47
EXHIBIT L
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Texas Commercial Resources, Inc., and Goldbridge
Capital, LLC dated July 25, 2002, hereby confirms receipt of Texas Commercial
Resources, Inc., (the "Company") Put Cancellation Notice, and confirms the
following:
DATE OF THIS CONFIRMATION:
----------------------
PUT CANCELLATION DATE :
-------------------------
INVESTOR(S)
Goldbridge Capital, LLC
Investor's Name
By:
-----------------------------------
(Signature)
Address:
----------------------------------------
----------------------------------------
----------------------------------------
Telephone No.:
------------------------------------
Facsimile No.:
------------------------------------
48
EXHIBIT M
WARRANTS
49
