PROVIDENCE CAPITAL IX, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER
SECURITIES AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND
STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES
HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
THE INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH
IN THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT I.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 29th day of March, 2001, by and between
Providence Capital IX, Inc., a corporation duly organized and existing
under the laws of the State of Colorado (the "Company"), and the
undersigned Investor executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and
the Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's Common Stock, as part of an offering of up
to Ten Million (10,000,000) shares Common Stock by the Company to Investor
(the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if
accepted by the Company, the offer and sale of the Common Stock are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated under the Act, Section 4(2) of the Act, and/or upon such other
exemption from the registration requirements of the Act as may be available
with respect to any or all of the purchases of Common Stock to be made
hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section
2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as EXHIBIT D.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or
the Registration Rights Agreement as of a given date, including Put Shares
and Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the
numeric day in question in a calendar month and for Calendar Months
thereafter, beginning on the earlier of (i) the same numeric day of the
next calendar month or (ii) the last day of the next calendar month. Each
Calendar Month shall end on the day immediately preceding the beginning of
the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as EXHIBIT J.
"Change in Control" shall have the meaning set forth within the
definition of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to
Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C.
Bulletin Board, or, if the O.T.C. Bulletin Board is not the principal
securities exchange or trading market for such security, the last closing
bid price during Normal Trading of such security on the principal
securities exchange or trading market where such security is listed or
traded as reported by such principal securities exchange or trading market,
or if the foregoing do not apply, the last closing bid price during Normal
Trading of such security in the over-the-counter market on the electronic
bulletin board for such security, or, if no closing bid price is reported
for such security, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor
in this offering and any fees and costs associated therewith shall be paid
by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Period" shall have the meaning set forth in Section
2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section
2.4.1, the form of which is attached hereto as EXHIBIT P.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Providence Capital IX, Inc., a corporation duly
organized and existing under the laws of the State of Colorado.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning
set forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning
as set forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market,
the Nasdaq National Market, the American Stock Exchange, or the New York
Stock Exchange or is suspended or delisted with respect to the trading of
the shares of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"DWAC Put Shares" shall mean Put Shares, in electronic form, without
restriction on resale, that are delivered to the Depository Trust Company
DWAC account specified by the Investor for the Put Shares.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the
Advance Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section
9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section
2.3.1 (b).
"Ineffective Period" shall have the meaning given to it in the
Registration Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it
in the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in
Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as
EXHIBIT B, or such other form as agreed upon by the parties, as to the
Investment Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Late Payment Amount" shall have the meaning set forth in Section
2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the
Company immediately preceding such consolidation, merger, combination or
event either (i) no longer hold a majority of the shares of Common Stock of
the Company or (ii) no longer have the ability to elect the board of
directors of the Company (a "Change of Control");
(ii) the sale or transfer of a portion of the Company's assets
not in the ordinary course of business;
(iii) the purchase of assets by the Company not in the ordinary
course of business; or
(iv) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable
Put.
"Material Facts" shall have the meaning set forth in Section 2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a
Put Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York City Time, on any Business Day, and shall expressly
exclude "after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question,
whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of
the Company in this Agreement required to be true for the applicable
Closing are true and correct in all material respects and all of the
conditions and limitations set forth in this Agreement for the applicable
Closing are satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the
Registration Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the
terms of this Agreement, the period beginning on the Business Day
immediately following the Put Date and ending on and including the date
which is 20 Business Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section
2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in
which case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section
2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as EXHIBIT F.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as EXHIBIT G.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as EXHIBIT H, or such other form
as agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section
2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section
2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by
the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.7(a), the form of which is attached hereto as EXHIBIT N.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as EXHIBIT A, or such other form as
agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals
hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.6.
"Right of First Refusal" shall have the meaning set forth in Section
6.5.2.
"Schedule of Exceptions" shall have the meaning set forth in Section
5, and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period
of time beginning on the date of this Agreement and ending on the
Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is
three (3) years or (ii) the date that is thirty (30) Business Days after
the later of (a) the Put Closing Date on which the sum of the aggregate Put
Share Price for all Put Shares equal the Maximum Offering Amount, (b) the
date that the Company has delivered a Termination Notice to the Investor,
(c) the date of an Automatic Termination, and (d) the date that all of the
Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section
3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on
any Business Day, and shall expressly exclude any shares trading during
"after hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as EXHIBIT O, or
such other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or
certificates (or electronically delivered shares, as appropriate) (in
denominations as instructed by Investor) representing the shares of Common
Stock to which the Investor is then entitled to receive, registered in the
name of Investor or its nominee (as instructed by Investor) and not
containing a restrictive legend or stop transfer order, including but not
limited to the Put Shares for the applicable Put and Warrant Shares.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even
date herewith, in the form attached hereto as EXHIBIT O, or such other form
as agreed upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean the Commitment Warrants.
2. PURCHASE AND SALE OF COMMON STOCK.
2.1 OFFER TO SUBSCRIBE.
Subject to the terms and conditions herein and the satisfaction
of the conditions to closing set forth in Sections 2.2 and 2.3 below,
Investor hereby agrees to purchase such amounts of Common Stock as the
Company may, in its sole and absolute discretion, from time to time elect
to issue and sell to Investor according to one or more Puts pursuant to
Section 2.3 below.
2.2 INVESTMENT COMMITMENT.
2.2.1 INVESTMENT COMMITMENT CLOSING. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur
when this Agreement, the Registration Rights Agreement, the Commitment
Warrant and the Warrant Antidilution Agreement have been duly executed by
both Investor and the Company, and the other Conditions to Investment
Commitment Closing set forth in Section 2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTMENT COMMITMENT CLOSING. As a
prerequisite to the Investment Commitment Closing, all of the following
(the "Conditions to Investment Commitment Closing") shall have been
satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by
the Company and Investor), (ii) the Commitment Warrant,
(iii) the Investment Commitment Opinion of Counsel (signed
by the Company's counsel), (iv) the Warrant Antidilution
Agreement (executed by the Company and Investor), and (v) a
Secretary's Certificate as to (A) the resolutions of the
Company's board of directors authorizing this transaction,
(B) the Company's Certificate of Incorporation, and (C) the
Company's Bylaws;
(b) this Investment Agreement, accepted by the Company,
shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading
and actually trading on the O.T.C. Bulletin Board, the
Nasdaq Small Cap Market, the Nasdaq National Market, the
American Stock Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk
Factors set forth in the Disclosure Documents (provided for
in Section 3.2.4), up through the Investment Commitment
Closing there have been no material adverse changes in the
Company's business prospects or financial condition since
the date of the last balance sheet included in the
Disclosure Documents, including but not limited to incurring
material liabilities; and
(e) the representations and warranties of the Company in
this Agreement shall be true and correct in all material
respects and the Conditions to Investment Commitment Closing
set forth in this Section 2.2.2 shall have been satisfied on
the date of such Investment Commitment Closing; and the
Company shall deliver an Officer's Certificate, signed by an
officer of the Company, to such effect to the Investor.
2.3 PUTS OF COMMON SHARES TO THE INVESTOR.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration
Statement is declared effective by the SEC (the "Effective Date"), the
Company may, in its sole and absolute discretion, elect to exercise one or
more Puts according to the following procedure, provided that each
subsequent Put Date after the first Put Date shall be no sooner than five
(5) Business Days following the preceding Pricing Period End Date:
(a) DELIVERY OF ADVANCE PUT NOTICE. At least ten (10)
Business Days but not more than twenty (20) Business Days prior to any
intended Put Date, the Company shall deliver advance written notice (the
"Advance Put Notice," the form of which is attached hereto as EXHIBIT D,
the date of such Advance Put Notice being the "Advance Put Notice Date") to
Investor stating the Put Date for which the Company shall, subject to the
limitations and restrictions contained herein, exercise a Put and stating
the number of shares of Common Stock (subject to the Individual Put Limit
and the Maximum Put Dollar Amount) which the Company intends to sell to the
Investor for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed
$2,000,000, which it shall sell to Investor during the Put (the "Company
Designated Maximum Put Dollar Amount") and/or (ii) a minimum purchase price
per Put Share at which the Investor may purchase shares of Common Stock
pursuant to such Put Notice (a "Company Designated Minimum Put Share
Price"). The Company Designated Minimum Put Share Price, if applicable,
shall be no greater than the lesser of (i) 80% of the Closing Bid Price of
the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date, or (ii) the Closing Bid Price of the Company's
common stock on the Business Day immediately preceding the Advance Put
Notice Date minus $0.15. The Company may decrease (but not increase) the
Company Designated Minimum Put Share Price for a Put at any time by giving
the Investor written notice of such decrease not later than 12:00 Noon, New
York City time, on the Business Day immediately preceding the Business Day
that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding the
Business Day that such decrease takes effect, provided that the Put Share
Price for all shares in a Put shall be calculated using the lowest Company
Designated Minimum Put Share Price, as decreased.
Notwithstanding the above, if, at the time of delivery of an Advance
Put Notice, more than two (2) Calendar Months have passed since the date of
the previous Put Closing, such Advance Put Notice shall provide at least
twenty (20) Business Days notice of the intended Put Date, unless waived in
writing by the Investor. In order to effect delivery of the Advance Put
Notice, the Company shall (i) send the Advance Put Notice by facsimile on
such date so that such notice is received by the Investor by 6:00 p.m., New
York, NY time, and (ii) surrender such notice on such date to a courier for
overnight delivery to the Investor (or two (2) day delivery in the case of
an Investor residing outside of the U.S.). Upon receipt by the Investor of
a facsimile copy of the Advance Put Notice, the Investor shall, within two
(2) Business Days, send, via facsimile, a confirmation of receipt (the
"Advance Put Notice Confirmation," the form of which is attached hereto as
EXHIBIT E) of the Advance Put Notice to the Company specifying that the
Advance Put Notice has been received and affirming the intended Put Date
and the Intended Put Share Amount.
(b) PUT SHARE AMOUNT. The "Put Share Amount" is the
number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the Intended Put
Share Amount, and (ii) the Individual Put Limit. The "Individual Put
Limit" shall equal the lesser of (A) 1,500,000 shares, (B) 15% of the sum
of the aggregate daily reported Trading Volumes in the outstanding Common
Stock on the Company's Principal Market, excluding any block trades of
20,000 or more shares of Common Stock, for all Evaluation Days (as defined
below) in the Pricing Period, (C) the number of Put Shares which, when
multiplied by their respective Put Share Prices, equals the Maximum Put
Dollar Amount, and (D) the 9.9% Limitation, but in no event shall the
Individual Put Limit exceed 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades of 20,000 or more shares of Common
Stock, for the twenty (20) Business Days immediately preceding the Advance
Put Notice Date (this limitation, together with the limitations in (A) and
(B) immediately above are collectively referred to herein as the "Volume
Limitations"). Company agrees not to trade Common Stock or arrange for
Common Stock to be traded for the purpose of artificially increasing the
Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of
(i) the Company Designated Minimum Put Share Price, plus $0.10, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is less
than the Trigger Price and each Business Day defined in Section 2.3.4 as an
"Excluded Day".
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) PUT SHARE PRICE. The purchase price for the Put
Shares (the "Put Share Price") shall equal the lesser of (i) the Market
Price for such Put, minus $0.10, or (ii) 91% of the Market Price for such
Put, but shall in no event be less than the Company Designated Minimum Put
Share Price for such Put, if applicable.
(d) DELIVERY OF PUT NOTICE. After delivery of an
Advance Put Notice, on the Put Date specified in the Advance Put Notice the
Company shall deliver written notice (the "Put Notice," the form of which
is attached hereto as EXHIBIT F) to Investor stating (i) the Put Date, (ii)
the Intended Put Share Amount as specified in the Advance Put Notice (such
exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount
(if applicable), and (iv) the Company Designated Minimum Put Share Price
(if applicable). In order to effect delivery of the Put Notice, the
Company shall (i) send the Put Notice by facsimile on the Put Date so that
such notice is received by the Investor by 6:00 p.m., New York, NY time,
and (ii) surrender such notice on the Put Date to a courier for overnight
delivery to the Investor (or two (2) day delivery in the case of an
Investor residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Put Notice, the Investor shall, within two (2)
Business Days, send, via facsimile, a confirmation of receipt (the "Put
Notice Confirmation," the form of which is attached hereto as EXHIBIT G) of
the Put Notice to Company specifying that the Put Notice has been received
and affirming the Put Date and the Intended Put Share Amount.
(e) DELIVERY OF REQUIRED PUT DOCUMENTS. On or before
the Put Date for such Put, the Company shall deliver the Required Put
Documents (as defined in Section 2.3.6 below) to the Investor (or to an
agent of Investor, if Investor so directs). Unless otherwise specifically
requested by the Investor, the Put Shares shall be transmitted
electronically pursuant to the Depository Trust Company DWAC system or such
other electronic delivery system as the Investor shall request. If the
Company has not delivered all of the Required Put Documents to the Investor
on or before the Put Date, the Put shall be automatically cancelled, (an
"Impermissible Put Cancellation") and the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation
for the cancelled Put and the Company may deliver an Advance Put Notice for
the subsequent Put no sooner than ten (10) Business Days after the date
that such Put was cancelled. Also, in the event of a Put Interruption
Notice that occurs prior to the Put Date, the Company shall pay the
Investor $5,000 for its reasonable due diligence expenses incurred in
preparation for the interrupted Put.
(f) LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE
SHARES. Notwithstanding anything to the contrary in this Agreement, in no
event shall the Investor be required to purchase, and an Intended Put Share
Amount may not include, an amount of Put Shares, which when added to the
number of Put Shares acquired by the Investor pursuant to this Agreement
during the 61 days preceding the Put Date with respect to which this
determination of the permitted Intended Put Share Amount is being made,
would exceed 9.9% of the number of shares of Common Stock outstanding (on a
fully diluted basis, to the extent that inclusion of unissued shares is
mandated by Section 13(d) of the Exchange Act) on the Put Date for such
Pricing Period, as determined in accordance with Section 13(d) of the
Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put
Notice shall include a representation of the Company as to the Section
13(d) Outstanding Share Amount on the related Put Date. In the event that
the Section 13(d) Outstanding Share Amount is different on any date during
a Pricing Period than on the Put Date associated with such Pricing Period,
then the number of shares of Common Stock outstanding on such date during
such Pricing Period shall govern for purposes of determining whether the
Investor, when aggregating all purchases of Shares made pursuant to this
Agreement in the 61 calendar days preceding such date, would have acquired
more than 9.9% of the Section 13(d) Outstanding Share Amount. The
limitation set forth in this Section 2.3.1(f) is referred to as the "9.9%
Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's right to
initiate subsequent Puts to the Investor shall terminate permanently (each,
an "Automatic Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company or any director
or executive officer of the Company has engaged in a transaction or conduct
related to the Company that has resulted in (i) a Securities and Exchange
Commission enforcement action, or (ii) a civil judgment or criminal
conviction for fraud or misrepresentation, or for any other offense that,
if prosecuted criminally, would constitute a felony under applicable law;
(b) on any date after a cumulative time period or
series of time periods, consisting only of Ineffective Periods and
Delisting Events, that lasts for an aggregate of four (4) months;
(c) if at any time the Company has filed for and/or is
subject to any bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors instituted by or against the Company or any
subsidiary of the Company;
(d) after the sooner of (i) the date that is three (3)
years after the Effective Date, or (ii) the Put Closing Date on which the
aggregate of the Put Dollar Amounts for all Puts equal the Maximum Offering
Amount (the "Commitment Period");
(e) the Company has breached any covenant in Section 6
or Section 9 hereof; or
(f) if no Registration Statement has been declared
effective by the date that is one (1) year after the date of this
Agreement, the Automatic Termination shall occur on the date that is one
(1) year after the date of this Agreement.
2.3.3 MAXIMUM OFFERING AMOUNT. The Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put
Dollar Amount paid by Investor equals the Maximum Offering Amount.
2.3.4 PUT INTERRUPTION. Once the Company delivers an
Advance Put Notice to the Investor, the Company may not cancel the Put. In
the event of a "Put Interruption Event" (as defined below) during any
Pricing Period, then (A) the Company shall notify the Investor in writing
(a "Put Interruption Notice") as soon as possible by facsimile and
overnight courier, but no later than the end of the Business Day in which
the Company becomes aware of such facts, (B) the Pricing Period shall be
extended or shortened, as applicable, such that the Pricing Period End Date
is the tenth (10th) Business Day after the date of such Put Interruption
Notice from the Company (the "Put Interruption Date"), (C) each Business
Day from and including the Put Interruption Date through and including the
Pricing Period End Date for the applicable Put (as extended or shortened,
if applicable), shall be considered to be an "Excluded Day," as that term
is used in this Agreement, and (D) the Company Designated Minimum Put Share
Price, if any, shall not apply to the affected Put. In the event that a
Put Interruption Event occurs after an Advance Put Notice Date, but before
the applicable Put Date, that Put shall be deemed to be terminated, and the
Company may deliver an Advance Put Notice for a new Put anytime beginning
on the following Business Day, if otherwise allowed under this Agreement.
A "Put Interruption Event" shall mean any of the following: (i) an
Automatic Termination, (ii) the failure of one of the items specified in
Section 2.3.5 below to be true and correct on any day during and Extended
Pricing Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a subdivision or
combination, including a reverse split, of its Common Stock or has
subdivided or combined its Common Stock;
(b) the Company has paid a dividend of its Common Stock
or has made any other distribution of its Common Stock;
(c) the Company has made a distribution of all or any
portion of its assets or evidences of indebtedness to the holders of its
Common Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of Material
Facts or any Ineffective Period or Delisting Event occurs.
2.3.5 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO
DELIVER AN ADVANCE PUT NOTICE OR A PUT NOTICE. The right of the Company to
deliver an Advance Put Notice or a Put Notice is subject to the
satisfaction, on the date of delivery of such Advance Put Notice or Put
Notice, of each of the following conditions:
(a) the Company's Common Stock shall be listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market or the New York
Stock Exchange and the Put Shares shall be so listed, and to
the Company's knowledge there is no notice of any suspension
or delisting with respect to the trading of the shares of
Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all obligations
pursuant to the Registration Rights Agreement, including,
but not limited to, the filing of the Registration Statement
with the SEC with respect to the resale of all Registrable
Securities and the requirement that the Registration
Statement shall have been declared effective by the SEC for
the resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with any and
all obligations pursuant to this Agreement and the Warrants;
(c) the representations and warranties of the Company in
Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.10, 5.13, 5.14, 5.15,
5.16, 5.18, 5.19, 5.21, and 5.25 hereof are true and correct
in all material respects as if made on such date, the
Company has satisfied its obligations under Section 2.6
hereof and the conditions to Investor's obligations set
forth in this Section 2.3.5 are satisfied as of such
Closing, and the Company shall deliver a certificate, signed
by an officer of the Company, to such effect to the
Investor;
(d) the Company shall have authorized and reserved for
issuance a sufficient number of Common Shares for the
purpose of enabling the Company to satisfy any obligation to
issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration Rights
Agreement, the prospectus included therein is current and
deliverable, and to the Company's knowledge there is no
notice of any investigation or inquiry concerning any stop
order with respect to the Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of
the Put would exceed the Cap Amount, the Company shall have
obtained the Stockholder 20% Approval as specified in
Section 6.11, if the Company's Common Stock is listed on the
NASDAQ Small Cap Market or the NASDAQ National Market System
(the "NMS"), and such approval is required by the rules of
the NASDAQ;
(g) the Company shall have no knowledge of any event that, in
the Company's opinion, is more likely than not to have the
effect of causing any Registration Statement to be suspended
or otherwise ineffective (which event is more likely than
not to occur within the thirty Business Days following the
date on which such Advance Put Notice and Put Notice is
deemed delivered);
(h) there is not then in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not
have been obtained, nor is there any pending or threatened
proceeding or investigation which may have the effect of
prohibiting or adversely affecting any of the transactions
contemplated by this Agreement;
(i) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental
authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement, and no actions,
suits or proceedings shall be in progress, pending or
threatened by any person (other than the Investor or any
affiliate of the Investor), that seek to enjoin or prohibit
the transactions contemplated by this Agreement. For
purposes of this paragraph (i), no proceeding shall be
deemed pending or threatened unless one of the parties has
received written or oral notification thereof prior to the
applicable Closing Date;
(j) the Put Shares delivered to the Investor are DTC eligible
and can be immediately converted into electronic form;
(k) the Company shall have obtained all permits and
qualifications (if any) required by any state securities
laws or Blue Sky laws for the offer and sale of the Common
Stock to the Investor and by the Investor or shall have the
availability of exemptions therefrom; and
(l) the Put Shares shall have been delivered to the Depository
Trust Company DWAC account specified by the Investor for the
Put Shares.
(m) the Transfer Agent Instructions have been duly executed by
both the Company and the Transfer Agent.
2.3.6 DOCUMENTS REQUIRED TO BE DELIVERED ON THE PUT DATE
AS CONDITIONS TO CLOSING OF ANY PUT. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery
to the Investor of each of the following (the "Required Put Documents") on
or before the applicable Put Date:
(a) a number of DWAC Put Shares equal to the Intended
Put Share Amount shall have been delivered to the Depository Trust Company
DWAC account specified by the Investor for the Put Shares (unless the
Investor has requested physical stock certificates, in writing, in which
case the Company shall have delivered to the Investor a number of physical
Unlegended Share Certificates equal to the Intended Put Share Amount, in
denominations of not more than 50,000 shares per certificate);
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, Registration Opinion, and any report or
disclosure required under Section 2.3.7 or Section 2.5; and
(c) all documents, instruments and other writings
required to be delivered on or before the Put Date pursuant to any
provision of this Agreement in order to implement and effect the
transactions contemplated herein.
2.3.7 ACCOUNTANT'S LETTER AND REGISTRATION
OPINION.
(a) The Company shall have caused to be delivered to
the Investor, (i) whenever required by Section 2.3.7(b) or by Section
2.5.3, and (ii) on the date that is three (3) Business Days prior to each
Put Date (the "Registration Opinion Deadline"), an opinion of the Company's
independent counsel, in substantially the form of EXHIBIT N (the
"Registration Opinion"), addressed to the Investor stating, inter alia,
that no facts ("Material Facts") have come to such counsel's attention that
have caused it to believe that the Registration Statement is subject to an
Ineffective Period or to believe that the Registration Statement, any
Supplemental Registration Statement (as each may be amended, if
applicable), and any related prospectuses, contain an untrue statement of
material fact or omits a material fact required to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period,
the Company shall promptly notify the Investor and as promptly as possible
amend each of the Registration Statement and any Supplemental Registration
Statements, as applicable, and any related prospectus or cause such
Ineffective Period to terminate, as the case may be, and deliver such
Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires knowledge
of such Material Facts or any Ineffective Period occurs, the Company shall
promptly notify the Investor and shall deliver a Put Interruption Notice to
the Investor pursuant to Section 2.3.4 by facsimile and overnight courier
by the end of that Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters")
as shall have been reasonably requested by the Investor with respect to
certain financial information contained in the Registration Statement and
shall have delivered to the Investor such a report addressed to the
Investor, on the date that is three (3) Business Days prior to each Put
Date.
(ii) in the event that the Investor shall have
requested delivery of an Agreed Upon Procedures Report pursuant to Section
2.5.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of
the Company and the Company shall deliver to the Investor a copy of such
report addressed to the Investor. In the event that the report required by
this Section 2.3.7(b) cannot be delivered by the Company's independent
auditors, the Company shall, if necessary, promptly revise the Registration
Statement and the Company shall not deliver a Put Notice until such report
is delivered.
2.3.8 INVESTOR'S OBLIGATION AND RIGHT TO PURCHASE SHARES.
Subject to the conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the Investor shall be
required to purchase (each a "Purchase") from the Company a number of Put
Shares equal to the Put Share Amount, in the manner described below.
2.3.9 MECHANICS OF PUT CLOSING. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement at or prior to
each Closing. Subject to such delivery and the satisfaction of the
conditions set forth in this Section 2, the closing of the purchase by the
Investor of Shares shall occur by 5:00 PM, New York City Time, on the date
which is five (5) Business Days following the applicable Pricing Period End
Date (the "Payment Due Date") at the offices of Investor. On each or
before each Payment Due Date, the Investor shall deliver to the Company, in
the manner specified in Section 8 below, the Put Dollar Amount to be paid
for such Put Shares, determined as aforesaid, less any Non-Usage Fees that
are due and unpaid by the Company. The closing (each a "Put Closing") for
each Put shall occur on the date that both (i) the Company has delivered to
the Investor all Required Put Documents, and (ii) the Investor has
delivered to the Company such Put Dollar Amount and any Late Payment
Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount
for such Put Closing on or before the Payment Due Date, then the Investor
shall pay to the Company, in addition to the Put Dollar Amount, an amount
(the "Late Payment Amount") at a rate of X% per month, accruing daily,
multiplied by such Put Dollar Amount, where "X" equals one percent (1%) for
the first month following the date in question, and increases by an
additional one percent (1%) for each month that passes after the date in
question, up to a maximum of five percent (5%) per month; provided,
however, that in no event shall the amount of interest that shall become
due and payable hereunder exceed the maximum amount permissible under
applicable law.
2.3.10 LIMITATION ON SHORT SALES. The Investor and its
affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale
or any short sale or other hedging or similar arrangement it deems
appropriate with respect to Put Shares after it receives a Put Notice with
respect to such Put Shares so long as such sales or arrangements do not
involve more than the number of such Put Shares specified in the Put
Notice.
2.3.11 CAP AMOUNT. If the Company becomes listed on the
Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the
Company has obtained Stockholder 20% Approval as set forth in Section 6.11
or unless otherwise permitted by Nasdaq, in no event shall the Aggregate
Issued Shares exceed the maximum number of shares of Common Stock (the "Cap
Amount") that the Company can, without stockholder approval, so issue
pursuant to NASDAQ RULE 4460(I)(1)(D)(II) (OR ANY OTHER APPLICABLE NASDAQ
RULES or any successor rule) (THE "NASDAQ 20% RULE").
2.3.12 INVESTMENT AGREEMENT TERMINATION. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by
facsimile and overnight courier, at any time other than during an Extended
Put Period, provided that such termination shall have no effect on the
parties' other rights and obligations under this Agreement, the
Registration Rights Agreement or the Warrants. Notwithstanding the above,
any Put Interruption Notice occurring during an Extended Put Period is
governed by Section 2.3.4.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the event that
the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 WARRANTS.
2.4.1 COMMITMENT WARRANTS. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about
February 6, 2001 between the Company and the Investor, the Company issued
and delivered to Investor warrants (the "Commitment Warrants") in the form
attached hereto as EXHIBIT P, or such other form as agreed upon by the
parties, to purchase a number of shares of Common Stock equal to 7% of the
number of fully diluted outstanding shares of Common Stock after accounting
for the Merger. Each Commitment Warrant shall be immediately exercisable
in accordance with its terms, and shall have a term beginning on the date
of issuance and ending on date that is five (5) years thereafter. The
Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover
the issuance of the Commitment Warrant and the issuance of the common stock
upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is
not filed, and regardless of whether or not the Registration Statement is
or is not declared effective by the SEC, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its
commitment hereunder.
Providence Capital IX (Final 3-27-01) Investment Agreement.doc
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2.4.2 [Intentionally Left Blank].
2.5 DUE DILIGENCE REVIEW. The Company shall make available
for inspection and review by the Investor (the "Due Diligence Review"),
advisors to and representatives of the Investor (who may or may not be
affiliated with the Investor and who are reasonably acceptable to the
Company), any underwriter participating in any disposition of Common Stock
on behalf of the Investor pursuant to the Registration Statement, any
Supplemental Registration Statement, or amendments or supplements thereto
or any blue sky, NASD or other filing, all financial and other records, all
filings with the SEC, and all other corporate documents and properties of
the Company as may be reasonably necessary for the purpose of such review,
and cause the Company's officers, directors and employees to supply all
such information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and
other inquiries reasonably made or submitted by any of them), prior to and
from time to time after the filing and effectiveness of the Registration
Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to
the Company and the accuracy of the Registration Statement.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The Company shall
not disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to
accept or refuse to accept such nonpublic information for review. The
Company may, as a condition to disclosing any nonpublic information
hereunder, require the Investor and its advisors and representatives to
enter into a confidentiality agreement (including an agreement with such
advisors and representatives prohibiting them from trading in Common Stock
during such period of time as they are in possession of nonpublic
information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to
any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives
of the Investor and, if any, underwriters, of any event or the existence of
any circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting nonpublic information
(whether or not requested of the Company specifically or generally during
the course of due diligence by and such persons or entities), which, if not
disclosed in the Prospectus included in the Registration Statement, would
cause such Prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to
mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information)
may not obtain nonpublic information in the course of conducting due
diligence in accordance with the terms of this Agreement; provided,
however, that in no event shall the Investor's advisors or representatives
disclose to the Investor the nature of the specific event or circumstances
constituting any nonpublic information discovered by such advisors or
representatives in the course of their due diligence without the written
consent of the Investor prior to disclosure of such information.
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The
Investor's advisors or representatives shall make complete disclosure to
the Investor's counsel of all events or circumstances constituting
nonpublic information discovered by such advisors or representatives in the
course of their due diligence upon which such advisors or representatives
form the opinion that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated
in the Registration Statement or necessary to make the statements contained
therein, in the light of the circumstances in which they were made, not
misleading. Upon receipt of such disclosure, the Investor's counsel shall
consult with the Company's independent counsel in order to address the
concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the
Company's independent counsel to the Investor as to the accuracy of the
Registration Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED
TO BE UNTRUE OR ARE OMITTED. In the event after such consultation 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,
(a) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable,
with copies of the Registration Statement and related Prospectus, as so
amended, or
(b) if the Company disputes the existence of any
such material misstatement or omission, (i) the Company's independent
counsel shall provide the Investor's counsel with a Registration Opinion
and (ii) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's
independent auditors shall provide to the Company a letter ("Agreed Upon
Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the
Company shall provide the Investor with a copy of such letter.
2.6 COMMITMENT PAYMENTS.
On the last Business Day of each six (6) Calendar Month period
following the Effective Date (each such period a "Commitment Evaluation
Period"), if the Company has not sold at least $1,000,000 in aggregate Put
Dollar Amount worth of Put Shares during that Commitment Evaluation Period,
the Company, in consideration of Investor's commitment costs, including,
but not limited to, due diligence expenses, shall pay to the Investor an
amount (the "Non-Usage Fee") equal to the difference of (i) $100,000, minus
(ii) 10% of the aggregate Put Dollar Amount of the Put Shares purchased by
the Investor during that Commitment Evaluation Period. In the event that
the Company delivers a Termination Notice to the Investor or an Automatic
Termination occurs, the Company shall pay to the Investor (the "Termination
Fee") the greater of (i) the Non-Usage Fee for the applicable Commitment
Evaluation Period, or (ii) the difference of (x) $200,000, minus (y) 10% of
the aggregate Put Dollar Amount of the Put Shares purchased by the Investor
during all Puts to date, and the Company shall not be required to pay the
Non-Usage Fee thereafter.
Each Non-Usage Fee or Termination Fee is payable, in cash or Common
Stock (in the manner described below), at the Company's option, within five
(5) business days of the date it accrued. If such payment is made in
restricted and unregistered Common Stock, the Company shall deliver to the
Investor a number of shares of Common Stock equal to 150% of the amount of
the Non-Usage Fee or Termination Fee that is then payable, divided by the
lowest closing price of the Company's Common Stock for the five (5)
Business Days immediately preceding the date of delivery of such shares to
the Investor. The Company shall not be required to deliver any payments to
Investor under this subsection until Investor has paid all Put Dollar
Amounts that are then due.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 ACCREDITED INVESTOR. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has
checked the applicable box set forth in Section 10 of this Agreement.
3.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
3.2.1 ACCESS TO INFORMATION. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the terms and conditions of this
Offering, the Company and its business and prospects, and to obtain any
additional information which Investor or Investor's professional advisor
deems necessary to verify the accuracy and completeness of the information
received.
3.2.2 RELIANCE ON OWN ADVISORS. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal
tax, investment, legal or other advisors and has not relied on the Company
or any of its affiliates, officers, directors, attorneys, accountants or
any affiliates of any thereof and each other person, if any, who controls
any of the foregoing, within the meaning of Section 15 of the Act for any
tax or legal advice (other than reliance on information in the Disclosure
Documents as defined in Section 3.2.4 below and on the Opinion of Counsel).
The foregoing, however, does not limit or modify Investor's right to rely
upon covenants, representations and warranties of the Company in this
Agreement.
3.2.3 CAPABILITY TO EVALUATE. Investor has such knowledge
and experience in financial and business matters so as to enable such
Investor to utilize the information made available to it in connection with
the Offering in order to evaluate the merits and risks of the prospective
investment, which are substantial, including without limitation those set
forth in the Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 DISCLOSURE DOCUMENTS. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review
(i) the Company's quarterly report on Form 10-QSB for the quarters ended
June 30, 2000, and September 30, 2000 (ii) the Capitalization Schedule,
attached as EXHIBIT J, (the "Capitalization Schedule"), and (iii) the
Capitalization Schedule, attached as EXHIBIT J, (the "Capitalization
Schedule").; (b) Investor has read, reviewed, and relied solely on the
documents described in (a) above, the Company's representations and
warranties and other information in this Agreement, including the exhibits,
documents prepared by the Company which have been specifically provided to
Investor in connection with this Offering (the documents described in this
Section 3.2.4 (a) and (b) are collectively referred to as the "Disclosure
Documents"), and an independent investigation made by Investor and
Investor's representatives, if any; (c) Investor has, prior to the date of
this Agreement, been given an opportunity to review material contracts and
documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to
ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company
or any other person, nor any written representation or assurance from the
Company other than those contained in the Disclosure Documents or
incorporated herein or therein. The foregoing, however, does not limit or
modify Investor's right to rely upon covenants, representations and
warranties of the Company in Sections 5 and 6 of this Agreement. Investor
acknowledges and agrees that the Company has no responsibility for, does
not ratify, and is under no responsibility whatsoever to comment upon or
correct any reports, analyses or other comments made about the Company by
any third parties, including, but not limited to, analysts' research
reports or comments (collectively, "Third Party Reports"), and Investor has
not relied upon any Third Party Reports in making the decision to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Investor has
substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor
acknowledges that Investor is able to fend for Investor's self in the
transaction contemplated by this Agreement, that Investor has the ability
to bear the economic risk of Investor's investment pursuant to this
Agreement and that Investor is an "Accredited Investor" by virtue of the
fact that Investor meets the investor qualification standards set forth in
Section 3.1 above. Investor has not been organized for the purpose of
investing in securities of the Company, although such investment is
consistent with Investor's purposes.
3.3 EXEMPT OFFERING UNDER REGULATION D.
3.3.1 NO GENERAL SOLICITATION. The Investment Agreement
was not offered to Investor through, and Investor is not aware of, any form
of general solicitation or general advertising, including, without
limitation, (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, and (ii) any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising.
3.3.2 RESTRICTED SECURITIES. Investor understands that the
Investment Agreement is, the Common Stock issued at each Put Closing will
be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold
without registration under the Act or pursuant to an exemption therefrom.
In this connection, Investor represents that Investor is familiar with Rule
144 under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities
are sold pursuant to an effective Registration Statement or an exemption
from registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor
further agrees not to sell, transfer, assign, or pledge the Securities
(except for any bona fide pledge arrangement to the extent that such pledge
does not require registration under the Act or unless an exemption from
such registration is available and provided further that if such pledge is
realized upon, any transfer to the pledgee shall comply with the
requirements set forth herein), or to otherwise dispose of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such
proposed disposition and such disposition is made in accordance with such
registration statement and in compliance with applicable prospectus
delivery requirements; or
(b) (i) Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition to the
extent relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of the Securities under the Act or state securities laws. It
is agreed that the Company will not require the Investor to provide
opinions of counsel for transactions made pursuant to Rule 144 provided
that Investor and Investor's broker, if necessary, provide the Company with
the necessary representations for counsel to the Company to issue an
opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account
and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any
time in accordance with federal and state securities laws applicable to
such disposition.
3.4 DUE AUTHORIZATION.
3.4.1 AUTHORITY. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this
Agreement and each other document included herein for which a signature is
required in such capacity and on behalf of the subscribing individual,
partnership, trust, estate, corporation or other entity for whom or which
Investor is executing this Agreement. Investor has reached the age of
majority (if an individual) according to the laws of the state in which he
or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and validly
organized, validly existing and in good standing as a limited liability
company under the laws of Georgia with full power and authority to purchase
the Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 PARTNERSHIPS. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above
are true with respect to all partners of Investor (and if any such partner
is itself a partnership, all persons holding an interest in such
partnership, directly or indirectly, including through one or more
partnerships), and the person executing this Agreement has made due inquiry
to determine the truthfulness of the representations and warranties made
hereby.
3.4.4 REPRESENTATIVES. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties
shall be deemed to have been made on behalf of the person or persons for
whom Investor is so purchasing.
4. ACKNOWLEDGMENTS. Investor is aware that:
4.1 RISKS OF INVESTMENT. Investor recognizes that an investment
in the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the
Disclosure Documents, this Agreement and the exhibits hereto do not purport
to contain all the information, which would be contained in a registration
statement under the Act;
4.2 NO GOVERNMENT APPROVAL. No federal or state agency has
passed upon the Securities, recommended or endorsed the Offering, or made
any finding or determination as to the fairness of this transaction;
4.3 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the date
of this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason
of exemptions from the registration requirements of the Act and such laws,
and may not be sold, pledged (except for any limited pledge in connection
with a margin account of Investor to the extent that such pledge does not
require registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is
realized upon, any transfer to the pledgee shall comply with the
requirements set forth herein), assigned or otherwise disposed of in the
absence of an effective registration of the Securities and any component
thereof under the Act or unless an exemption from such registration is
available;
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements
of the Act and applicable state securities laws;
4.5 NO ASSURANCES OF REGISTRATION. There can be no assurance
that any registration statement will become effective at the scheduled
time, or ever, or remain effective when required, and Investor acknowledges
that it may be required to bear the economic risk of Investor's investment
for an indefinite period of time;
4.6 EXEMPT TRANSACTION. Investor understands that the
Securities are being offered and sold in reliance on specific exemptions
from the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
4.7 LEGENDS. The certificates representing the Put Shares shall
not bear a legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the
certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend
removal under the terms of Section 6.8 below, shall bear the following
legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to Investor
(which shall be true at the signing of this Agreement, and as of any such
later date as specified hereunder) and agrees with Investor that, except as
set forth in the "Schedule of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado, USA and has all requisite
corporate power and authority to carry on its business as now conducted and
as proposed to be conducted. The Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure
to so qualify would, in the Company's opinion, have a material adverse
effect on the business or properties of the Company and its subsidiaries
taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or
administrative or legal proceeding (a "Proceeding") by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, or the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., the Nasdaq Stock Market, Inc. or any state securities
commission, or any other governmental entity, which have not been disclosed
in the Disclosure Documents. None of the disclosed Proceedings, if any,
will, in the Company's opinion, have a material adverse effect upon the
Company. The Company has the following subsidiaries:
5.2 CORPORATE CONDITION. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable),
except for changes in the ordinary course of business and normal year-end
adjustments that are not, in the aggregate, materially adverse to the
Company. Except for continuing losses, there have been no material adverse
changes to the Company's business, financial condition, or prospects from
the dates of such Disclosure Documents through the date of the Investment
Commitment Closing. The financial statements as contained in the 10-KSB
and 10-QSB have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted
by Regulation S-X of the Exchange Act, or Generally Accepted Accounting
Principles, as applicable), subject, in the case of unaudited interim
financial statements, to customary year end adjustments and the absence of
certain footnotes, and fairly present the financial condition of the
Company as of the dates of the balance sheets included therein and the
consolidated results of its operations and cash flows for the periods then
ended. Without limiting the foregoing, there are no material liabilities,
contingent or actual, that are not disclosed in the Disclosure Documents
(other than liabilities incurred by the Company in the ordinary course of
its business, consistent with its past practice, after the period covered
by the Disclosure Documents). The Company has paid all material taxes that
are due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the
best of the Company's knowledge, threatened against the Company, except as
disclosed in the Disclosure Documents. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not
omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading
in the light of the circumstances under which they were made. No event or
circumstance exists relating to the Company which, under applicable law,
requires public disclosure but which has not been so publicly announced or
disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder and the authorization, issuance
and delivery of the Common Stock being sold hereunder and the issuance
(and/or the reservation for issuance) of the Warrants and the Warrant
Shares have been taken, and this Agreement and the Registration Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except insofar as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally
or by principles governing the availability of equitable remedies. The
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein, will be validly issued,
fully paid and nonassessable and, based in part upon the representations of
Investor in this Agreement, will be issued in compliance with all
applicable U.S. federal and state securities laws. The Warrant Shares,
when issued in accordance with the terms of the Warrants, shall be duly and
validly issued and outstanding, fully paid and nonassessable, and based in
part on the representations and warranties of Investor, will be issued in
compliance with all applicable U.S. federal and state securities laws. The
Put Shares, the Warrants and the Warrant Shares will be issued free of any
preemptive rights.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Certificate of Incorporation
or Bylaws, each as amended and in effect on and as of the date of the
Agreement, or of any material provision of any material instrument or
material contract to which it is a party or by which it is bound or of any
provision of any federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company, which would, in
the Company's opinion, have a material adverse effect on the Company's
business or prospects, or on the performance of its obligations under this
Agreement or the Registration Rights Agreement. The execution, delivery
and performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation
or be in conflict with or constitute, with or without the passage of time
and giving of notice, either a default under any such provision, instrument
or contract or an event which results in the creation of any lien, charge
or encumbrance upon any assets of the Company, which would, in the
Company's opinion, have a material adverse effect on the Company's business
or prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would, in
the Company's opinion, have a material adverse effect on the Company's
business or prospects.
5.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required by
the Exchange Act since the date the Company first became subject to such
reporting obligations. The Company undertakes to furnish Investor with
copies of such reports as may be reasonably requested by Investor prior to
consummation of this Offering and thereafter, to make such reports
available, for the full term of this Agreement, including any extensions
thereof, and for as long as Investor holds the Securities. The Common
Stock is duly listed or approved for quotation on the O.T.C. Bulletin
Board. The Company is not in violation of the listing requirements of the
O.T.C. Bulletin Board and does not reasonably anticipate that the Common
Stock will be delisted by the O.T.C. Bulletin Board for the foreseeable
future. The Company has filed all reports required under the Exchange Act.
The Company has not furnished to the Investor any material nonpublic
information concerning the Company.
5.7 CAPITALIZATION. The capitalization of the Company as of the
date hereof, subject to exercise of any outstanding warrants and/or
exercise of any outstanding stock options, and after taking into account
the offering of the Securities contemplated by this Agreement and all other
share issuances occurring prior to this Offering, is as set forth in the
Capitalization Schedule as set forth in EXHIBIT J. There are no securities
or instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. Except as disclosed in the
Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the sale of
any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 INTELLECTUAL PROPERTY. Prior to the Put Date for the
Company's first Put, the Company shall provide the Investor with a list of
all patents, trademarks, trademark registrations, trade names and
copyrights of the Company. As of any Put Date, to the best of the
Company's knowledge after due inquiry, the Company shall not be materially
infringing on the intellectual property rights of any third party, nor is
any third party materially infringing on the Company's intellectual
property rights, and there shall be no restrictions in any agreements,
licenses, franchises, or other instruments that preclude the Company from
engaging in its business as presently conducted.
5.9 [Intentionally Left Blank].
5.10 NO RIGHTS OF PARTICIPATION. No person or entity, including,
but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the financing contemplated by this Agreement which
has not been waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges
that Investor may elect to hold the Securities for various periods of time,
as permitted by the terms of this Agreement, the Warrants, and other
agreements contemplated hereby, and the Company further acknowledges that
Investor has made no representations or warranties, either written or oral,
as to how long the Securities will be held by Investor or regarding
Investor's trading history or investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the
SEC, or any other regulatory body and there is no guarantee that this
Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby will ever be approved by the SEC
or any other regulatory body. The Company is relying on its own analysis
and is not relying on any representation by Investor that either this
Investment Agreement, the transaction contemplated hereby or the
Registration Statement contemplated hereby has been or will be approved by
the SEC or other appropriate regulatory body.
5.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The
Company is not obligated to pay any compensation or other fees, costs or
related expenditures in cash or securities to any underwriter, broker,
agent or other representative in connection with this Offering.
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The
Company is currently eligible and agrees to maintain its eligibility to
register the resale of its Common Stock on a registration statement on a
suitable form under the Act.
5.15 NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales of any of the Company's securities
or solicited any offers to buy any security under circumstances that would
prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under Regulation D of the
Act or would require the issuance of any other securities to be integrated
with this Offering under the Rules of the SEC. The Company has not engaged
in any form of general solicitation or advertising in connection with the
offering of the Common Stock or the Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the course
of its actions for, or on behalf of, the Company, used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from corporate funds; violated or is in violation of any provision of the
U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
5.17 [Intentionally Left Blank].
5.18 REPRESENTATIONS CORRECT. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares
of Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent
that the Company has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes
and other governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and 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.
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee or partner.
5.21 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination or
other similar anti-takeover provision under COLORADO law which is or could
become applicable to the Investor as a result of the transactions
contemplated by this Agreement, including, without limitation, the issuance
of the Common Stock, any exercise of the Warrants and ownership of the
Common Shares and Warrant Shares. The Company has not adopted and will not
adopt any "poison pill" provision that will be applicable to Investor as a
result of transactions contemplated by this Agreement.
5.22 [INTENTIONALLY LEFT BLANK].
5.23 MAJOR TRANSACTIONS. As of the date of this Agreement, there
are no other Major Transactions currently pending or contemplated by the
Company.
5.24 FINANCINGS. As of the date of this Agreement, there are no
other financings currently pending or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small
Cap Market or the Nasdaq National Market, or at a special meeting to be
held as soon as practicable thereafter, use its best efforts to obtain
approval of its shareholders to (i) authorize the issuance of the full
number of shares of Common Stock which would be issuable under this
Agreement and eliminate any prohibitions under applicable law or the rules
or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or any of
its securities with respect to the Company's ability to issue shares of
Common Stock in excess of the Cap Amount (such approvals being the "20%
Approval") and (ii) increase the number of authorized shares of Common
Stock of the Company (the "Share Authorization Increase Approval") such
that at least 12,000,000 shares can be reserved for this Offering. In
connection with such shareholder vote, the Company shall use its best
efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20%
Approval and the Share Authorization Increase Approval, the Company agrees
to use its best efforts to reserve 12,000,000 shares of Common Stock for
issuance under this Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The Company
understands and acknowledges that the amounts available under this
Investment Agreement are limited, among other things, based upon the
liquidity of the Company's Common Stock traded on its Principal Market.
5.27 DILUTION. The number of shares of Common Stock issuable as
Put Shares may increase substantially 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 Commitment Period. The Company's executive officers and
directors 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, whenever the Company
elects to initiate a Put, its obligation to issue the Put Shares is binding
upon the Company and enforceable regardless of the dilution such issuance
may have on the ownership interests of other shareholders of the Company.
6. COVENANTS OF THE COMPANY.
6.1 INDEPENDENT AUDITORS. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 CORPORATE EXISTENCE AND TAXES; CHANGE IN CORPORATE ENTITY.
The Company shall, until at least the Termination Date, maintain its
corporate existence in good standing and, once it becomes a "Reporting
Issuer" (defined as a Company which files periodic reports under the
Exchange Act), remain a Reporting Issuer and shall pay all its taxes when
due except for taxes which the Company disputes. The Company shall not, at
any time after the date hereof, enter into any merger, consolidation or
corporate reorganization of the Company with or into, or transfer all or
substantially all of the assets of the Company to, another entity unless
the resulting successor or acquiring entity in such transaction, if not the
Company (the "Surviving Entity"),
(i) has Common Stock listed for trading on Nasdaq or on another national
stock exchange and is a Reporting Issuer, (ii) assumes by written
instrument the Company's obligations with respect to this Investment
Agreement, the Registration Rights Agreement, the Transfer Agent
Instructions, the Warrant Antidilution Agreement, the Warrants and the
other agreements referred to herein, including but not limited to the
obligations to deliver to the Investor shares of Common Stock and/or
securities that Investor is entitled to receive pursuant to this Investment
Agreement and upon exercise of the Warrants and agrees by written
instrument to reissue, in the name of the Surviving Entity, any Warrants
(each in the same terms, including but not limited to the same reset
provisions, as the applicable Warrant originally issued or required to be
issued by the Company) that are outstanding immediately prior to such
transaction, making appropriate proportional adjustments to the number of
shares represented by such Warrants and the exercise prices of such
Warrants to accurately reflect the exchange represented by the transaction.
6.3 REGISTRATION RIGHTS. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and
the Warrant Shares substantially in the form of the Registration Rights
Agreement attached as EXHIBIT A.
6.4 ASSET TRANSFERS. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any subsidiary
except for a cash or cash equivalent consideration and for a proper
business purpose or (ii) transfer, sell, convey or otherwise dispose of any
of its material assets to any Affiliate, as defined below, during the Term
of this Agreement. For purposes hereof, "Affiliate" shall mean any officer
of the Company, director of the Company or owner of twenty percent (20%) or
more of the Common Stock or other securities of the Company.
6.5 CAPITAL RAISING LIMITATIONS AND RIGHTS OF FIRST REFUSAL.
6.5.1 CAPITAL RAISING LIMITATIONS. During the period from
the date of this Agreement until the date that is sixty (60) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or
sell Equity Securities (as defined below), for cash in private capital
raising transactions without obtaining the prior written approval of the
Investor of the Offering (the limitations referred to in this subsection
6.5.1 are collectively referred to as the "Capital Raising Limitations").
For purposes hereof, the following shall be collectively referred to herein
as, the "Equity Securities": (i) Common Stock or any other equity
securities, (ii) any debt or equity securities which are convertible into,
exercisable or exchangeable for, or carry the right to receive additional
shares of Common Stock or other equity securities, or (iii) any securities
of the Company pursuant to an equity line structure or format similar in
nature to this Offering.
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL. For any private
capital raising transactions of Equity Securities which close after the
date hereof and on or prior to the date that is sixty (60) days after the
Termination Date of this Agreement, not including any warrants issued in
conjunction with this Investment Agreement, the Company agrees to deliver
to Investor, at least ten (10) days prior to the closing of such
transaction, written notice describing the proposed transaction, including
the terms and conditions thereof, and providing the Investor and its
affiliates an option (the "Right of First Refusal") during the ten (10) day
period following delivery of such notice to purchase the securities being
offered in such transaction on the same terms as contemplated by such
transaction.
6.5.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND RIGHTS
OF FIRST REFUSAL. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to any transaction
involving issuances of securities by the Company to a company being
acquired by the Company, as payment to such company for such acquisition,
or in connection with the exercise of options by employees or directors of
the Company, or a primary underwritten offering of the Company's Common
Stock. The Capital Raising Limitations and Rights of First Refusal also
shall not apply to (a) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities, under any
Company stock option or restricted stock plan for the benefit of the
Company's employees or directors, or (c) the issuance of debt securities,
with no equity feature, incurred solely for working capital purposes.
6.6 FINANCIAL 00-XXX XXXXXXXXXX, ETC. AND CURRENT REPORTS ON
FORM 8-K. The Company shall deliver to the Investor copies of its annual
reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall
deliver to the Investor current reports on Form 8-K within two (2) days of
filing for the Term of this Agreement.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as EXHIBIT B, or in such form as agreed
upon by the parties, and shall, concurrent with each Put Date, receive an
opinion letter from the Company's legal counsel, in the form attached as
EXHIBIT H or in such form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the
terms of this Agreement, the Legend shall be removed and the Company shall
issue a certificate without such Legend to the holder of any Security upon
which it is stamped, and a certificate for a security shall be originally
issued without the Legend, if (a) the sale of such Security is registered
under the Act, or (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions (the reasonable cost of which shall be borne by the
Investor), to the effect that a public sale or transfer of such Security
may be made without registration under the Act, or (c) such holder provides
the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144. Each Investor agrees to sell all Securities,
including those represented by a certificate(s) from which the Legend has
been removed, or which were originally issued without the Legend, pursuant
to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 LISTING. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE");
and (ii) comply in all material respects with the Company's reporting,
filing and other obligations under the By-Laws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company
will instruct the Transfer Agent of the Common Stock (the "Transfer
Agent"), by delivering instructions in the form of EXHIBIT O hereto, to
issue certificates, registered in the name of each Investor or its nominee,
for the Put Shares and Warrant Shares in such amounts as specified from
time to time by the Company upon any exercise by the Company of a Put
and/or exercise of the Warrants by the holder thereof. Such certificates
shall not bear a Legend unless issuance with a Legend is permitted by the
terms of this Agreement and Legend removal is not permitted by Section 6.8
hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any
way Investor's obligations and agreement set forth in Sections 3.3.2 or
3.3.3 hereof to resell the Securities pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of
applicable securities laws. If (a) an Investor provides the Company with
an opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable transactions, to
the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from registration or (b) an Investor
transfers Securities, pursuant to Rule 144, to a transferee which is an
accredited investor, the Company shall permit the transfer, and, in the
case of Put Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denomination as
specified by such Investor. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to an Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the
provisions of this Section 6.10, that an Investor shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is
listed on NASDAQ, the Company shall obtain approval of its stockholders to
authorize the issuance of the full number of shares of Common Stock which
would be issuable pursuant to this Agreement but for the Cap Amount and
eliminate any prohibitions under applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-
regulatory organization with jurisdiction over the Company or any of its
securities with respect to the Company's ability to issue shares of Common
Stock in excess of the Cap Amount (such approvals being the "Stockholder
20% Approval").
6.12 PRESS RELEASE. Any public announcement relating to this
financing (a "Press Release") shall be submitted to the Investor for review
at least two (2) business days prior to the planned release. The Company
shall not disclose the Investor's name in any press release or other public
announcement without the Investor's prior written approval. The Company
shall obtain the Investor's written approval of the Press Release prior to
issuance by the Company.
6.13 CHANGE IN LAW OR POLICY. In the event of a change in law,
or policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that
notwithstanding any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant as partial consideration
for its commitment hereunder.
6.14. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall immediately notify
the Investor, but in no event later than two (2) business days by facsimile
and by overnight courier, upon the occurrence of any of the following
events in respect of a Registration Statement or related prospectus in
respect of an offering of Registrable Securities: (i) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in
such Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the
case of a Registration Statement, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; (v)
the declaration by the SEC of the effectiveness of a Registration
Statement; and (vi) the Company's reasonable determination that a post-
effective amendment to the Registration Statement would be appropriate, and
the Company shall promptly make available to the Investor any such
supplement or amendment to the related prospectus. The Company shall not
deliver to the Investor any Put Notice during the continuation of any of
the foregoing events.
6.15 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE
SECURITIES. 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
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 and advisors.
6.16. LIQUIDATED DAMAGES. The parties hereto acknowledge and
agree that the sums payable as Non-Usage Fees, Termination Fees and
Ineffective Registration Payments shall each give rise to liquidated
damages and not penalties. The parties further acknowledge that (a) the
amount of loss or damages likely to be incurred by the Investor is
incapable or is difficult to precisely estimate, (b) the amounts specified
bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the
Investor, and (c) the parties are sophisticated business parties and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
6.17. COPIES OF FINANCIAL STATEMENTS, REPORTS AND PROXY
STATEMENTS. Promptly upon the mailing thereof to the shareholders of the
Company generally, the Company shall deliver to the Investor copies of all
financial statements, reports and proxy statements so mailed and any other
document generally distributed to shareholders.
6.18. NOTICE OF CERTAIN LITIGATION. Promptly following the
commencement thereof, the Company shall provide the Investor written notice
and a description in reasonable detail of any litigation or proceeding to
which the Company or any subsidiary of the Company is a party, in which the
amount involved is $250,000 or more and which is not covered by insurance
or in which injunctive or similar relief is sought.
6.19. MERGER TRANSACTION. The Company shall use its best efforts
to consummate a transaction as soon as practicable after the date hereof
whereby a private company ("Private Company") is merged into the Company (a
"Merger"). Prior to and as a condition to any Merger, the Company shall
provide the Investor and obtain the Investor's approval of the following:
(a) a capitalization schedule outlining the fully diluted
capitalization structure of the post-Merger entity,
(b) risk factors pertaining to the post Merger entity,
sufficient for inclusion in the registration statement for
this Offering,
(c) a key employee schedule, outlining the backgrounds and
roles of the key employees of the post-Merger entity, and
(d) an intellectual property schedule outlining the patents,
trademarks, trademark registrations, trade names,
copyrights, know how, technology and other intellectual
owned by the post-Merger business, and a statement from the
other party to the Merger that, to the best such entity's
knowledge after due inquiry, it is not infringing on the
intellectual property rights of any third party, nor is any
third party infringing on the Company's intellectual
property rights, and that no restrictions in any agreements,
licenses, franchises, or other instruments that preclude the
Company from engaging in its business as presently
conducted.
7. MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING;
SEVERABILITY. Investor's and the Company's representations and warranties
shall survive the Investment Date and any Put Closing contemplated by this
Agreement notwithstanding any due diligence investigation made by or on
behalf of the party seeking to rely thereon. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, or is altered by a term
required by the Securities Exchange Commission to be included in the
Registration Statement, this Agreement shall continue in full force and
effect without said provision; provided that if the removal of such
provision materially changes the economic benefit of this Agreement to the
Investor, this Agreement shall terminate.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable by either party.
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles used
in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. The use in this
Agreement of a masculine, feminine or neuter pronoun shall be deemed to
include a reference to the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to
the terms of this Agreement shall be in writing and shall be deemed given
when delivered personally, or by facsimile or upon receipt if by overnight
or two (2) day courier, addressed to the parties at the addresses and/or
facsimile telephone number of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the
other in writing; provided, however, that in order for any notice to be
effective as to the Investor such notice shall be delivered and sent, as
specified herein, to all the addresses and facsimile telephone numbers of
the Investor set forth at the end of this Agreement or such other address
and/or facsimile telephone number as Investor may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and
expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants,
whether oral, written, or otherwise except as specifically set forth herein
or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other
than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
7.8 ACTIONS AT LAW OR EQUITY; JURISDICTION AND VENUE. The
parties acknowledge that any and all actions, whether at law or at equity,
and whether or not said actions are based upon this Agreement between the
parties hereto, shall be filed in any state or federal court sitting in
Atlanta, Georgia. Georgia law shall govern both the proceeding as well as
the interpretation and construction of the Transaction Documents and the
transaction as a whole. In any litigation between the parties hereto, the
prevailing party, as found by the court, shall be entitled to an award of
all attorney's fees and costs of court. Should the court refuse to find a
prevailing party, each party shall bear its own legal fees and costs.
7.9 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of
the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg L.P. The written mutual
consent of the Investor and the Company shall be required to employ any
other reporting entity.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor shall deliver
Put Dollar Amounts (as payment towards any Put Share Price)
by wire transfer, to the Company pursuant to a wire
instruction letter to be provided by the Company, and signed
by the Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby
acknowledges and agrees, subject to the provisions of any
applicable laws providing for the refund of subscription
amounts submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel,
terminate or revoke this Agreement or any other agreements
executed by such Investor and delivered pursuant hereto, and
that this Agreement and such other agreements shall survive
the death or disability of such Investor and shall be
binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal
representatives and assigns. If the Securities subscribed
for are to be owned by more than one person, the obligations
of all such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made
by and be binding upon each such person and his heirs,
executors, administrators, successors, legal representatives
and assigns.
9. INDEMNIFICATION AND REIMBURSEMENT.
(a) INDEMNIFICATION. In consideration of the Investor's
execution and delivery of the Investment Agreement, the Registration Rights
Agreement and the Warrants (the "Transaction Documents") and acquiring the
Securities thereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless Investor and all of its stockholders,
officers, directors, employees and direct or indirect investors and any of
the foregoing person's agents, members, partners or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or documents contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (c) any cause of
action, suit or claim, derivative or otherwise, by any stockholder of the
Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against
any of the Indemnitees based on a violation of Section 5 of the Securities
Act caused by the integration of the private sale of common stock to the
Investor and the public offering pursuant to the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which it would be required to make if such foregoing
undertaking was enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 9,
deliver to the Indemnitor a written notice of the commencement thereof and
the Indemnitor shall have the right to participate in and to assume the
defense thereof with counsel reasonably selected by the Indemnitor,
provided, however, that an Indemnified Party shall have the right to retain
its own counsel, with the reasonably incurred fees and expenses of such
counsel to be paid by the Indemnitor, if representation of such Indemnified
Party by the counsel retained by the Indemnitor would be inappropriate due
to actual or potential conflicts of interest between such Indemnified Party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the Indemnitor within a reasonable
time of the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve the Indemnitor of
any liability to the Indemnified Party under this Section 9, but the
omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under
this Section 9 to the extent it is prejudicial.
(b) REIMBURSEMENT. If (i) the Investor, other than by reason
of its gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by any
stockholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents,
or if the Investor is impleaded in any such action, proceeding or
investigation by any person or entity, or (ii) the Investor, other than by
reason of its gross negligence or willful misconduct, 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 the Investor is impleaded in any such action, proceeding
or investigation by any person or entity, then in any such case, the
Company will reimburse the 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 the Investor is a
named party, the Company will pay the Investor the charges, as reasonably
determined by the Investor, for the time of any officers or employees of
the Investor devoted to appearing and preparing to appear as witnesses,
assisting in preparation for hearing, 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 paragraph 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 the Investor who are actually
named in such action, proceeding or investigation, and partners, directors,
agents, employees and controlling persons (if any), as the case may be, of
the Investor and any such Affiliate, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives
of the Company, the Investor and any such Affiliate and any such person or
entity. The Company also agrees that neither the Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any person asserting claims on
behalf of or in right of the Company in connection with or as a result of
the consummation of the Transaction Documents except to the extent that any
losses, claims, damages, liabilities or expenses incurred by the Company
result from the gross negligence or willful misconduct of the Investor or
any inaccuracy in any representation or warranty of the Investor contained
herein or any breach by the Investor of any of the provisions hereof.
[INTENTIONALLY LEFT BLANK]
10. ACCREDITED INVESTOR. Investor is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of
the Internal Revenue Code, or a corporation, limited
duration company, limited liability company, business trust,
or partnership not formed for the specific purpose of
acquiring the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of the prospective
investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a
director, executive officer or general partner of a general
partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income
level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could check
one (1) of the last three (3) boxes under subparagraph (c)
above.
(e) [ ] other [specify]
__________________________________________________________.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby
shall not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Investor by the following signature(s) executed this
Agreement.
Dated this 29th day of March, 2001.
XXXXXX PRIVATE EQUITY, LLC
By: ____________________________________
Xxxx X. Xxxxxx, Manager
SECURITY DELIVERY INSTRUCTIONS:
Xxxxxx Private Equity, LLC
c/o Xxxx X. Xxxxxx
000 Xxxxxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM
OFFERING AMOUNT ON THE 29TH DAY OF MARCH, 2001.
PROVIDENCE CAPITAL IX, INC.
By:_____________________________________
Xxxxxxx Xxxxxx, Jr., President
Address: 0000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT F
ADVANCE PUT NOTICE
PROVIDENCE CAPITAL IX, INC. (the "Company") hereby intends, subject to the
Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to _____________________________, the Investor, as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and
Xxxxxx Private Equity, LLC dated on or about March 29, 2001.
Date of Advance Put Notice: ___________________
Intended Put Date: ____________________________
Intended Put Share Amount: ____________________
Company Designation Maximum Put Dollar Amount
(Optional):____________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
PROVIDENCE CAPITAL IX, INC.
By:
Xxxxxxx Xxxxxx, Jr., President
Address: 0000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
PROVIDENCE CAPITAL IX, INC.'s (the "Company") Advance Put Notice on the
Advance Put Date written below, and its intention to elect to exercise a
Put to sell shares of common stock ("Intended Put Share Amount") of the
Company to the Investor, as of the intended Put Date written below, all
pursuant to that certain Investment Agreement (the "Investment Agreement")
by and between the Company and Xxxxxx Private Equity, LLC dated on or about
March 29, 2001.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: __________________________________
PUT NOTICE
PROVIDENCE CAPITAL IX, INC. (the "Company") hereby elects to exercise a Put
to sell shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and
between the Company and Xxxxxx Private Equity, LLC dated on or about March
29, 2001.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
PROVIDENCE CAPITAL IX, INC.
By:
Xxxxxxx Xxxxxx, Jr., President
Address: 0000 Xxxxx Xxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Providence Capital IX, Inc. (the "Company") Put Notice and election to
exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all
pursuant to that certain Investment Agreement (the "Investment Agreement")
by and between the Company and Xxxxxx Private Equity, LLC dated on or about
March 29, 2001.
Date of Confirmation: ____________________
Date of Put Notice: _______________
Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount
(Optional):
________________________________________.
Company Designation Minimum Put Share Price
(Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
