INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of January 9, 2002, by
and among Chequemate International, Inc. d/b/a/ C-3D Digital, Inc., a Utah
corporation (the "COMPANY"), and the undersigned investors (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $12,000,000 to
purchase the Company's common stock, $.0001 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as it may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as it may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREED UPON PROCEDURES REPORT" shall have the meaning specified in Section
2(o).
"AGREEMENT" shall mean this Investment Agreement.
"APPROVED MARKET" shall mean the American Stock Exchange, Inc., the New York
Stock Exchange, Inc., the Nasdaq National Market System, the Nasdaq SmallCap
Market or the National Association of Securities Dealer's, Inc. OTC electronic
bulletin board.
"BUY-IN" shall have the meaning specified in Section 6.
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"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
"CLOSING" shall have the meaning specified in Section 2(h).
"CLOSING DATE" shall mean, as defined in Section 2(h), the date which is
thirteen (13) Trading Days following the Put Notice Date.
"COMMON STOCK" shall mean the Common Stock of the Company.
"COMPANY DESIGNATED MINIMUM PRICE" shall have the meaning specified in Section
2(b).
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"EFFECTIVE DATE" shall mean the date the SEC declares effective the Registration
Statement covering the transactions described in the Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(m).
"ESCROW AGENT" shall mean Xxxxxx X. XxXxxxx.
"ESCROW AGREEMENT" shall mean the Escrow Agreement entered into between the
Company, Investor and Escrow Agent and attached as Exhibit C.
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the resale 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.
"INVESTOR" shall mean the undersigned investors.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(g).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
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"MATERIAL FACTS" shall have the meaning specified in Section 2(m).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(j).
"MINIMUM ACCEPTABLE PRICE", with respect to any Put Notice, shall mean 75% of
the Volume Weighted Average Price of the Common Stock for the fifteen (15)
Trading Day period immediately preceding such Put Notice Date.
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is thirty-six (36) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(p).
"PARTIAL RELEASE FORM" shall have the meaning specified in Section 2(i).
"PRICING PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, Inc. or, if the
Common Stock ceases to be traded on the American Stock Exchange, such other
Approved Market on which the Common Stock is principally listed or quoted.
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Shares.
"PURCHASE PRICE" shall mean 93% of the average of the five (5) lowest closing
bid prices of the Common Stock during the Pricing Period.
"PUT AMOUNT" shall mean, with respect to any single Put Notice, up to three
hundred percent (300%) of the average daily trading volume (U.S. market only) of
the Common Stock for the ten (10) Trading Days prior to the date on which such
Put Notice is actually given multiplied by the average of the three (3) daily
closing bid prices of the Common Stock immediately preceding the Put Notice
Date, but in no event shall the Put Amount exceed $1,000,000.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Put Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of Shares
issued and outstanding on such date.
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"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time (receipt
being deemed to occur if the Company possesses a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on
a Trading Day (receipt being documented as described in (x) above). No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"REGISTRATION OPINION" shall have the meaning specified in Section 2(m).
"REGISTRATION OPINION DEADLINE" shall have the meaning specified in Section
2(k).
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of this transaction.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering this transaction.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"REPURCHASE EVENT" shall have the meaning specified in Section 2(n).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having a par value
of $.0001 per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading.
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"TRANSACTION DOCUMENTS" shall mean the Agreement, Registration Rights Agreement
and the Escrow Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
"VOLUME WEIGHTED AVERAGE PRICE" shall be the daily volume average weighted price
of the Common Stock on the Principal Market between the hours of 9:00 a.m. and
4:00 p.m. on a Trading Day as reported by Bloomberg Financial Markets
("BLOOMBERG"), or if not available through Bloomberg because of delisting, then
the average of the bid prices for the Common Stock of any market makers for the
Common Stock as reported in the "pink sheets" by the National Quotation Bureau,
Inc.
2. PURCHASE AND SALE OF COMMON STOCK
a. PURCHASE AND SALE OF COMMON STOCK. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $12,000,000.
b. DELIVERY OF PUT NOTICES. Subject to the terms and conditions of the
Transaction Documents, at any time and from time to time during the Open Period,
the Company may, in its sole discretion, deliver a Put Notice to the Investor
which states (i) the Put Amount of Shares which the Company intends to sell to
the Investor during the Pricing Period and (ii) a minimum Purchase Price per
Share with regard to the related Pricing Period (the "COMPANY DESIGNATED MINIMUM
PRICE"). If the Company fails to designate a Company Designated Minimum Price in
a Put Notice, the Company Designated Minimum Price for the related Pricing
Period shall be the Minimum Acceptable Price. The Put Amount designated by the
Company in a Put Notice shall not exceed three hundred percent (300%) of the
average daily trading volume (U.S. market only) of the Common Stock for the ten
(10) Trading Days prior to the applicable Put Notice Date multiplied by the
average of the three (3) daily closing bid prices of the Common Stock
immediately preceding the Put Date, and in no event shall the Put Amount exceed
$1,000,000. Once the Put Notice is received by the Investor the Put Notice shall
not be terminated, withdrawn or otherwise revoked by the Company except as set
forth in this Agreement. During the Open Period, the Company shall not be
entitled to submit a Put Notice to the Investor until after the previous Closing
has been completed. The Purchase Price shall be equal to 93% of the average of
the five (5) lowest closing bid prices of the Common Stock during the Pricing
Period.
Notwithstanding any provision of this Agreement to the contrary, the
Company shall, in its sole discretion, be entitled to terminate its obligation
to sell Shares to the Investor pursuant to a Put Notice for the balance of the
applicable Pricing Period if the closing bid price of the Common Stock during
such Pricing Period is less than the greater of (i) the Minimum Acceptable Price
and (ii) the Company Designated Minimum Price. In the event that the closing bid
price of the Common Stock for the applicable Pricing Period is less than the
greater of the Minimum Acceptable Price and the
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Company Designated Minimum Price, the Company may elect, by sending written
notice to the Investor via facsimile, to cancel the portion of its obligation to
sell Shares to the Investor during such Pricing Period for the number of Trading
Days remaining in such Pricing Period after the written cancellation notice is
DEEMED RECEIVED by the Investor. The written notice shall be DEEMED RECEIVED by
the Investor on (i) the Trading Day it is received by facsimile or otherwise by
the Investors if such notice is received on or prior to 12:00 noon New York
time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile after 12:00 noon New York time on a Trading Day or at anytime on a day
which is not a Trading Day. The Company shall still be responsible however, for
delivering that number of shares of Common Stock to the Escrow Agent that were
sold by the Investor through and including the end of the Trading Day the
written cancellation notice is DEEMED RECEIVED by the Investors.
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Put
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company's
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. INTEREST. It is the intention of the parties that any interest that
may be payable under this Agreement shall not exceed the maximum amount
permitted under any applicable law. If a law which applies to this Agreement
sets the maximum interest amount is finally interpreted so that the interest in
connection with this Agreement exceeds the permitted limits, then: (1) any such
interest shall be reduced by the amount necessary to reduce the interest to the
legally permitted limit; and (2) any sums already collected (if any) from the
Company which exceed the legally permitted limits will be refunded to the
Company. The Investor may choose to make this refund by reducing the amount that
the Company owes under this Agreement or by making a direct payment to the
Company. If a refund reduces the amount that the Company owes the Investor, the
reduction will be treated as a partial payment. In case any provision of this
Agreement is held by a court of competent jurisdiction to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Agreement will not in any way be affected or impaired thereby.
d. INVESTOR'S OBLIGATION 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 from the
Company during the related Pricing Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Put Amount set forth in
the Put Notice, and (ii) 30% of the aggregate trading volume of the Common Stock
during the applicable Pricing Period multiplied by 93% of
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the average of the five (5) lowest closing bid prices of the Common Stock during
the applicable Pricing Period, but only if said Shares bear no restrictive
legend, are not subject to stop transfer instructions and are being held in
escrow, pursuant to Section 2(h), prior to the applicable Closing Date.
e. 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 the Company shall in no event sell to
the Investor, that number of Shares, which when added to the sum of the number
of Shares beneficially owned (as such term is defined under Section 13(d) and
Rule 13d-3 of the 0000 Xxx) by the Investor, would exceed 9.99% of the number of
Shares outstanding on the Put Notice Date for such Pricing Period, as determined
in accordance with Rule 13d-1(j) promulgated under the 1934 Act. In no event
shall the Investor purchase Shares of the Common Stock other than pursuant to
this Agreement until such date as this Agreement is terminated. Each Put Notice
shall include a representation of the Company as to the number of Shares of
Common Stock outstanding on the related Put Notice Date as determined in
accordance with Section 13(d) of the 1934 Act. In the event that the number of
shares of Common Stock outstanding as determined in accordance with Section
13(d) of the 1934 Act is different on any date during a Pricing Period than the
number of shares of Common Stock outstanding on the Put Notice 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 would be acquiring beneficial ownership of more than 9.99%
of the number of Shares of Common Stock outstanding during such period.
f. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and require the Investor to purchase any
Shares at a Closing (as defined in Section 2(h)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared effective and
shall remain effective and available for the resale of all the
Registrable Securities (as defined in the Registration Rights
Agreement) at all times during the Pricing Period;
(ii) at all times during the period beginning on the related Put
Notice Date and ending on and including the related Closing Date, the
Common Stock shall have been listed on the Principal Market and shall
not have been suspended from trading thereon for a period of five (5)
consecutive Trading Days during the Open Period and the Company shall
not have been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock;
(iii) the Company has complied in all material respects with its
obligations and is otherwise not in breach of a material provision, or
in material
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default under, this Agreement or the Registration Rights Agreement
which has not been corrected prior to delivery of the Put Notice;
(iv) no injunction shall have been issued and remain in force, or
action commenced by a governmental authority which has not been stayed
or abandoned, prohibiting the purchase or the issuance of the Common
Stock pursuant to this Agreement; and
(v) the issuance of the Common Stock will not violate the shareholder
approval requirements of the American Stock Exchange, Inc.
If any of the events described in clauses (i) through (v) above occurs
during a Pricing Period, then the Investor shall have no obligation to
purchase the Put Amount of Common Stock set forth in the applicable
Put Notice.
g. For purposes of this Agreement, a "MAJOR TRANSACTION" shall be deemed
to have occurred upon the closing of any of the following events: (i) the
consolidation, merger or other business combination of the Company with or into
another person which will result in the holders of the outstanding voting equity
securities of the Company immediately prior to such transaction or series of
related transactions holding securities representing less than fifty percent
(50%) of the voting power of the surviving entity immediately following such
transaction or series of related transactions (other than pursuant to a
migratory merger effected solely for the purposes of changing the jurisdiction
of incorporation of the Company); (ii) the sale or transfer of all or
substantially all of the Company's assets; or (iii) the consummation of a
purchase, tender or exchange offer made to, and accepted by, the holders of more
than 30% of the economic interest in, or the combined voting power of all
classes of voting stock of, the Company.
h. MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the
satisfaction of the conditions set forth in Sections 2(f), 7 and 8, the closing
of the purchase by the Investor of Shares during any Pricing Period (each, a
"CLOSING") shall occur on the date which is thirteen (13) Trading Days following
the applicable Put Notice Date (each, a "CLOSING DATE"). Prior to each Closing
Date, (i) the Company shall deliver to the Escrow Agent pursuant to the Escrow
Agreement, annexed hereto as Exhibit C, certificates representing the Shares to
be issued to the Investor on such date and registered in the name of the
Investor or deposit such Shares into the account(s) (with the Investor receiving
confirmation that the Shares are in such account(s)) designated by the Investor
for the benefit of the Investor and (ii) the Investor shall deliver to the
Escrow Agent the Purchase Price to be paid for such Shares (after receipt of
confirmation of delivery of such Shares), determined as aforesaid, by wire
transfer. In lieu of delivering physical certificates representing the Common
Stock and provided that the Company's transfer agent then is participating in
The Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to
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electronically transmit the Shares by crediting the account of the Investor's
prime broker (which shall be specified by the Investor a reasonably sufficient
time in advance) with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system, and provide proof satisfactory to the Escrow Agent of such
delivery.
The Company understands that a delay in the issuance of Shares beyond the
Closing Date could result in economic loss to the Investor. After the Effective
Date, as compensation to the Investor for such loss, the Company agrees to pay
late payments to the Investor for late issuance of Shares in accordance with the
following schedule (where "NO. OF DAYS LATE" is defined as the number of days
beyond the Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each Business Day late beyond 10
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue and
deliver the Shares to the Investor, except that such late payments shall
constitute payment for and offset any such actual damages alleged by the
Investor, including any Buy In Adjustment Amount.
i. PARTIAL RELEASE OF SHARES. After the Investor has received a Put
Notice, but prior to the related Closing Date, the Investor may authorize the
Escrow Agent to release a portion of the Purchase Amount from escrow to the
Company in exchange for a fixed number of Shares, subject to the following
conditions:
(i) The Investor shall fill out and sign a Partial Release of
Purchase Amount and Shares (the "Partial Release Form"). The
Partial Release Form shall set forth the number of Shares to be
released to Investor and the dollar amount the Escrow Agent shall
wire to the Company.
(ii) The Partial Release Form shall be filled out and signed by the
Investor and faxed to the Company prior to 12:00 p.m.
New York
City time.
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The number of Shares stated in the Partial Release Form shall be equal to
the dollar amount to be released divided by 93% of the average of the five (5)
lowest closing bid prices of the Common Stock during that number of Trading Days
in the applicable Pricing Period that have expired, but if less than five (5)
Trading Days in the applicable Pricing Period have expired prior to receipt by
the Company of the Partial Release Form, then the average of the lowest closing
bid prices of the Common Stock for all of the Trading Days in the applicable
Pricing Period that have expired shall be used.
The Company and the Investor agree that on each related Closing Date, an
adjustment shall be made so that the terms set forth in this Agreement shall be
honored with the balance of the Purchase Amount being released to the Company
and the balance of the Shares owed to the Investor being released to the
Investor.
j. OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything
contained herein to the contrary, during the Open Period, so long as the Company
remains listed on an exchange that limits the number of shares of Common Stock
that may be issued without shareholder approval, then the number of Shares
issuable by the Company and purchasable by the Investor, including the shares of
Common Stock issuable to the Investors pursuant to Section 11(b), shall not
exceed that number of the shares of Common Stock that may be issuable without
shareholder approval, subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalization affecting the Common
Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), UNLESS the issuance of Shares
hereunder (including any Common Stock to be issued to the Investors pursuant to
Section 11(b)) in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and the
By-laws and Articles of Incorporation of the Company. The parties understand and
agree that the Company's failure to seek or obtain such shareholder approval
shall in no way adversely affect the validity and due authorization of the
issuance and sale of Shares hereunder or the Investor's obligation in accordance
with the terms and conditions hereof to purchase a number of Shares in the
aggregate up to the Maximum Common Stock Issuance limitation, and that such
approval pertains only to the applicability of the Maximum Common Stock Issuance
limitation provided in this Section 2(j).
k. REGISTRATION OPINIONS. If reasonably requested by the Investor, in
writing, at least ten (10) days prior to the end of the applicable fiscal
period, the Company shall cause to be delivered to the Investor (i) not later
than 10 Trading Days after the day the Company files its Form 10-Q with the SEC
with respect to any fiscal quarter, and (ii) not later than 10 Trading Days
after the day the Company files its Form 10-K with the SEC with respect to any
fiscal year (each, a "REGISTRATION OPINION DEADLINE"), an opinion of the
Company's counsel (a "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
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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 reasonably requested by the Investor, in writing, at any time after the
Investor becomes aware that the Company or any of its officers or directors are
subject to a formal of informal investigation by the SEC, National Association
of Securities Dealers, Inc., any state securities regulatory body or the
Principal Market, the Company shall, not later than ten (10) calendar days after
receiving such written notice from the Investor (an "INVESTIGATION REGISTRATION
OPINION DEADLINE"), cause to be delivered to the Investor, a Registration
Opinion, addressed to the Investor stating, inter alia, that no Material Facts
have come to such counsel's attention.
If a Registration Opinion cannot be delivered by the Company's counsel to
the Investor in accordance with the Registration Opinion Deadline or the
Investigation Registration Opinion Deadline, as the case may be, 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 Closing Date, the Company acquires knowledge
of such Material Facts or any Ineffective Period occurs, the Company shall
promptly notify the Investor.
l. In the event that the Investor shall have requested delivery of an
Agreed Upon Procedures Report pursuant to Section 2(m), 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(n) 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 to
Investor until such report is delivered.
m. PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED TO BE UNTRUE OR
ARE OMITTED. In the event the Investor or the Investor's counsel reasonably
believes that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading, (i) 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 (ii) if the Company disputes the existence of any such
material misstatement or omission, (x) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (y) in the event
the dispute relates
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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.
n. DELISTING; SUSPENSION. If at any time during a Pricing Period or the
twenty (20) Trading Days following any Pricing Period, (i) the Registration
Statement, after it has been declared effective, shall not remain effective and
available for sale of all the Registrable Securities (as defined in the
Registration Rights Agreement), (ii) the Common Stock shall not be listed on the
Principal Market or shall have been suspended from trading thereon (excluding
suspensions of not more than one Trading Day resulting from business
announcements by the Company) or the Company shall have been notified of any
pending or threatened proceeding or other action to delist or suspend the Common
Stock, (iii) there shall have occurred a Major Transaction (as defined in
Section 2(g)) or the public announcement of a pending Major Transaction which
has not been abandoned or terminated, or (iv) the Registration Statement is no
longer effective or stale for a period of more than five (5) Trading Days as a
result of the Company's failure to timely file its financials, the Company shall
repurchase within thirty (30) calendar days of the occurrence of one of the
events listed in clauses (i), (ii), (iii) or (iv) above (each a "REPURCHASE
EVENT"), subject to the limitations imposed by applicable federal and state law,
all or any part of the Shares issued to the Investor during such Pricing Period
and then held by the Investor at a price per Share equal to the highest Volume
Weighted Average Price during the period beginning on the date of the Repurchase
Event and ending on and including the date on which the Investor is paid by the
Company for the repurchase of the Shares (the "PAYMENT AMOUNT"). If the Company
fails to pay to the Investor the full aggregate Payment Amount within ten (10)
calendar days after the occurrence of a Repurchase Event, the Company shall pay
to the Investor compounded annual interest of 18% on such Payment Amount during
the period, beginning on the day following such tenth calendar day, during which
such Payment Amount, or any portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
a. SOPHISTICATED INVESTOR. The Investor has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities. The Investor acknowledges that it is able to bear the financial
risks associated with an investment in the Securities and that it has been given
full access to the records of the Company and its Subsidiaries and to the
officers of the Company and its subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation.
b. INFORMATION. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and
12
materials relating to the offer and sale of the Shares which have been requested
by the Investor. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by the Investor or its advisors, if
any, or its representatives shall modify, amend or affect the Investor's right
to rely on the Company's representations and warranties contained in Section 4
below. The Investor understands that its investment in the Shares involves a
high degree of risk. The Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Shares.
c. ORGANIZATION. The Investor is a limited partnership duly organized,
validly existing and in good standing under the laws of Delaware and has all of
the requisite partnership authority to carry on its business as now being
conducted.
d. AUTHORIZATION; ENFORCEMENT. The Investor has the requisite power and
authority to enter into and perform its obligations under the Transaction
Documents in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Investor and the consummation
by it of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Investor and no further consent or authorization is
required by the Investor, (iii) the Transaction Documents have been duly and
validly executed and delivered by the Investor, and (iv) the Transaction
Documents constitute the valid and binding obligations of the Investor
enforceable against the Investor in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
e. COMPLIANCE WITH THE SECURITIES LAWS. During the Open Period, the
Investor will comply with all of the provisions of federal securities laws, and
the rules promulgated thereunder, with respect to transactions involving the
Common Stock.
f. ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term
is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
g. NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of documents of organization of the Investor or (ii) conflict with, or
constitute a material default (or an event which with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule,
13
order or regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a material
adverse effect on the business, properties, assets, operations, results of
operations or financial condition of the Investor.
h. ACKNOWLEDGEMENTS. The Investor acknowledges that in the ordinary
course of the Company's business, the Company's stock price and volume have been
and are likely to continue to be highly volatile; provided, that, the foregoing
acknowledgement is not intended to relieve the Company from any liability or
diminish the Company's liability under this Agreement for a breach of its
representations or warranties made to the Investor herein.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns more than 50% of the outstanding capital stock or
holds an equity or similar interest representing at least 50% of the outstanding
equity or similar interests of such entity) (a complete list of which is set
forth in Schedule 4(a)) are corporations duly organized and validly existing in
good standing under the laws of the respective jurisdictions of their
incorporation, and have the requisite corporate power and authorization to own
their properties and to carry on their business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined in Section 1 and 4(b)below).
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS. (i) The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, and to issue the Shares
in accordance with the terms hereof and thereof, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
reservation for issuance and the issuance of the Shares pursuant to this
Agreement, have been duly and validly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors, or its shareholders, except for, if required by the
14
Principal Market, approval by the Company's shareholders prior to the issuance
of a number of shares of Common Stock equal to or in excess of 20% of the number
of shares of Common Stock outstanding immediately prior to the date hereof,
(iii) the Transaction Documents have been duly and validly executed and
delivered by the Company, and (iv) the Transaction Documents constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of (i) 500,000,000 shares of Common Stock, of which as of
January 9, 2002, 87,192,541 shares are issued and outstanding and approximately
495,938 shares of Common Stock are issuable upon the exercise of options,
warrants and conversion rights. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
Except as disclosed in Schedule 4(c) which is attached hereto and made a part
hereof, (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding shares of capital stock, options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings 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 or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement,
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement and (viii) there is no
dispute as to the class of any shares of the Company's capital stock. The
Company has furnished to the Investor, or the Investor has had access through
XXXXX to, true and correct copies of the Company's Articles of Incorporation, as
in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS `), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
d. ISSUANCE OF SHARES. Upon issuance in accordance with this Agreement,
15
the Securities will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof.
e. NO CONFLICTS. Except as disclosed in Schedule 4(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
will not (i) result in a violation of the Articles of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the By-laws; or (ii) conflict with, or
constitute a material default (or an event which with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including United States federal and
state securities laws and regulations and the rules and regulations of the
Principal Market or principal securities exchange or trading market on which the
Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, the Articles of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws or their organizational charter or by-laws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not individually or in the aggregate have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
16
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 2000, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Investor or its
representatives, or they have had access through XXXXX, true and complete copies
of the SEC Documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof.
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 4(g) or
the SEC Documents filed at least five (5) days prior to the date hereof, since
November 30, 2001, there has been no change or development in the business,
properties, assets, operations, financial condition or results of operations of
the Company or its Subsidiaries which has had or, to the knowledge of the
Company and its Subsidiaries, reasonably could have a Material Adverse Effect.
The Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
h. ABSENCE OF LITIGATION. Except as set forth in Schedule 4(h), there is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of
17
the executive officers of Company or any of its Subsidiaries, threatened against
or affecting the Company, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, in which an adverse decision could have a Material
Adverse Effect.
i. ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. No
event, liability, development or circumstance has occurred or exists, or to its
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
k. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 4(l), none of the Company's
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two years
from the date of this Agreement. The Company and its Subsidiaries do not have
any knowledge of any
18
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service xxxx registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and, except as set forth on Schedule 4(l), there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except, in all cases, to the extent that the failure to do so would not have a
Material Adverse Effect.
m. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. TITLE. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 4(n) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
o. INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be reasonably
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
19
p. REGULATORY PERMITS. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, except
where the failure to possess such certificates, approvals, authorizations or
permits would not result in a Material Adverse Effect, and neither the Company
nor any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, approval, authorization or
permit, except for such certificates, approvals, authorizations or permits which
if not obtained, or such revocations or modifications which would not have a
Material Adverse Effect.
q. INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
r. TAX STATUS. The Company and each of its Subsidiaries has made or filed
all United States 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 and each of its Subsidiaries 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 has 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.
s. CERTAIN TRANSACTIONS. Except as set forth on Schedule 4(t) or in the
SEC Documents filed at least ten days prior to the date hereof and except for
arm's length transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options disclosed on
Schedule 4(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(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
20
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
t. DILUTIVE EFFECT. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines during the period between the Effective Date and the end of the Open
Period. The Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Agreement is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other shareholders of the Company.
u. RIGHT OF FIRST REFUSAL. Subject to any existing rights of first
refusal on the Company's issuance of its securities, the Company shall not,
without the prior written consent of the Investor, enter into an equity line of
credit (a "SUBSEQUENT EQUITY FINANCING") for a period of one year after the
Effective Date, UNLESS (A) the Company delivers to Investor a written notice
(the "SUBSEQUENT EQUITY FINANCING NOTICE") of its intention to effect such
Subsequent Equity Financing, which Subsequent Equity Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Equity
Financing, the amount of proceeds intended to be raised thereunder, the person
with whom such Subsequent Equity Financing shall be effected, and attached to
which shall be a term sheet or similar document relating thereto and (B)
Investor shall not have notified the Company by 5:00 p.m. (
New York time) on the
fifth (5th) Trading Day after its receipt of the Subsequent Equity Financing
Notice of its willingness to provide, subject to completion of mutually
acceptable documentation, financing to the Company on substantially the terms
set forth in the Subsequent Equity Financing Notice. If Investor shall fail to
notify the Company of its intention to enter into such negotiations within such
time period, then the Company may effect the Subsequent Equity Financing
substantially upon the terms set forth in the Subsequent Equity Financing
Notice; PROVIDED THAT the Company shall provide Investor with a second
Subsequent Equity Financing Notice, and Investor shall again have the right of
first refusal set forth above in this Section, if the Subsequent Equity
Financing subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Equity
Financing Notice within thirty (30) Trading Days after the date of the initial
Subsequent Equity Financing Notice.
v. LOCK-UP. Unless the Company receives consent from the Investor that it
not take such action, the Company agrees to use commercially reasonable efforts
to have its executive officers and directors refrain from selling Common Stock
during each Pricing Period.
21
w. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Common Stock offered hereby.
5. COVENANTS
a. BEST EFFORTS. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 7 and 8 of
this Agreement.
b. BLUE SKY. The Company shall, at its sole cost and expense, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as specified by Investor, and, upon the
Investor's written request, shall provide evidence of any such action so taken
to the Investor on or prior to the Closing Date. The Company shall, at its sole
cost and expense, make all filings and reports relating to the offer and sale of
the Securities required under the applicable securities or "Blue Sky" laws of
such states of the United States following each of the Closing Dates.
c. REPORTING STATUS. Until the earlier to occur of (i) the first date
which is after the date this Agreement is terminated pursuant to Section 9 and
on which the Holders (as that term is defined in the Registration Rights
Agreement) may sell all of the Securities acquired pursuant to this Agreement
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), and (ii) the date on which (A) the Holders shall have sold
all the Securities issuable hereunder and (B) this Agreement has been terminated
pursuant to Section 9 (the "REGISTRATION PERIOD"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as a reporting company under the 1934
Act.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) in order to expand the Company's business, to pursue
mergers and acquisitions and for other legally permissible general corporate and
working capital purposes.
e. LISTING. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Registrable Securities from time
to time issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock's authorization for quotation on the Principal Market.
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the
22
delisting or suspension of the Common Stock on the Principal Market (excluding
suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the
Investor copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 5(g).
f. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
g. FILING OF FORM 8-K. On or before the date required by applicable law,
the Company shall file a Current Report on Form 8-K with the SEC describing the
terms of the transaction contemplated by the Transaction Documents in the form
required by the 1934 Act, if such filing is required.
h. CORPORATE EXISTENCE. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
i. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (i) receipt of any request
for additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other
23
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
j. REIMBURSEMENT. If (i) Investor, other than by reason of its gross
negligence, willful misconduct or fraudulent action(s), or by reason of its
trading of Common Stock in a manner that is illegal under the federal securities
laws, becomes involved in any capacity in any action, proceeding or
investigation brought by any shareholder of the Company, in connection with or
as a result of the consummation of the transactions contemplated by the
Transaction Documents, or if Investor is impleaded in any such action,
proceeding or investigation by any person, or (ii) Investor, other than by
reason of its gross negligence, willful misconduct or fraudulent action(s) or by
reason of its trading of the Common Stock in a manner that is illegal under the
federal securities laws, becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
Investor and
24
any such affiliate, and shall be binding upon and inure to the benefit of any
successors of the Company, Investor and any such affiliate and any such person.
[*NOTE: It may be appropriate to move this provision to Section 10
(Indemnification).]
6. COVER. If the number of Shares represented by any Put Notice becomes
restricted or are no longer freely trading for any reason, and during the twenty
(20) Trading Day period after the end of the applicable Pricing Period the
Investor purchases, in an open market transaction or otherwise, the Company's
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Investor (the "Sold Shares"), which delivery
such Investor anticipated to make using the Shares represented by the Put Notice
(a "Buy-In"), the Company shall pay to the Investor the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (a) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (b) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor
in immediately available funds immediately upon demand by the Investor. By way
of illustration and not in limitation of the foregoing, if the Investor
purchases Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to the Common Stock it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Investor will be $1,000.
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Shares to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
a. The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Company the Purchase Price
for the Shares being purchased by the Investor at such Closing (after receipt of
confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
c. The representations and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or
prior to such Closing Date.
25
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to
the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for (i) representations and warranties that speak as
of a specific date and (ii) with respect to the representations made in Sections
4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the applicable Put
Notice Date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company on or before such
Closing Date. The Investor may request an update as of such Closing Date
regarding the representation contained in Section 4(c) above.
d. Investor shall have received an opinion letter of the Company's
counsel on or before the Execution Date, the form of which is attached hereto as
Exhibit __.
e. The Company shall have executed and delivered to the Escrow Agent or
Investor the certificates representing, or have executed electronic book-entry
transfer of, the Shares, (in such denominations as such Investor shall request)
being purchased by the Investor at such Closing.
f. The board of directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above and in a form reasonably acceptable to
the Investor (the "RESOLUTIONS") and such Resolutions shall not have been
amended or rescinded prior to such Closing Date.
26
g. If requested by the Investor, the Investor shall receive a legal
opinion from the Company's counsel, in the form and substance as described in
Section 2(k) hereof.
h. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
i. The Registration Statement shall be effective on each Closing Date and
no stop order suspending the effectiveness of the Registration statement shall
be in effect or shall be pending or threatened. Furthermore, on each Closing
Date (i) neither the Company nor Investor shall have received notice that the
SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action),and (ii) no other suspension of the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
j. There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
k. If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(j).
l. The conditions to such Closing set forth in Section 2(f) shall have
been satisfied on or before such Closing Date.
m. The Company shall have certified to the Investor the number of shares
of Common Stock outstanding as of a date within five (5) Trading Days prior to
such Closing Date.
9. TERMINATION. This Agreement shall terminate upon any of the following
events:
(i) when the Investor has purchased an aggregate of $12,000,000 in the
Common Stock of the Company pursuant to this Agreement; provided that
27
the Company's representations, warranties and covenants contained in
this Agreement insofar as applicable to the transactions consummated
hereunder prior to such termination, shall survive the termination of
this Agreement for the period of any applicable statute of
limitations,
(ii) on the date which is thirty-six (36) months after the Effective
Date;
(iii) if the Company shall file or consent by answer or otherwise to
the entry of an order for relief or approving a petition for relief,
reorganization or arrangement or any other petition in bankruptcy for
liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or shall make an assignment for the benefit of
its creditors, or shall consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or of
any substantial part of its property, or shall be adjudicated a
bankrupt or insolvent, or shall take corporate action for the purpose
of any of the foregoing, or if a court or governmental authority of
competent jurisdiction shall enter an order appointing a custodian,
receiver, trustee or other officer with similar powers with respect to
the Company or any substantial part of its property or an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy or insolvency law, or an order for the dissolution,
winding up or liquidation of the Company, or if any such petition
shall be filed against the Company;
(iv) at any time by the Company if (a) the Investor fails to deliver
the appropriate funds to the Company for the purchase of the Shares
pursuant to this Agreement within three (3) Trading Days after any
Closing Date (regardless of whether such failure is subsequently
cured), (b) the Investor materially breaches any of its obligations
under this Agreement or the Registration Rights Agreement, or (c) the
Investor receives notice from a governmental or self-regulatory agency
that the Investor does not then possess one or more required
registrations or approvals to perform it obligations under this
Agreement;
(v) if the Company shall enter into any other equity financing
facility during the Open Period, other than in compliance with Section
4(u);
(vi) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five (5) consecutive
Trading Days during the Open Period;
(vii) the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the Registrable
Securities in accordance with the terms of the initial Registration
Rights Agreement within sixty (60) calendar days of the date hereof or
the
28
Registration Statement has not been declared effective within three
hundred sixty (360) calendar days of the date hereof; or
(viii) The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market;
(ix) The Company requires shareholder approval under Nasdaq rules to
issue additional shares and such approval is not obtained within 60
days from the date when the Company has issued its 19.9% maximum
allowable shares; or
(x) at any time by the Company, in its sole discretion.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor; provided that the Investor shall
provide the Company with written notice of its receipt of a notice pursuant to
subsection (iv)(c).
10. INDEMNIFICATION. (a) In consideration of the Investor's execution and
delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of its officers, directors,
employees and direct or indirect investors and any of the foregoing person's
agents 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 attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES'), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby
(ii) 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, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (v) the status of the Investor or holder of the Shares as an
investor in the Company, except insofar as any such misrepresentation, breach or
any untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity with written information furnished to
the Company by the Investor which is specifically intended by the Investor for
use in the preparation of any such Registration Statement, preliminary
prospectus or prospectus. To the extent that the foregoing undertaking by the
Company may be unenforceable for any
29
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The indemnity provisions contained herein shall be in addition
to any cause of action or similar rights the Investor may have, and any
liabilities the Investor may be subject to.
(b) In consideration of the Company's execution and delivery of the this
Agreement and the Registration Rights Agreement and in addition to all of the
Investor's other obligations under the Transaction Documents, the Investor shall
defend, protect, indemnify and hold harmless the Company and all of its
subsidiaries, shareholders, officers, directors and employees and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "COMPANY 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 Company Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "COMPANY INDEMNIFIED LIABILITIES'),
incurred by any Company Indemnitee as a result of, or arising out of, or
relating to (i) any misrepresentation or breach of any representation or
warranty made by the Investor in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
breach of any covenant, agreement or obligation of the Investor contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iii) any cause of action, suit or claim brought
or made against such Company Indemnitee by a third party and arising out of or
resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, and (iv) the enforcement of this Section 10(b).
To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Company Indemnified Liabilities
which is permissible under applicable law. The indemnity provisions contained
herein shall be in addition to any cause of action or similar rights the Company
may have, and any liabilities the Company may be subject to.
(c) INDEMNIFICATION PROCEDURE. Any party entitled to indemnification under
this Section 10 (an "INDEMNIFIED PARTY") will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Section 10 except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of counsel to the
indemnified party a conflict of interest between it and the indemnifying party
may exist with respect to such action, proceeding or claim, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
In the event that the indemnifying party advises an indemnified party that it
will contest such a claim for indemnification hereunder, or fails,
30
within thirty (30) days of receipt of any indemnification notice to notify, in
writing, such person of its election to defend, settle or compromise, at its
sole cost and expense, any action, proceeding or claim (or discontinues its
defense at any time after it commences such defense), then the indemnified party
may, at its option, defend, settle or otherwise compromise or pay such action or
claim. In any event, unless and until the indemnifying party elects in writing
to assume and does so assume the defense of any such claim, proceeding or
action, the indemnified party's costs and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder. The indemnified party shall cooperate
fully with the indemnifying party in connection with any settlement negotiations
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
indemnified party which relates to such action or claim. The indemnifying party
shall keep the indemnified party fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Section 10 to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Section 10 shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, within ten (10)
Trading Days of written notice thereof to the indemnifying party so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of
New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of
New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents
31
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. COMMITMENT FEES; ADVISORY FEES; LEGAL FEES; AND ESCROW FEES.
(i) Dutchess Advisors, Ltd. is acting in an advisory capacity to the
Investor, Dutchess Private Equities Fund, L.P., and the Company has agreed
to pay an amount in cash and Common Stock for the advisory services being
rendered to that Investor. On each Closing Date the Company shall pay to
Dutchess Advisors, Ltd., as part of its advisory fee, an amount equal to 4%
of the Purchase Amount being paid by Dutchess Private Equities Fund, L.P.,
which amount shall be deducted from the Purchase Amount by the Escrow Agent
and paid directly to Dutchess Advisors, Ltd. The Company shall also issue
to Dutchess Advisors, Ltd., as part of its advisory fee, that number of
shares of Common Stock equal to $25,000 divided by the closing bid price of
the Company's Common Stock on the Execution Date. These shares will be
issued to Dutchess Advisors, Ltd. in certificate form no later than two (2)
Trading Days after the Execution Date and will be registered for resale
pursuant to the term of the Registration Rights Agreement. Additionally, on
the Closing Date on which the aggregate amount of the Company's draws under
to this Agreement exceed $1,000,000 and each succeeding Closing Date on
which the aggregate amount of the Company's draws under this Agreement
exceed an integral multiple of $1,000,000, the Company shall pay to
Dutchess Advisors Ltd., as part of its advisory fee, that number of shares
of Common Stock equal to $25,000 divided by the Purchase Price of the
applicable Pricing Period. These shares also will be registered for resale
pursuant to the terms of the Registration Rights Agreement.
(ii) The Company has paid to Investors' counsel, Xxxxxx X. XxXxxxx,
$10,000 for document preparation. Upon the presentation of appropriate
documentation , the Company shall pay Xx. XxXxxxx additional fees as
follows: $1,500 upon the first draw down, $1,500 upon the second draw down
and $2,000 upon the third draw down.
(iii) The Company shall also pay the Escrow Agent for escrow services
pursuant to a separate escrow agreement.
(iv) Except as otherwise set forth herein, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. In the event that any suit
32
or action is instituted to enforce any provision of this Agreement, the
prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, all fees, costs and expenses of appeals. The Company
shall pay all stamp and other taxes and duties levied in connection with
the issuance of any Securities issued pursuant hereto.
c. COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
d. HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
e. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
f. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.
g. NOTICES. Any notices or other communications required or permitted to
be given under the terms of this Agreement must be in writing (including
electronic forms of communication) and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
33
If to the Company:
C-3D Digital, Inc.
00 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to:
Xxxxxxxx Xxxxxxx, Esq.
Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
Dutchess Private Equities Fund, L.P.
000 Xxxx Xxxxx Xxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Telecopier No.: 000-000-0000
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
h. NO ASSIGNMENT. This Agreement may not be assigned.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
j. SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections
34
4 and 5, and the indemnification provisions set forth in Section 10, shall
survive each of the Closings; but in no event shall any provisions of this
Agreement survive the termination of this Agreement in accordance with Section
9.
k. PUBLICITY. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law or the rules of a stock exchange, in which such case the
disclosing party shall use commercially reasonable efforts to provide the other
parties with prior notice of such public statement. Investor acknowledges that
this Agreement and all or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-K, and that the Company may therefore be required to file such documents as
exhibits to reports or registration statements filed under the Securities 1933
Act or the 1934 Act. Investor further agrees that the status of such documents
and materials as material contracts shall be determined solely by the Company,
in consultation with its counsel.
l. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. BROKER'S FEES. Each party hereto represents and warrants that no
placement agent, broker, investment banker, person or firm acting on behalf of
or under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated by the Transaction Documents. Each
party hereto further agrees to indemnify each the other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11(m) being untrue.
n. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. REMEDIES. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any default
or breach of any provision of this Agreement, including
35
the recovery of reasonable attorneys fees and costs, and to exercise all other
rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
[Balance of this page intentionally left blank.]
36
IN WITNESS WHEREOF, the parties have caused this
Investment Agreement to be
duly executed as of the day and year first above written.
CHEQUEMATE INTERNATIONAL, INC.
By:
------------------------------------
Name: Xxxxxxx Xxxxx
Title: President and CEO
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By:
------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
37
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C Escrow Agreement
EXHIBIT D Broker Representation Letter
EXHIBIT E Board Resolution
EXHIBIT F Put Notice
EXHIBIT G Partial Release of Put Amount and Shares
LIST OF SCHEDULES
-----------------
Schedule 4(a) Subsidiaries
Schedule 4(c) Capitalization
Schedule 4(e) Conflicts
Schedule 4(g) Material Changes
Schedule 4(h) Litigation
Schedule 4(l) Intellectual Property
Schedule 4(n) Liens
Schedule 4(t) Certain Transactions
EXHIBIT D
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
----------------------
----------------------
----------------------
Re: CHEQUEMATE INTERNATIONAL, INC. d/b/a/ C-3D DIGITAL, INC.
Dear __________________:
It is our understanding that the Form______ Registration Statement bearing SEC
File Number ( ___-______) filed by CHEQUEMATE INTERNATIONAL, INC. on Form _____
on __________, 2001 was declared effective on _________, 200_.
This letter shall confirm that ______________ shares of the common stock of
CHEQUEMATE INTERNATIONAL, INC. are being sold on behalf of __________________
and that we shall comply with the prospectus delivery requirements set forth in
that Registration Statement by filing the same with the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
----------------------
cc: Xxxxxx X. XxXxxxx, Esq.
EXHIBIT F
PUT NOTICE NO. ______
CHEQUEMATE INTERNATIONAL, INC. d/b/a C-3D DIGITAL, INC., a Utah corporation
(the "Company"), hereby elects to exercise its right pursuant to the
Investment
Agreement to require Investor to purchase shares of its common stock. The
Company hereby certifies that:
1. The Put Amount is: $_______________.
2. The Pricing Period runs from ____________________ to
____________________.
3. The current number of shares of common stock issued and outstanding as
of _____________ are __________________________.
4. (a) The Company Designated Minimum Price is: $ _____________________.
(b) The Minimum Acceptable Price is: $ _____________________.
5. 93% of the average of the five (5) lowest closing bid prices of the
Company's Common Stock during the ten (10) Trading Day Pricing Period
("5 Ave. Lowest") is as follows:
5 Ave. Lowest x 93% = Purchase Price x (30% of Volume) = Total
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
GRAND TOTALS _____________* $__________**
Number of Shares being Purchased (total of 30% volume column) _____________*
Aggregate Purchase Price of Shares $__________________**
38
Less Escrow Fee - __________________
Less Advisor's Fee - ___________________
Amount to be wired to Company
========================
The undersigned has executed this Put Notice as of this __ day of ______, 200_.
CHEQUEMATE INTERNATIONAL, INC.
By:
--------------------------
Name and title:
Exhibit G
PARTIAL RELEASE OF PURCHASE AMOUNT AND SHARES
To:
C-3D Digital, Inc.
00 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to:
Xxxxxxxx Xxxxxxx, Esq.
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
and
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Telecopier No.: 000-000-0000
Pursuant to the terms of the
Investment Agreement, the Investor requests the
release from the Company of __________ shares of the Company's Common Stock by
overnight delivery or DWAC, if available, and the Investor, upon confirmation of
receipt of the Shares by the Escrow Agent shall wire $____________ to the
Company within two (2) Trading Days of said confirmation at which time Escrow
Agent shall wire the funds to the Company and deliver the shares to the Investor
pursuant to the instructions given to the Escrow Agent by the Investor
INVESTOR
By:
------------------------------------
NOTE: The number of Shares stated in this PARTIAL RELEASE OF PUT AMOUNT AND
SHARES Form shall be equal to the dollar amount to be released divided by 93% of
the average of the five (5) lowest closing bid prices of the Common Stock during
that number of Trading Days in the applicable Pricing Period that have expired,
but if less than five (5) Trading Days in the applicable Pricing Period have
expired prior to receipt by the Company of this Partial Release Form, then the
average of the lowest closing bid prices of the Common Stock for all of the
Trading Days in the applicable Pricing Period that have expired shall be used.
SCHEDULE 4(a) SUBSIDIARIES
SCHEDULE 4(c) CAPITALIZATION
SCHEDULE 4(e) CONFLICTS
SCHEDULE 4(g) MATERIAL CHANGES
SCHEDULE 4(h) LITIGATION
SCHEDULE 4(l) INTELLECTUAL PROPERTY
SCHEDULE 4(n) LIENS
SCHEDULE 4(t) CERTAIN TRANSACTIONS
