COLLEGE BOUND STUDENT ALLIANCE, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT
OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTION 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 25th day of May, 2000, by and between College
Bound Student Alliance, Inc., a corporation duly organized and existing under
the laws of the State of Colorado (the "Company"), which is in the process of
changing its domicile to the State of Nevada, and the undersigned Investor
executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000) (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; and
WHEREAS, the Company was listed on the O.T.C. Bulletin Board until
April 2000, at which time it was delisted because the Company was not a
Reporting Issuer; and
WHEREAS, the Company has filed a Form 10-SB registration statement with
the SEC to become a Reporting Issuer; and
WHEREAS, once the SEC completes its review of the Company's Form
10-SB and has no further comments on the Form 10-SB, the Company intends to seek
to have its shares listed on the O.T.C. Bulletin Board; and
WHEREAS, the Company believes it must receive notice from the SEC that
the SEC has completed its review of the Company's Form 10-SB registration
statement and that the SEC has no further comments on the Form 10-SB
registration statement (a "Completed Form 10-SB") prior to filing the
Registration Statement contemplated by this Agreement;
WHEREAS, the Company is presently a Colorado corporation and intends to
change its domicile to the state of Nevada through a merger with a corporation
formed under the laws of the State of Nevada for the purpose of merging with the
Company to change the Company's domicile; and
WHEREAS, it is necessary for the Company to complete the Change of
Domicile, become a Reporting Issuer, and have a Completed Form 10-SB to effect
the transactions contemplated by this Agreement.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as EXHIBIT F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Annual Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as EXHIBIT K.
"Change of Domicile" shall mean the change of the Company's state of
incorporation from the State of Colorado to the State of Nevada through a merger
between the Company and a corporation formed under the laws of the State of
Nevada for the purpose of merging with the Company to change the Company's
domicile.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor in
this offering and any fees and costs associated therewith shall be paid by the
Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section
2.4.1, the form of which is attached hereto as EXHIBIT U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean College Bound Student Alliance, Inc., a
corporation duly organized and existing under the laws of the State of Colorado,
and any successors to the Company, including the surviving Nevada corporation
which results from the Change of Domicile.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Completed Form 10-SB" shall have the meaning set forth in the
Recitals.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time after the Relisting Date during
the remaining term of this Investment Agreement, that the Company's Common Stock
is not listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange, or
the New York Stock Exchange or is suspended or delisted with respect to the
trading of the shares of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in
Section 3.2.4.
"Due Diligence Review" shall have the meaning as set forth in
Section 2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in
Section 9.
"Indemnified Party" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section
2.3.1 (b).
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (each as
defined in the Registration Rights Agreement) becomes ineffective or unavailable
for use for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under either of the above is not current and
deliverable) during any time period required under the Registration Rights
Agreement.
"Intended Put Share Amount" shall have the meaning set forth in
Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as EXHIBIT B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17 as set
forth in EXHIBIT N.
"Late Payment Amount" shall have the meaning set forth in
Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $500,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders
of outstanding shares of Common Stock, such that following such purchase, tender
or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean Thirty Million Dollars
($30,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"NASD" shall have the meaning set forth in Section 6.9.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York, New York time, on any Business Day, and shall expressly
exclude "after hours" trading.
"NYSE" shall have the meaning set forth in Section 6.9.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrant" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as EXHIBIT D.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as EXHIBIT S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as EXHIBIT Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as EXHIBIT G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as EXHIBIT H.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as EXHIBIT I, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section
2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by
the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as EXHIBIT R.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as EXHIBIT A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Act.
"Relisting Date" shall mean the date subsequent to the execution of
this Agreement that the Company's common shares, or the Common Shares of any
successor to the Company, are approved for listing on the O.T.C.
Bulletin Board.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as EXHIBIT J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"Schedule of Material Changes" shall have the meaning set forth in
Section 2.2.2(c).
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Six Month Anniversary" shall mean the date that is the same Numeric
Day of the sixth (6th) calendar month after the Investment Date, and the date
that is the same Numeric Day of each sixth (6th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period
of time beginning on the date of this Agreement and ending on the Termination
Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Reports" shall have the meaning set forth in Section
3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York, New York time, on
any Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall mean the Investment Agreement, the
Registration Rights Agreement, and any other documents contemplated by this
Agreement (the "Transaction Documents").
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as EXHIBIT T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in
Section 2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or certificates (or
electronically delivered shares, as appropriate) (in denominations as instructed
by Investor) representing the shares of Common Stock to which the Investor is
then entitled to receive, registered in the name of Investor or its nominee (as
instructed by Investor) and not containing a restrictive legend or stop transfer
order, including but not limited to the Put Shares for the applicable Put and
Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as EXHIBIT L.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. PURCHASE AND SALE OF COMMON STOCK.
2.1 OFFER TO SUBSCRIBE.
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 Purchase 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.
2.2.1 INVESTMENT COMMITMENT CLOSING. The closing
of this Agreement (the "Investment Commitment Closing") shall be deemed to occur
when this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Transfer Agent, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTOR'S OBLIGATIONS. As
a prerequisite to the Investment Commitment Closing and the Investor's
obligations hereunder, all of the following (the "Conditions to Investor's
Obligations") shall have been satisfied prior to or concurrently with the
Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered to
the Investor: (i) the Registration Rights Agreement
(executed by the Company and Investor), (ii) the
Investment Commitment Opinion of Counsel (signed by
the Company's counsel), (iii) the Transfer Agent
Instructions (executed by the Company and the
Transfer Agent), and (iv) a Secretary's Certificate
as to (A) the resolutions of the Company's board of
directors authorizing this transaction, (B) the
Company's Certificate of Incorporation, and (C) the
Company's Bylaws;
(b) this Investment Agreement, accepted by the Company,
shall have been received by the Investor;
(c) other than continuing losses and other matters
described in the Disclosure Documents (provided for
in Section 3.2.4), and the items disclosed in the
Schedule of Material Changes, attached hereto as
Exhibit V (the "Schedule of Material Changes"), as of
the Closing there have been no material adverse
changes in the Company's business prospects or
financial condition since January 31, 2000, including
but not limited to incurring material liabilities;
and
(d) 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.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the latter of i) the date on which the
Registration Statement is declared effective by the SEC (the "Effective Date"),
ii) the effective date of the Change of Domicile, or iii) the Relisting Date,
the Company may, in its sole and absolute discretion, elect to exercise one or
more Puts according to the following procedure, provided that each subsequent
Put Date after the first Put Date shall be no sooner than five (5) Business Days
following the preceding Pricing Period End Date:
(a) DELIVERY OF ADVANCE PUT XXXXXX.Xx least
ten (10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless
otherwise agreed in writing by the Investor), the Company shall deliver advance
written notice (the "Advance Put Notice," an example of which is attached hereto
as EXHIBIT E, the date of such Advance Put Notice being the "Advance Put Notice
Date") to Investor stating the Put Date for which the Company shall, subject to
the limitations and restrictions contained herein, exercise a Put and stating
the number of shares of Common Stock (subject to the Individual Put Limit and
the Maximum Put Dollar Amount) which the Company intends to sell to the Investor
for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed $2,000,000,
which it shall sell to Investor during the Put (the "Company Designated Maximum
Put Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase Shares pursuant to such Put Notice (a "Company
Designated Minimum Put Share Price"). The Company Designated Minimum Put Share
Price, if applicable, shall be no greater than 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, New York time, on the Business Day immediately
preceding the Business Day that such decrease is to take effect. A decrease in
the Company Designated Minimum Put Share Price shall have no retroactive effect
on the determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect.
Notwithstanding the above, if, at the time of delivery of an Advance
Put Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, New York time, and
(ii) surrender such notice on such date to a courier for overnight delivery to
the Investor. Upon receipt by the Investor of a facsimile copy of the Advance
Put Notice, the Investor shall, within two (2) Business Days, send, via
facsimile, a confirmation of receipt (the "Advance Put Notice Confirmation," the
form of which is attached hereto as EXHIBIT F) of the Advance Put Notice to the
Company specifying that the Advance Put Notice has been received and affirming
the intended Put Date and the Intended Put Share Amount.
(b) PUT SHARE AMOUNT. The "Put Share
Amount" is the number of shares of Common Stock that the Investor shall be
obligated to purchase in a given Put, and shall equal the lesser of (i) the
Intended Put Share Amount, and (ii) the Individual Put Limit. The "Individual
Put Limit" shall equal the lesser of (i) 15% of the sum of the aggregate daily
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more shares of Common
Stock, for all Evaluation Days (as defined below) in the Pricing Period, (ii)
the number of Put Shares which, when multiplied by their respective Put Share
Prices, equals the Maximum Put Dollar Amount, and (iii) the 9.9% Limitation, but
in no event shall the Individual Put Limit exceed 15% of the sum of the
aggregate daily reported Trading Volumes in the outstanding Common Stock on the
Company's Principal Market, excluding any block trades of 20,000 or more shares
of Common Stock, for the twenty (20) Business Days immediately preceding the Put
Date (this limitation, together with the limitation in (i) immediately above,
are collectively referred to herein as the "Volume Limitations"). Company agrees
not to trade Common Stock or arrange for Common Stock to be traded for the
purpose of artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $0.075, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the Common Stock is
less than the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a
Pricing Period that is not an Excluded Day.
(c) PUT SHARE PRICE. The purchase price for
the Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market
Price for such Put, minus $0.075, or (ii) 91% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable.
(d) DELIVERY OF PUT NOTICE. After
delivery of an Advance Put Notice, on the Put Date specified in the Advance Put
Notice the Company shall deliver written notice (the "Put Notice," the form of
which is attached hereto as EXHIBIT G) to Investor stating (i) the Put Date,
(ii) the Intended Put Share Amount as specified in the Advance Put Notice (such
exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, New York time, and (ii)
surrender such notice on the Put Date to a courier for overnight delivery to the
Investor. Upon receipt by the Investor of a facsimile copy of the Put Notice,
the Investor shall, within two (2) Business Days of such receipt, send, via
facsimile, a confirmation of receipt (the "Put Notice Confirmation," the form of
which is attached hereto as EXHIBIT H) of the Put Notice to Company specifying
that the Put Notice has been received and affirming the Put Date and the
Intended Put Share Amount.
(e) DELIVERY OF REQUIRED PUT DOCUMENTS.
On or before the Put Date for such Put, the Company shall deliver the Required
Put Documents (as defined in Section 2.3.5 below) to the Investor (or to an
agent of Investor, if Investor so directs). The Put Shares of Common Stock shall
be represented by physical certificates delivered to the Investor, unless the
Company's transfer agent is capable of delivering such certificates pursuant to
an electronic delivery system, in which case the certificates shall be
transmitted electronically to the Investor. If the Company has not delivered all
of the Required Put Documents to the Investor on or before the Put Date, the Put
shall be automatically cancelled, unless the Investor agrees to delay the Put
Date by up to three (3) Business Days, in which case the Pricing Period begins
on the Business Day following such new Put Date. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the Put
Date (or new Put Date, if applicable), and the Investor has not agreed in
writing to delay the Put Date, the Put is automatically canceled (an
"Impermissible Put Cancellation") and, unless the Put was otherwise canceled in
accordance with the terms of Section 2.3.11, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
canceled Put and the Company may deliver an Advance Put Notice for the
subsequent Put no sooner than ten (10) Business Days after the date that such
Put was canceled, unless otherwise agreed by the Investor.
(f) LIMITATION ON INVESTOR'S OBLIGATION TO
PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, in
no event shall the Investor be required to purchase, and an Intended Put Share
Amount may not include, an amount of Put Shares, which when added to the number
of Put Shares acquired by the Investor pursuant to this
Agreement during the 31 days preceding the Put Date with respect to which this
determination of the permitted Intended Put Share Amount is being made, would
exceed 9.99% of the number of shares of Common Stock outstanding (on a fully
diluted basis, to the extent that inclusion of unissued shares is mandated by
Section 13(d) of the Exchange Act) on the Put Date for such Pricing Period, as
determined in accordance with Section 13(d) of the Exchange Act (the "Section
13(d) Outstanding Share Amount"). Each Put Notice shall include a representation
of the Company as to the Section 13(d) Outstanding Share Amount on the related
Put Date. In the event that the Section 13(d) Outstanding Share Amount is
different on any date during a Pricing Period than on the Put Date associated
with such Pricing Period, then the number of shares of Common Stock outstanding
on such date during such Pricing Period shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Shares made pursuant to
this Agreement in the 31 calendar days preceding such date, would have acquired
more than 9.99% of the Section 13(d) Outstanding Share Amount. The limitation
set forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's
right to require the Investor to purchase any subsequent Put Shares shall
terminate permanently (each, an "Automatic Termination") upon the occurrence of
any of the following:
(a) the Company shall not exercise a Put
or any Put thereafter if, at any time, either the Company or any director or
executive officer of the Company has engaged in a transaction or conduct related
to the Company that has resulted in (i) 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) the Company shall not exercise a Put or
any Put thereafter, on any date after a cumulative time period or series of time
periods, consisting solely of Ineffective Periods and Delisting Events, that
last for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or
any Put thereafter if at any time the Company has filed for and/or is subject to
any bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
(d) the Company shall not exercise a Put
after the sooner of (i) the date that is three (3) years after the Effective
Date, or (ii) the Put Closing Date on which the aggregate of the Put Dollar
Amounts for all Puts equals the Maximum Offering Amount;
(e) the Company shall not exercise a Put
after the Company has breached any covenant in Section 2.6, Section 6, or
Section 9 hereof; and
(f) if no Registration Statement has been
declared effective by the date that is eighteen (18) months after the date of
this Agreement, the Automatic Termination shall occur on the date that is
eighteen (18) months after the date of this Agreement.
2.3.3 PUT LIMITATIONS. The Company's right to
exercise a Put shall be limited as follows:
(a) notwithstanding the amount of any Put,
the Investor shall not be obligated to purchase any additional Put Shares once
the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(b) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has announced a subdivision or combination, including a reverse split, of its
Common Stock or has subdivided or combined its Common Stock during the Extended
Put Period;
(c) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has paid a dividend of its Common Stock or has made any other distribution of
its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has made, during the Extended Put Period, a distribution of all or any portion
of its assets or evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which a Major
Transaction has occurred during the Extended Put Period.
2.3.4 CONDITIONS PRECEDENT TO THE RIGHT OF THE
COMPANY TO DELIVER AN ADVANCE PUT NOTICE OR A PUT NOTICE AND THE OBLIGATION OF
THE INVESTOR TO PURCHASE PUT SHARES. The right of the Company to deliver an
Advance Put Notice or a Put Notice and the obligation of the Investor hereunder
to acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the date of delivery of such Advance Put Notice or Put
Notice and (ii) the applicable Put Closing Date, of each of the following
conditions:
(a) the Company's Common Stock shall be listed for and
trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market or the
New York Stock Exchange, and to the Company's
knowledge there is no notice of any suspension or
delisting with respect to the trading of the shares
of Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing
of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities
and the requirement that the Registration Statement
shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with
any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the Company are
true and correct in all material respects as if made
on such date and the conditions to Investor's
obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall
deliver 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 6.11, if the Company's Common
Stock is listed on the NASDAQ Small Cap Market or
NMS, 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: Put Opinion
of Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any
report or disclosure required under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other
writings required to be delivered on or before the Put Date pursuant to any
provision of this Agreement in order to implement and effect the transactions
contemplated herein.
2.3.6 ACCOUNTANT'S LETTER AND REGISTRATION OPINION.
(a) The Company shall have caused to be
delivered to the Investor, (i) whenever required by Section2.3.6(b) or by
Section 2.5.3, and (ii) on the date that is three (3) Business Days prior to
each Put Date (the "Registration Opinion Deadline"), an opinion of the Company's
independent counsel, in substantially the form of EXHIBIT R (the "Registration
Opinion"), addressed to the Investor stating, inter alia, that no facts
("Material Facts") have come to such counsel's attention that have caused it to
believe that the Registration Statement is subject to an Ineffective Period or
to believe that the Registration Statement, any Supplemental Registration
Statement (as each may be amended, if applicable), and any related prospectuses,
contain an untrue statement of material fact or omits a material fact required
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. If a Registration Opinion cannot be
delivered by the Company's independent counsel to the Investor on the
Registration Opinion Deadline due to the existence of Material Facts or an
Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
Supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires knowledge of
such Material Facts or any Ineffective Period occurs, the Company shall promptly
notify the Investor and shall deliver a Put Cancellation Notice to the Investor
pursuant to Section 2.3.11 by facsimile and overnight courier by the end of that
Business Day.
(b) Except as set forth below in Section
2.3.6(b)(iii):
(i) the Company shall engage its
independent auditors to perform the procedures in accordance with the provisions
of Statement on Auditing Standards
No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the
"Bring Down Cold Comfort Letters") as shall have been reasonably requested by
the Investor with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor such a report
addressed to the Investor, on the date that is three (3) Business Days prior to
each Put Date.
(ii) in the event that the Investor
shall have requested delivery of an Agreed Upon Procedures Report pursuant to
Section 2.5.3, the Company shall engage its independent auditors to perform
certain agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the 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.
(iii) No Cold Comfort Letter shall
be required for any Put if the Put Date is no more than 30 days after the filing
date of the Company's most recent Form 10-K or 10-KSB or Form 10-Q for 10-QSB.
2.3.7 INVESTOR'S OBLIGATION AND RIGHT TO
PURCHASE SHARES. Subject to the conditions set forth in this Agreement,
following the Investor's receipt of a validly delivered Put Notice, the Investor
shall be required to purchase (each a "Purchase") from the Company a number of
Put Shares equal to the Put Share Amount, in the manner described below.
2.3.8 MECHANICS OF PUT CLOSING. Each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to each Closing. Subject to such delivery and the satisfaction of the
conditions set forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by
the Investor of Shares shall occur by 5:00 PM, New York, New York time, on the
date which is five (5) Business Days following the applicable Pricing Period End
Date (or such other time or later date as is mutually agreed to by the Company
and the Investor) (the "Payment Due Date") at the offices of Investor. On each
or before each Payment Due Date, the Investor shall deliver to the Company, in
the manner specified in Section 8 below, the Put Dollar Amount to be paid for
such Put Shares, determined as aforesaid. The closing (each a "Put Closing") for
each Put shall occur on the date that both (i) the Company has delivered to the
Investor all Required Put Documents, and (ii) the Investor has delivered to the
Company such Put Dollar Amount and any Late Payment Amount, if applicable (each
a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount
for such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 LIMITATION ON SHORT SALES. The Investor
and its Affiliates shall not engage in short sales of the Company's Common
Stock; provided, however, that the Investor may enter into any short exempt sale
or any short sale or other hedging or similar arrangement it deems appropriate
with respect to Put Shares after it receives a Put Notice with respect to such
Put Shares so long as such sales or arrangements do not involve more than the
number of such Put Shares specified in the Put Notice.
2.3.10 CAP AMOUNT. If the Company becomes
listed on the Nasdaq Small Cap Market or the Nasdaq National Market, then,
unless the Company has obtained Stockholder 20% Approval as set forth in Section
6.11 or unless otherwise permitted by Nasdaq, in no event shall the Aggregate
Issued Shares exceed the maximum number of shares of Common Stock (the "Cap
Amount") that the Company can, without stockholder approval, so issue pursuant
to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any
successor rule) (the "Nasdaq 20% Rule").
2.3.11 PUT CANCELLATION.
(a) MECHANICS OF PUT CANCELLATION.
If at any time during a Pricing Period the Company discovers the existence of
Material Facts or any Ineffective Period or Delisting Event occurs, the Company
shall cancel the Put (a "Put Cancellation"), by delivering written notice to the
Investor (the "Put Cancellation Notice", a form of which is attached as EXHIBIT
Q), by facsimile and overnight courier. The "Put Cancellation Date" shall be the
date that the Put Cancellation Notice is first received by the Investor, if such
notice is received by the Investor by 6:00 p.m., New York, New York time, and
shall be the following date, if such notice is received by the Investor after
6:00 p.m., New York, New York time.
(b) EFFECT OF PUT CANCELLATION. Anytime
a Put Cancellation Notice is delivered to Investor after the Put Date, the Put,
shall remain effective with respect to a number of Put Shares (the "Truncated
Put Share Amount") equal to the Individual Put Limit for the Truncated Pricing
Period.
(c) PUT CANCELLATION NOTICE
CONFIRMATION. Upon receipt by the Investor of a facsimile copy of the Put
Cancellation Notice, the Investor shall promptly send, via facsimile, a
confirmation of receipt (the "Put Cancellation Notice Confirmation," a form of
which is attached as EXHIBIT S) of the Put Cancellation Notice to the Company
specifying that the Put Cancellation Notice has been received and affirming the
Put Cancellation Date.
(d) TRUNCATED PRICING PERIOD. If a Put
Cancellation Notice has been delivered to the Investor after the Put Date,
the Pricing Period for such Put shall end at on the close of trading on the
last full trading day on the Principal Market that ends prior to the moment
of initial delivery of the Put Cancellation Notice (a "Truncated Pricing
Period") to the Investor.
2.3.12 INVESTMENT AGREEMENT CANCELLATION. The
Company may terminate (a "Company Termination") its right to initiate future
Puts by providing written notice ("Termination Notice") to the Investor, by
facsimile and overnight courier, at any time other than during an Extended Put
Period, provided that such termination shall have no effect on the parties'
other rights and obligations under this Agreement, the Registration Rights
Agreement or the Warrants. Notwithstanding the above, any cancellation occurring
during an Extended Put Period is governed by Section 2.3.11.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the
event that the number of Shares purchased by the Investor pursuant to its
obligations hereunder is less than the Intended Put Share Amount, the Investor
shall promptly return to the Company any shares of Common Stock in the
Investor's possession that are not being purchased by the Investor.
2.4 WARRANTS.
2.4.1 COMMITMENT WARRANTS. In consideration
hereof, following the execution of the Letter of Agreement dated on or about
April 4, 2000 between the Company and the Investor, the Company issued and
delivered to Investor or its designated assignees, warrants (the "Commitment
Warrants") in the form attached hereto as EXHIBIT U, or such other form as
agreed upon by the parties, to purchase 445,000 shares of Common Stock. Each
Commitment Warrant shall be immediately exercisable at the Commitment Warrant
Exercise Price as defined in the Commitment Warrant, and shall have a term
beginning on the date of issuance and ending on date that is five (5) years
thereafter. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement. The Investment Commitment Opinion of Counsel
shall cover the issuance of the Commitment Warrant and the issuance of the
common stock upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, 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 Investor shall retain full ownership of the Commitment
Warrant as consideration for its commitment hereunder.
2.4.2 PURCHASE WARRANTS. Within five (5)
Business Days of the end of each Pricing Period, the Company shall issue and
deliver to the Investor a warrant ("Purchase Warrant"), in the form attached
hereto as EXHIBIT D, or such other form as agreed upon by the parties, to
purchase a number of shares of Common Stock equal to 10% of the Put Share Amount
for that Put. Each Purchase Warrant shall be exerciseable at a price (the
"Purchase Warrant Exercise Price") which shall initially equal 120% of the
Market Price for the applicable Put, and shall have semi-annual reset
provisions. Each Purchase Warrant shall be immediately exercisable at the
Purchase Warrant Exercise Price, and shall have a term beginning on the date of
issuance and ending on the date that is five (5) years thereafter. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement.
2.5 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, 1)
all financial and other records, 2) all SEC Documents and other filings with the
SEC, and 3) all other corporate documents and properties of the Company as may
be reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives unless prior to disclosure of such information the
Company identifies such information as being nonpublic information and provides
the Investor and such advisors and representatives with the opportunity to
accept or refuse to accept such nonpublic information for review. The Company
may, as a condition to disclosing any nonpublic information hereunder, require
the Investor and its
advisors and representatives to enter into a confidentiality agreement
(including an agreement with the Investor and its advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in a form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS.
The Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the opinion
that the Registration Statement contains an untrue statement of a material fact
or omits a material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in the light of the
circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's independent
counsel in order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY
BELIEVED TO BE UNTRUE OR ARE OMITTED. If after such consultation the Investor or
the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement or a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file
with the SEC an amendment to the Registration Statement responsive to such
alleged untrue statement or omission and provide the Investor, as promptly as
practicable, with copies of the Registration Statement and related Prospectus,
as so amended, or
(b) if the Company disputes the
existence of any such material misstatement or omission, (i) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (ii) in the event the dispute relates to the
adequacy of financial disclosure and the Investor shall reasonably request, the
Company's independent auditors shall provide to the Company a letter ("Agreed
Upon Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter.
2.6 COMMITMENT PAYMENTS.
On the last Business Day of each one (1) year period following the
Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $2,000,000 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 "Annual Non-Usage Fee ") equal to the
difference of (i) $200,000, minus (ii) 10% of the aggregate Put Dollar Amount of
the Put Shares put to Investor during that Commitment Evaluation Period. In the
event that the Company delivers a Termination Notice to the Investor or an
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x) $200,000,
minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares put to
Investor during all Puts to date, and the Company shall not be required to pay
the Annual Non-Usage Fee thereafter.
Each 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 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
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 Risk Factors, attached as EXHIBIT J, (the "Risk Factors") (ii)
the Capitalization Schedule, attached as EXHIBIT K, (the "Capitalization
Schedule") (iii) the Company's unaudited financial statements for the six months
ended January 31, 2000, (iv) ALL DOCUMENTS FILED BY THE COMPANY UNDER THE ACT
AND/OR THE EXCHANGE ACT, and (v) the Use of Proceeds Schedule, attached as
EXHIBIT L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company and has had an opportunity to ask questions of and
receive answers from the Company's officers and directors; and (d) is not
relying on any oral representation of the Company or any other person, nor any
written representation or assurance from the Company other than those contained
in the Disclosure Documents or incorporated herein or therein. The foregoing,
however, does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF.
Investor has substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor acknowledges
that Investor is able to fend for itself in the transactions 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, the Common Stock issued to Investor and the
Warrants issued at each Put Closing will be, and the Warrant Shares will be,
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction exempt
from the registration requirements of the federal securities laws and that under
such laws and applicable regulations such securities may not be transferred or
resold without registration under the Act or pursuant to an exemption therefrom.
In this connection, Investor represents that
Investor is familiar with Rule 144 under the Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a
registration statement under the Act and any applicable state securities laws
covering such proposed disposition and such disposition is made in accordance
with such registration statement and in compliance with applicable prospectus
delivery requirements; or
(b) (i) Investor shall have notified
the Company of the proposed disposition and shall have furnished the Company
with a statement of the circumstances surrounding the proposed disposition to
the extent relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of the
Securities under the Act or state securities laws. It is agreed that the Company
will not require the Investor to provide opinions of counsel for transactions
made pursuant to Rule 144 provided that Investor and Investor's broker, if
necessary, provide the Company with the necessary representations for counsel to
the Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own
account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
3.4 DUE AUTHORIZATION.
3.4.1 AUTHORITY. The person executing this
Investment Agreement 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 Investor. The person executing
this Agreement on behalf of the Investor has reached the age of majority (if an
individual) according to the laws of the state in which he or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and
validly organized, validly existing and in good standing as a limited liability
company under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 LIMITED LIABILITY COMPANY. Investor is a
limited liability company, and the representations, warranties, agreements and
understandings set forth above are true with respect to all members of Investor
(and if any such member is itself a limited liability company, corporation or
partnership, all persons holding an interest in such limited liability company,
corporation or partnership, directly or indirectly, including through one or
more limited liability
companies, corporations or partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 REPRESENTATIVES. If Investor is purchasing
in a representative or fiduciary capacity, the representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
Investor is so purchasing.
4. ACKNOWLEDGMENTS Investor is aware that:
4.1 RISKS OF INVESTMENT. Investor recognizes that an
investment in the Company involves substantial risks, including the potential
loss of Investor's entire investment herein. Investor recognizes that the
Disclosure Documents, this Agreement and the exhibits hereto do not purport to
contain all the information, which would be contained in a registration
statement under the Act;
4.2 NO GOVERNMENT APPROVAL. No federal or state agency has
passed upon the Securities, recommended or endorsed the Offering, or made any
finding or determination as to the fairness of this transaction.
4.3 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the date
of this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available.
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws.
4.5 NO ASSURANCES OF REGISTRATION. There can be no assurance
that any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it may
be required to bear the economic risk of Investor's investment for an indefinite
period of time.
4.6 EXEMPT TRANSACTION. Investor understands that the
Securities are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings set
forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire such
Securities.
4.7 LEGENDS. The certificates representing the Put Shares
shall not bear a Restrictive Legend. The certificates representing the Warrant
Shares shall not bear a Restrictive Legend unless they are issued at a time when
the Registration Statement is not effective for resale. It is understood that
the certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.8 below, shall bear the following legend (the
"Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado, and will be duly organized, validly
existing and in good standing under the laws of the State of Nevada after the
Change of Domicile is effective, 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 SEC, the NASD, the Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. A list of the Company's
subsidiaries, if any, is attached hereto as Exhibit X.
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 Company's unaudited financial statements dated as of January 31,
2000 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 to customary year end adjustments and the
absence of certain footnotes, and fairly present the financial condition of the
Company as of the date of the balance sheet included therein and the
consolidated results of its operations and cash flows for the period then ended.
Without limiting the foregoing, there are no material liabilities, contingent or
actual, that are not disclosed in the Disclosure Documents (other than
liabilities incurred by the Company in the ordinary course of its business,
consistent with its past practice, after the period covered by the Disclosure
Documents). The Company has paid all material taxes that are due, except for
taxes that it reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure Documents.
This Agreement and the Disclosure Documents do not contain any untrue statement
of a material fact and do not omit to state any material fact required to be
stated therein or herein necessary to make the statements contained therein or
herein not misleading in the light of the circumstances under which they were
made. No event or circumstance exists relating to the Company which, under
applicable law, requires public disclosure but which has not been so publicly
announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization,
issuance and delivery of the Common Stock being sold hereunder and the issuance
(and/or the reservation for issuance) of the Warrants and the Warrant Shares
have been taken, except for the Change of Domicile, 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 or the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 REPORTING COMPANY. The Company will use its best efforts
to become subject to the reporting requirements of the Exchange Act, and to have
a class of securities registered under Section 12 of the Exchange Act not later
than six (6) months from the date hereof, and shall file all reports required to
be filed by the Company under the Exchange Act following 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
shall be duly listed on the O.T.C. Bulletin Board prior to any Put Date under
this Agreement and the Company will not be in violation of the listing
requirements of the O.T.C. Bulletin Board on any Put Date. 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 hereof, is 40,000,000 shares of Common Stock, $0.001 par value,
authorized of which 21,214,900 shares
are outstanding, and 10,000,000 shares of Preferred Stock, $0.001 par value, of
which no shares are outstanding, and the capitalization as of the Closing,
subject to exercise of any outstanding warrants and/or exercise of any
outstanding stock options, after taking into account the offering of the
Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, will be, as set forth in the Capitalization
Schedule as set forth in EXHIBIT K. There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities. Except as disclosed in the Capitalization Schedule,
as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted
and exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property material to the conduct of its business. EXHIBIT M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in EXHIBIT M. The Company has been granted licenses,
know-how, technology and/or other intellectual property which are material to
the conduct of its business as set forth in EXHIBIT M. To the best of the
Company's knowledge after due inquiry, the Company is not infringing on the
intellectual property rights of any third party, nor is any third party
infringing on the Company's intellectual property rights. There are no
restrictions in any agreements, licenses, franchises, or other instruments that
preclude the Company from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as EXHIBIT L hereto. These purposes and amounts are estimates
and are subject to change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges
that Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that, except as set
forth in this Agreement and the Transaction Documents, Investor has made no
representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company acknowledges
that this Investment Agreement, the transactions 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 transactions 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.
5.13 [INTENTIONALLY LEFT BLANK].
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The
Company is currently eligible and agrees to maintain its eligibility to register
the resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any
of its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 KEY EMPLOYEES. Each "Key Employee" (as defined in EXHIBIT
N) is currently serving the Company in the capacity disclosed in EXHIBIT N. No
Key Employee, to the best knowledge of the Company and its subsidiaries, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries.
5.18 REPRESENTATIONS CORRECT. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any material transaction with the Company (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
board of directors will take all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Nevada law (as a result of the Change of
Domicile) which is or could become applicable to the Investor as a result of the
transactions contemplated by this Agreement, including, without limitation, the
issuance of the Common Stock, any exercise of the Warrants and ownership of the
Common Shares and Warrant Shares. The Company has not adopted and will not adopt
any "poison pill" provision that will be applicable to Investor as a result of
transactions contemplated by this Agreement.
5.22 OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with the Investor for the purchase of Common
Stock, relating to the terms or conditions of the transactions contemplated
hereby or except as expressly set forth herein or in exhibits hereto.
5.23 MAJOR TRANSACTIONS. There are no other Major
Transactions currently pending or contemplated by the Company.
5.24 FINANCINGS. There are no other financings currently
pending or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its next
annual shareholder meeting 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 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") such that at least 11,500,000 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, the Company agrees to use its best efforts to reserve
11,500,000 shares of Common Stock for issuance under this Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The Company
understands and acknowledges that the amounts available under this 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, the O.T.C. Bulletin Board, or on Nasdaq, and is a Reporting Issuer)
and shall pay all its taxes when due except for taxes which the Company
disputes.
6.3 REGISTRATION RIGHTS. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as EXHIBIT A.
6.4 ASSET TRANSFERS. Except in connection with the Change of
Domicile, the Company shall not (i) transfer, sell, convey or otherwise dispose
of any of its material assets to any Subsidiary except for a cash or cash
equivalent consideration and for a proper business purpose or (ii) transfer,
sell, convey or otherwise dispose of any of its material assets to any
Affiliate, as defined below, during the Term of this Agreement. For purposes
hereof, "Affiliate" shall mean any officer of the Company, director of the
Company or owner of twenty percent (20%) or more of the Common Stock or other
securities of the Company.
6.5 RIGHTS OF FIRST REFUSAL.
6.5.1 CAPITAL RAISING LIMITATIONS. During the
period from the date of this Agreement until the date that is one year after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor (the
limitations referred to in this subsection 6.5.1 are collectively referred to as
the "Capital Raising Limitations"). For purposes hereof, the following shall be
collectively referred to herein as, the "Equity Securities": (i) Common Stock or
any other equity securities, (ii) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock or other equity securities, or (iii) any
securities of the Company pursuant to an equity line structure or format similar
in nature to this Offering.
The Capital Raising Limitations 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
options or warrants, or the issuance of securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants, or (c) the issuance of debt securities, with no equity
feature, incurred solely for working capital purposes.
If the Investor, at any time, is more than five (5) business days late
in paying any Put Dollar Amounts that are then due, the Investor shall not be
entitled to the benefits of this Section 6.5.1 until the date that the Investor
has paid all Put Dollar Amounts that are then due.
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL.
For any private capital raising transactions of Equity Securities which close
after the date hereof and on or prior to the date that is one (1) year after the
Termination Date of this Agreement, not including any Warrants issued in
conjunction with this Investment Agreement, the Company agrees to deliver to
Investor, at least ten (10) days prior to the closing of such transaction,
written notice describing the proposed transaction, including the terms and
conditions thereof, and providing the Investor and its affiliates an option (the
"Rights of First Refusal") during the ten (10) day period following delivery of
such notice to purchase the securities being offered in such transaction on the
same terms as contemplated by such transaction.
6.5.3 EXCEPTIONS TO RIGHTS OF FIRST REFUSAL.
Notwithstanding the above, the Rights of First Refusal shall not apply to any
transaction involving issuances of securities in connection with a merger,
consolidation, acquisition or sale of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company or exercise of options by employees,
consultants or directors, or a primary underwritten offering of the Company's
Common Stock, or the transactions set forth on Schedule 6.5.1. The Capital Right
of First Refusal also shall not apply to (a) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants, or (c) the issuance of debt securities,
with no equity feature, incurred solely for working capital purposes. 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 Section 6.5.2 until the date that the Investor has paid all Put
Dollar Amounts that are then due.
6.6 FINANCIAL 00-XXX XXXXXXXXXX, ETC. AND CURRENT REPORTS ON
FORM 8-K. Once the Company becomes a Reporting Company, the Company shall
deliver to the Investor copies of its annual reports on Form 10-K or 10-KSB, and
quarterly reports on Form 10-Q or 10-QSB and shall deliver to the Investor
current reports on Form 8-K within five (5) days of filing for the Term of this
Agreement. Such reports may be forwarded electronically (i.e. via email) and may
be in the same format as is filed with the SEC via the XXXXX filing system.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as EXHIBIT B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as EXHIBIT I or in
such form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by acertificate(s) from which the Legend
has been removed, or which were originally issued without the Legend, pursuant
to an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of the Act.
6.9 LISTING. Subject to the remainder of this Section 6.9, the
Company use its best efforts to have its shares of Common Stock (including all
Warrant Shares and Put Shares) listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company
will instruct the Transfer Agent of the Common Stock, by delivering instructions
in the form of EXHIBIT T hereto, to issue certificates, registered in the name
of the Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.8 hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3 hereof
to resell the Securities pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws. If
(a) the 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) the Investor transfers Securities, pursuant to Rule 144, to
a transferee which is an accredited investor, the Company shall permit the
transfer, provided the transfer complies with the Act and Rule 144, and, in the
case of Put Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by such Investor. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to an Investor by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 6.10 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 6.10, that
an Investor shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize (i)
the issuance of the full number of shares of Common Stock which would be
issuable pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.12 PRESS RELEASE. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be unreasonably
withheld by Investor.
6.13 CHANGE IN LAW OR POLICY. In the event of a change in law,
or policy of the SEC or the NASD, as evidenced by a No-Action letter, rules,
regulations or other written statements of the SEC or the NASD, which causes the
Investor or the Company to be unable to perform their respective obligations
hereunder, this Agreement shall be automatically terminated and no cash
Termination Fee shall be due, provided that notwithstanding any termination
under this section 6.13, the Investor shall retain full ownership of the
Commitment Warrant as consideration for its commitment and its consulting, legal
and other services rendered hereunder.
6.14 CHANGE IN DOMICILE. In the event of a Change in Domicile
involving a merger between the Company and a corporation formed under the laws
of the State of Nevada (the "Nevada Shell") for the purpose of merging with the
Company to change the Company's domicile, the Company agrees that (i) the Nevada
Shell shall be a new corporation formed specifically for purposes of the Change
in Domicile, (ii) the shareholders of the Company shall receive one share of
common stock in the Nevada Shell for each share of the Company's Common Stock
that such shareholder held at the time of the Change in Domicile, and no other
shares of common stock of the Nevada Shell shall be issued in conjunction with
the Change in Domicile, (iii) the Nevada Shell shall receive all assets of the
Company at the time of the Change in Domicile, and (iv) the Nevada Shell shall
not have any liabilities or potential liabilities of any kind immediately prior
to the Change in Domicile. As a condition of a Change in Domicile, the Company
shall, prior to filing of the Registration Statement, both complete the Change
in Domicile and obtain the written approval of the Nevada Shell to assume all of
the Company's rights and obligations under this Agreement.
7. INVESTOR COVENANT/MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING;
SEVERABILITY. Investor's and the Company's representations, warranties and
covenants 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 SEC 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
Company or the Investor, this Agreement shall terminate and no Termination Fee
shall be due; however, Investor shall be entitled to retain the Commitment
Warrants.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable without the Company's written consent. If assigned, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Investor may assign Investor's rights
hereunder, in connection with any private sale of the Common Stock of such
Investor, so long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement in a form acceptable to the Company and provides an original copy
of such acknowledgment to the Company.
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. The use in this
Agreement of a masculine, feminine or neither pronoun shall be deemed to include
a reference to the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to the
terms of this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile or upon receipt if by overnight or two (2)
day courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing;
provided, however, that in order for any notice to be effective as to the
Investor such notice shall be delivered and sent, as specified herein, to all
the addresses and facsimile telephone numbers of the Investor set forth at the
end of this Agreement or such other address and/or facsimile telephone number as
Investor may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 ACTIONS AT LAW OR EQUITY; JURISDICTION AND VENUE. The
parties acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the parties
hereto, shall be filed in any state or federal court sitting in Atlanta,
Georgia. Georgia law shall govern both the proceeding as well as the
interpretation and construction of the Transaction Documents and the transaction
as a whole. In any litigation between the parties hereto, the prevailing party,
as found by the court, shall be entitled to an award of all attorney's fees and
costs of court. Should the court refuse to find a prevailing party, each party
shall bear its own legal fees and costs.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor shall
deliver Put Dollar Amounts (as payment towards any
Put Share Price) by wire transfer, to the Company
pursuant to a wire instruction letter to be provided
by the Company, and signed by the Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby
acknowledges and agrees, subject to the provisions of
any applicable laws providing for the refund of
subscription amounts submitted by Investor, that this
Agreement is irrevocable and that Investor is not
entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such
Investor and delivered pursuant hereto, and that this
Agreement and such other
agreements shall survive the death or disability of
such Investor and shall be binding upon and inure to
the benefit of the parties and their heirs,
executors, administrators, successors, legal
representatives and assigns. If the Securities
subscribed for are to be owned by more than one
person, the obligations of all such owners under this
Agreement shall be joint and several, and the
agreements, representations, warranties and
acknowledgments herein contained shall be deemed to
be made by and be binding upon each such person and
his heirs, executors, administrators, successors,
legal representatives and assigns.
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 contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against any of
the Indemnitees based on a violation of Section 5 of the Securities Act caused
by the integration of the private sale of common stock to the Investor and the
public offering pursuant to the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9,
but the omission to so deliver written notice to the Indemnitor will not relieve
it of any liability that it may have to any Indemnified Party other than under
this Section 9 to the extent it is prejudicial.
[INTENTIONALLY LEFT BLANK]
10. ACCREDITED INVESTOR. Investor is an "accredited investor" because
(check all applicable boxes):
(a) / / it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) / / any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) / / a natural person, who
/ / is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
/ / has an individual net worth, or joint net worth
with that person's spouse, at the time of his
purchase exceeding $1,000,000.
/ / had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) / / an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) / / other [specify]
----------------------------------------------------
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 25th day of May, 2000.
------------------------------------ -----------------------------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
SECURITY DELIVERY INSTRUCTIONS:
------------------------------------ -----------------------------------------------------
Name: Please Print Please type or print address where your security is to be
delivered
ATTN:
--------------------------------------------- -----------------------------------------------------
Title/Representative Capacity (if applicable)
--------------------------------------------- ------------------------------------------------------
Name of Company You Represent (if applicable) Street Address
------------------------------------ ------------------------------------------------------
Place of Execution of this Agreement City, State or Province, Country, Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
----------------------------- ------------------------
Please print address where any Notice Please print address where Copy is to be delivered
is to be delivered
ATTN: ATTN:
--------------------------------------------- --------------------------------------------
---------------------------------------------- --------------------------------------------------
Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx
----------------------------------------------
-------------------------------------------
City, State or Province, Country, Offshore Postal Code City, State or Country, Offshore Postal Code
Telephone: Telephone:
----------------------------------- ---------------------------------------
Facsimile: Facsimile:
----------------------------------- ---------------------------------------
Facsimile: Facsimile:
----------------------------------- ---------------------------------------
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 25th DAY OF MAY, 2000.
COLLEGE BOUND STUDENT ALLIANCE, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------------------
Xxxxxx X. Xxxxx, Chief Executive Officer
Address:
Attn: Xxxxxx Xxxxx
0000 XXX Xxxx. #000
Xxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
37
ADVANCE PUT NOTICE
COLLEGE BOUND STUDENT ALLIANCE, INC. (the "Company") hereby intends, subject to
the Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to Xxxxxx Private Equity, LLC, (the "Investor"), as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Xxxxxx
Private Equity, LLC dated on or about May 25, 2000.
Date of Advance Put Notice:
-------------------
Intended Put Date :
----------------------------
Intended Put Share Amount:
--------------------
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
COLLEGE BOUND STUDENT ALLIANCE, INC.
By:
--------------------------------------------
Xxxxxx X. Xxxxx, Chief Executive Officer
Address:
Attn: Xxxxxx Xxxxx
0000 XXX Xxxx. #000
Xxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT E
CONFIRMATION OF ADVANCE PUT NOTICE
Xxxxxx Private Equity, LLC (the "Investor"), hereby confirms receipt of COLLEGE
BOUND STUDENT ALLIANCE, INC.'s (the "Company") Advance Put Notice on the Advance
Put Date written below, and its intention to elect to exercise a Put to sell
shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Xxxxxx Private Equity, LLC dated on or about May 25, 2000.
Date of Confirmation:
---------------------
Date of Advance Put Notice:
---------------
Intended Put Date:
------------------------
Intended Put Share Amount:
----------------
Company Designation Maximum Put Dollar Amount (Optional):
------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
------------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By:
-----------------------------------
(Signature)
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Telephone No.:
-----------------------------------
Facsimile No.:
-----------------------------------
EXHIBIT F
39
PUT NOTICE
COLLEGE BOUND STUDENT ALLIANCE, INC. (the "Company") hereby elects to exercise a
Put to sell shares of common stock ("Common Stock") of the Company to Xxxxxx
Private Equity LLC (the "Investor"), as of the Put Date, at the Put Share Price
and for the number of Put Shares written below, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company and
Xxxxxx Private Equity, LLC dated on or about May 25, 2000.
Put Date :
-----------------
Intended Put Share Amount (from Advance Put
Notice): __________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in the
Investment Agreement.
COLLEGE BOUND STUDENT ALLIANCE, INC.
By:
--------------------------------------------
Xxxxxx X. Xxxxx, Chief Executive Officer
Address:
Attn: Xxxxxx Xxxxx
0000 XXX Xxxx. #000
Xxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT G
40
CONFIRMATION OF PUT NOTICE
Xxxxxx Private Equity LLC (the "Investor"), hereby confirms receipt of College
Bound Student Alliance, Inc.'s (the "Company") Put Notice and election to
exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Xxxxxx Private Equity, LLC dated on or about May 25, 2000.
Date of this Confirmation:
----------
Put Date :
-----------------
Number of Put Shares of
Common Stock to be Issued:
----------
Pricing Period: _____ Business Days
INVESTOR(S)
-------------------------------------
Investor's Name
By:
---------------------------------
(Signature)
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Telephone No.:
-------------------------------------
Facsimile No.:
-------------------------------------
EXHIBIT H
41
PUT CANCELLATION NOTICE
COLLEGE BOUND STUDENT ALLIANCE, INC. (the "Company") hereby cancels the Put
specified below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Xxxxxx Private Equity, LLC (the
"Investor") dated on or about May 25, 2000, as of the close of trading on the
date specified below (the "Cancellation Date," which date must be on or after
the date that this notice is delivered to the Investor), provided that such
cancellation shall not apply to the number of shares of Common Stock equal to
the Truncated Put Share Amount (as defined in the Investment Agreement).
Cancellation Date:
------------------------
Put Date of Put Being Canceled:
-----------
Number of Shares Put on Put Date:
---------
Reason for Cancellation (check one):
/ / Material Facts, Ineffective
Registration Period.
/ / Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
COLLEGE BOUND STUDENT ALLIANCE, INC.
By:
-----------------------------------
Xxxxxx X. Xxxxx, Chief Executive
Officer
Address:
Attn: Xxxxxx Xxxxx
0000 XXX Xxxx. #000
Xxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT Q
42
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor, pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the College Bound Student Alliance,
Inc.'s, and Xxxxxx Private Equity, LLC dated on or about May 25, 2000, hereby
confirms receipt of College Bound Student Alliance, Inc.'s (the "Company") Put
Cancellation Notice, and confirms the following:
DATE OF THIS CONFIRMATION:
---------------
PUT CANCELLATION DATE :
---------------
INVESTOR(S)
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Investor's Name
By:
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(Signature)
Address:
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Telephone No.:
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Facsimile No.:
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EXHIBIT S
43
