Exhibit 4.4
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT
BETWEEN
DETOUR MAGAZINE, INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT dated as of
December 28, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Detour Magazine, Inc., a
corporation organized and existing under the laws of the State of Colorado (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate (i) $340,000 principal amount
of Convertible Debentures (as defined below) and (ii) Warrants (as defined
below) to purchase shares of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
of 1933, as amended (the "Securities Act") and/or Regulation D ("Regulation D")
and/or Regulation S and the other rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in securities to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Applicable State Securities Laws" shall mean the
securities laws of the State of Colorado and the State of California.
Section 1.2. "Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of earnings and assets of
the Company.
Section 1.3. "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4. "Closing" shall mean the closing of the purchase and sale
of the Convertible Debentures pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions
to the Closing have been satisfied (as defined in Section 2.1 (b) hereto) and
the Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock,
$0.01 par value per share.
Section 1.7. "Conversion Price" on any given date shall mean the lesser
of: (i) $0.27 per share or (ii) 75% of the average of the three (3) lowest
closing bid prices out of the twenty-two (22) Trading Days immediately preceding
the date in question on the Principal Market, or, only if the stock is not
listed on the Principal Market, at each Investor's option, on the pink sheets or
any other trading market (as reported by Bloomberg L.P.) of the Common Stock on
the Trading Day immediately prior to the date for which the Market Price is to
be determined.
Section 1.8. "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Debenture.
Section 1.9. "Convertible Debenture(s)" shall mean the $340,000
principal amount of 6% Convertible Debentures due December 31, 2001, in the form
of Exhibit A hereto.
Section 1.10. "Damages" shall mean any loss, claim, damage, judgment,
penalty, deficiency, liability, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements and reasonable costs
and expenses of expert witnesses and investigation).
Section 1.11. "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.12. "Escrow Agent" shall have the meaning set forth in the
Escrow Agreement.
Section 1.13. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit C hereto executed and delivered
contemporaneously with this Agreement.
Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.16. "Market Price" on any given date shall mean $0.27 per
share.
Section 1.17. "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, stock price or financial condition
of the Company that is material and adverse to the Company and its subsidiaries,
taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration
Rights Agreement, the Convertible Debentures, the Warrants or the Escrow
Agreement in any material respect.
Section 1.18. "Outstanding" when used with reference to shares of
Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any
date as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.20. "Principal Market" shall mean the American Stock
Exchange, the New York Stock Exchange, the NASDAQ National Market, the NASDAQ
Small-Cap Market or the OTC Bulletin Board, whichever is at the time the
principal trading exchange or market for the Common Stock, based upon share
volume.
Section 1.21. "Purchase Price" shall mean the aggregate principal
amount of the Convertible Debentures.
Section 1.22. "Registrable Securities" shall mean the Conversion Shares
and the Warrant Shares until (i)the Registration Statement has been declared
effective by the SEC, and such Conversion Shares and Warrants have been disposed
of pursuant to the Registration Statement, (ii) such Conversion Shares and
Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) such Conversion Shares have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, such Conversion
Shares and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
Section 1.23. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors as of
the Closing Date in the form annexed hereto as Exhibit B.
Section 1.24. "Registration Statement" shall mean a registration
statement on Form SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale by the
Investors of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement, the Registration Rights
Agreement and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.
Section 1.25. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.26. "Regulation S" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "SEC" shall mean the Securities and Exchange Commission.
Section 1.28. "SEC Documents" means the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, and each report, proxy statement or
registration statement tiled by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Section 4(2)" and "Section 4(6)" shall have the meanings
set forth in the recitals of this Agreement.
Section 1.30. "Securities" shall mean the Convertible Debentures, the
Conversion Shares, the Warrants and the Warrant Shares.
Section 1.31. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32. "Shares" shall have the meaning set forth in Section
1.16.
Section 1.33. "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.34. "Warrants" shall mean the Warrants substantially in the
form of Exhibit B to be issued to the Lenders hereunder.
Section 1.35. "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. Investment.
(i) Upon the terms and subject to the conditions set forth
herein, the Company agrees to sell, and the Investors, severally and
not jointly, agree to purchase Convertible Debentures together with the
Warrants at the Purchase Price on the Closing Date. Upon execution and
delivery of this Agreement, the Investors shall purchase, in the
aggregate, the principal amount of $340,000 of Convertible Debentures.
Each Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages hereto, and the
Company shall deliver the Convertible Debenture certificates and the
Warrants to the Escrow Agent, in each case to be held by the Escrow
Agent pursuant to the Escrow Agreement. Upon satisfaction of the
conditions set forth in Section 2.1(b), the Closing shall occur at the
offices of the Escrow Agent at which the Escrow Agent (x) shall release
the Convertible Debentures and the Warrants to the Investors and (y)
shall release the Purchase Price (after all fees have been paid as set
forth in the Escrow Agreement), pursuant to the terms of the Escrow
Agreement.
(a) The Closing is subject to the satisfaction or waiver by the party
to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the Convertible
Debentures and the Warrants purchased at the Closing, as more fully set
forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the Closing Date
(as a condition to the Company's obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the Closing Date
(as a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Convertible Debentures and the Warrants, or shall have the availability
of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and
the Warrants hereunder, and the proposed issuance by the Company to the
Investors of the Common Stock underlying the Convertible Debentures and
the Warrants upon the conversion or exercise thereof shall be legally
permitted by all laws and regulations to which the Investors and the
Company are subject and there shall be no ruling, judgment or writ of
any court prohibiting the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Debenture certificates and the Warrants to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Xxxxxx X.
Xxxxxx, P.C., counsels to the Company, in the form of Exhibit D hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached hereto as Exhibit
E; and delivery to the Escrow Agent of the Registration Rights
Agreement.
Section 2.2. The Warrants. For the $340,000 principal amount of
Convertible Debentures purchased by the Investors, in the aggregate, pursuant to
this Agreement, the Company shall issue, at the Closing, two hundred fifty
thousand (1,259,260) Warrants to the Investors, pro rata among all the Investors
in proportion to their respective initial purchases of the Convertible
Debentures pursuant to this Agreement. The Warrants issued to each Investor
shall have an exercise price of 110% of the closing bid price on the Trading Day
immediately preceding the Closing Date. The Warrants shall have a term of five
(5) years.
Section 2.3. Liquidated Damages. The parties hereto acknowledge and
agree that the sum payable pursuant to the Registration Rights Agreement for
late registration and the sum payable pursuant to the Convertible Debentures for
late delivery of Common Stock certificates shall constitute liquidated damages
and not penalties. The parties further acknowledge that (a) the amount of loss
or damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amount specified in such provisions bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investors in connection with the failure of the
Company to timely cause the registration of the Registrable Securities or to
deliver stock certificates upon any conversion, 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to
the Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for
its own account and not with a view to or for sale in connection with any
distribution of the Securities. The Investor has no present arrangement (whether
or not legally binding) at any time to sell the Convertible Debenture, the
Warrants or any Conversion Shares or Warrant Shares to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold such securities for any minimum or other
specific term and reserves the right to dispose of the Conversion Shares and
Warrant Shares at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a non-United
States Person (as defined in Regulation S, and is not acquiring the Securities
for the account of a U. S. Person) and a sophisticated investor (as described in
Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in
Rule 501 of Regulation D), and Investor has such knowledge and experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Convertible Debenture, the Warrants and
the underlying Common Stock. The Investor has been represented by counsel of its
choice. The Investor acknowledges that an
investment in the Convertible Debenture, the Warrants and the underlying Common
Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as
an Exhibit hereto which is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid and
binding agreement of the Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and executed
by the Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has had
the opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Securities and has received all reports,
documents, records, books and other publicly available information required to
be filed by the Company pursuant to the Exchange Act and pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor. The Investor has had the opportunity to obtain any additional in.
formation which the Company possesses or can acquire without unreasonable effort
or expense that is necessary to verify the accuracy of information furnished in
accordance with this Section 3.6.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising and the
investor was outside the United States both at the time it received the offer to
sell the Securities and at the time the Investor purchased the Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as
set forth on the SEC Documents or on the Disclosure Schedule prepared by the
Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Colorado and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate
power and corporate authority to conduct its business as now conducted, to enter
into and perform its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants and to issue the Convertible
Debentures and the Conversion Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Convertible Debentures, the Convertible Debentures and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Warrants and the Convertible Debentures have been duly
executed and delivered by the Company and at the Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the conversion of the Convertible Debentures. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Convertible Debentures and
Warrant shares upon exercise of the Warrants in accordance with this Agreement
and the Convertible Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not
seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the conversion of the
Convertible Debentures and the exercise of the Warrants. The Company agrees,
without cost or expense to the Investors, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. As of the date of this Agreement, the
authorized capital stock of the Company consists of 25,000,000 shares of Common
Stock, $0.001 par value per share, of which 23,914,765 shares are issued and
outstanding and 10,000,000 shares of preferred stock par value $0.01, of which
none are issued and outstanding. Other than options and warrants to purchase
[________] shares of Common Stock, and except as set forth on Schedule 4.3 of
the Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor
any agreements or understandings pursuant to which any Capital Shares
Equivalents may become outstanding. Except as set forth on Schedule 4.3 of the
Disclosure Schedule, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable and have been issued pursuant to valid exemptions from
registration under the Securities Act and all applicable state "blue sky" laws.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, a
Principal Market. As of the date hereof, the Principal Market is the OTC
Bulletin Board and the Company has not received any pending notice regarding,
and to its knowledge there is no threat, of the termination or discontinuance of
the eligibility of the Common Stock for such listing that would have a material
adverse effect on the Company.
Section 4.5. SEC Documents. The Company has made available to the
Investors true and complete copies of the SEC Documents. The Company has not
provided to the Investors any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act, and rules and regulations of the SEC promulgated thereunder
and the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). As of the date hereof,
neither the Company nor any of its subsidiaries has any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the financial
statements or in the notes thereto in accordance with GAAP, which was not fully
reflected in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the last date of such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to
the accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures and the Conversion Shares, the Warrants and Warrant
Shares will not require registration under the Securities Act and/or California
Law. When issued and paid for in accordance with the Warrants and validly
converted in accordance with the terms of the Convertible Debentures, the
Conversion Shares and Warrant Shares will be duly and validly issued, fully
paid, and nonassessable. Neither the sales of the Convertible Debentures, the
Conversion Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debentures or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Convertible Debentures or
the Conversion Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
ownership of Convertible Debentures, the Conversion Shares, the Warrants and the
Warrant Shares, shall not subject the Investors to personal liability to the
Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf(i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Debentures, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Convertible Debentures or the Conversion Shares, the
Warrants or the Warrant Shares, under the Securities Act.
Section 4.8. No Conflicts. Except as set forth on Schedule 4.8, the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, including
without limitation the issuance of and payment of interest upon the Convertible
Debentures, the Conversion Shares, the Warrants or the Warrant Shares, do not
and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (but not including any
federal and state securities laws other than the Applicable State Securities
Laws) applicable to the Company or by which any material property or asset of
the Company is bound or affected, nor is the Company otherwise in violation of,
conflict with or default under any of the foregoing (except in each case for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not have, individually or in the aggregate, a Material
Adverse Effect). The business of the Company
is not being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Convertible Debentures or
the Warrants in accordance with the terms hereof (other than any SEC or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be tiled pursuant hereto); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Except as disclosed in the SEC
Documents, since September 30, 2000, no Material Adverse Effect has occurred or
exists with respect to the Company. No material supplier has given notice, oral
or written, that it intends to cease or reduce the volume of its business with
the Company from historical levels.
Section 4.10. No Undisclosed Events or Circumstances. Since September
30, 2000 to the date hereof, no event or circumstance has occurred or exists
with respect to the Company or its business, properties, prospects, operations
or financial condition, that, under any applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in writing to
the Investors.
Section 4.11. No Integrated Offering. Other than pursuant to an
effective registration statement under the Securities Act, or pursuant to the
issuance or exercise of employee stock options, or pursuant to its discussion
with the Investors in connection with the transactions contemplated hereby, the
Company has not issued, offered or sold the Convertible Debentures or any shares
of Common Stock (including for this purpose any securities of the same or a
similar class as the Convertible Debentures or Common Stock, or any securities
convertible into a exchangeable or exercisable for the Convertible Debentures or
Common Stock, the Warrants or any such other securities)within the six-month
period next preceding the date hereof, and the Company shall not permit any of
its directors, officers or affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any Person of the
Convertible Debentures or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Investors of the Convertible Debentures (and the
Conversion Shares, the Warrants or the Warrant Shares) as contemplated by this
Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary, nor
has the Company received any written or oral notice of any such action, suit,
proceeding or investigation, which could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and,
to the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Convertible Debentures or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not
disclosed to the Investors any material non-public information that (i) if
disclosed, would reasonably be expected to have a material effect on the price
of the Common Stock or (ii) according to applicable law, rule or regulation,
should have been disclosed publicly by the Company prior to the date hereof but
which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.16. Tax Matters.
(a) Except as set forth on Schedule 4.15 of the Disclosure Schedule and
except when the failure to do so has not resulted and will not result in a
Material Adverse Effect, the Company and each subsidiary have filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate and have been prepared in compliance with all applicable
laws; the Company has paid all Taxes due and owing by it or any subsidiary
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authorities all Taxes which it
is required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since December 31, 1999, the charges,
accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not tile tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction that has resulted or could
result in a Material Adverse Effect. There are no foreign, federal, state or
local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company or any subsidiary; no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company or any
subsidiary from any foreign, federal, state or local taxing authority. There are
no material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing agreement
pursuant to ss.
7121 of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(l)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. 6 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other taxes of
any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. As of the date hereof, except as set forth in
the Schedule 4.16 of the Disclosure Schedule, neither the Company nor any of its
subsidiaries owns any real property. Each of the Company and its subsidiaries
has good and marketable title to all personal property owned by it, free and
clear of all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company; and to the
Company's knowledge any real property and buildings held under lease by the
Company as tenant are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and intended to be made of such property and buildings by the Company. The
Company's present facilities are adequate for the Company's reasonably
foreseeable needs.
Section 4.18. Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents, neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents and that
has resulted or could result in a Material Adverse Effect, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim that has resulted or
could result in a Material Adverse Effect.
Section 4.19. Internal Controls and Procedures. Except in regard to
transactions or events on which the failure to maintain books, records or
internal accounting controls, has not resulted and will not result in a Material
Adverse Effect, the Company maintains books and records and internal accounting
controls which provide reasonable assurance that (i) all transactions to which
the Company or any subsidiary is a party or by which its properties are bound
are executed with management's authorization; (ii) the recorded accounting of
the Company's consolidated assets is compared with existing assets at regular
intervals; (iii) access to the Company's consolidated assets is permitted only
in accordance with management's authorization; and (iv) all transactions to
which the Company or any subsidiary is a party or by which its properties are
bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with U. S. generally accepted accounting
principles.
Section 4.20. Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters; in each
case that has resulted or could result in a Material Adverse Effect.
Section 4.21. Permits and Licenses. The Company holds all necessary
permits and licenses to conduct its business as presently conducted. All of such
permits and licenses are in full force and effect and the Company is not in
material violation of any thereof.
Section 4.22. No Misrepresentation. The representations and warranties
of the Company contained in this Agreement, any schedule, annex or exhibit
hereto and any agreement, instrument or certificate furnished by the Company to
the Investors pursuant to this Agreement, do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities
with respect to shares of the Company's Common Stock will be in compliance with
all applicable state and federal securities laws, rules and regulations and
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, 200% of the shares of Common
Stock required for the purpose of enabling the Company to issue the Conversion
Shares and the Warrant Shares pursuant to any conversion of the Convertible
Debentures or exercise of the Warrants (the "Trigger Amount"). The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
pursuant to any conversion of the Convertible Debentures or exercise of the
Warrants and the number of shares so reserved shall be increased or decreased to
reflect potential increases or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.
In the event that the number of shares of Common Stock so reserved is less than
the Trigger Number, than the Company shall have 90 days from such date to
increase the number of shares reserved above the Trigger Amount. The Company
shall, subject to shareholder approval, amend its articles of incorporation
within 45 days of the Closing Date to increase the authorized number of shares
of common stock of the Company to be no less than 50,000,000 shares.
Section 6.3. Listing of Common Stock. Until the earliest to occur of:
(i) the date of the liquidation or dissolution of the Company or the effective
date of a merger where the Company is not the surviving company; (ii) the date
the Investors no longer hold any Securities; or (iv) the third (3rd) anniversary
of the date hereof, the Company hereby agrees to use all commercially reasonable
means to maintain the listing of the Common Stock on a Principal Market, and as
soon as reasonably practicable following the Closing, to take all commercially
reasonable action to cause the Conversion Shares and the Warrants Shares to be
listed on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and the Warrants to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its
Common Stock on a Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market and shall provide Investors with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until the Investors have disposed of all of their Registrable
Securities.
Section 6.4. Exchange Act Registration. Until the earliest to occur of:
(i) the date of the liquidation or dissolution of the Company or the effective
date of a merger where the Company is not the surviving company; (ii) the date
the Investors no longer hold any Securities; or (iii) the third (3rd)
anniversary of the date hereof, the Company will cause its Common Stock to
continue to be registered under Section 12(b) or (g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or tile any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act until the Investors have disposed of all of their
Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Securities shall
be free of legends, except as set forth in Article IX. If the Transfer Agent
requires an opinion of counsel from the Company's counsel pursuant to the
Instructions to Transfer Agent attached hereto to issue new certificates free of
a legend to an Investor and Company's counsel fails to deliver such opinion
within five (5) days from such a request, then the Company will pay such
Investor (pro rated on a daily basis), as liquidated damages for such failure
and not as a penalty, ten percent (10%) of the market value of Common Stock
which would be issuable upon conversion of such Investor's Convertible Debenture
upon on any date of determination for each week until such opinion is provided,
notwithstanding the fact that the Company has instructed the Transfer Agent to
accept such an opinion from such Investor's counsel.
Section 6.6. Corporate Existence; Conflicting Agreements. Until the
earlier of (i) the date the Investors no longer hold any of the Convertible
Debentures or (ii) the effective date of a merger where the Company is not the
surviving company the Company will take all steps necessary to preserve and
continue the corporate existence of the Company. The Company shall not enter
into any agreement, the terms of which agreement would restrict or impair the
right or ability of the Company to perform any of its obligations under this
Agreement or any of the other agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investors such shares of stock
and/or securities as the Investors are entitled to receive pursuant to this
Agreement and the Convertible Debentures for so long as there are Convertible
Debentures outstanding.
Section 6.8. Issuance of Convertible Debentures and Warrant Shares. The
sale of the Convertible Debentures and the Warrants and the issuance of the
Warrant Shares pursuant to exercise of the Warrants and issuance of the
Conversion Shares upon conversion of the
Convertible Debentures shall be made in accordance with the provisions and
requirements of Section 4(2), 4(6) or Regulation D and any Applicable State
Securities Laws. The Company shall make any necessary SEC and "blue sky" filings
as may be required to be made by the Company in connection with the sale of the
Securities to the Investors as required by all applicable laws, and shall
provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. For so long as the
Convertible Debentures remain outstanding, the Company agrees that it will not
enter into any sale of its Capital Shares for cash at a discount to Conversion
Price or a variable rate transaction (a "Subsequent Placement") until one
hundred eighty (180) days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, (ii) pursuant
to any compensatory plan for a full-time employee, director, officer or key
consultant, or (iii) except for any: (a) sales pursuant to any options and
warrants issued by the Company and outstanding as of the date hereof, (b)
issuances for compensatory purposes for a full time employee or key consultant,
(c) currently anticipated capital raising transactions, including a $15 million
financing of equity securities with an investor approved by the Purchasers,
whereby the Company sells shares of its Common Stock at a per share selling
price greater than the Conversion Price per share (and without any reset
provisions), or (d) with the prior approval of a majority in interest of the
Investors in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise money. In the
event the Company enters into a sale of its securities at a discount to Market
Price or a variable rate transaction pursuant to this Section 6.9, (A) the
Company shall deliver to the Investors a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the persons and/or entities with whom such Subsequent Placement
shall be effected, and attached to which shall be a term sheet or similar
document relating thereto and (B) the Investors shall not have notified the
Company by 6: 30 p. m. (New York City time) on the third (3rd) Trading Day after
their receipt of the Subsequent Placement Notice of their willingness to provide
(or to cause their sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on conversion, reset and
pricing terms (including original issue discount, if any) and substantially on
such other terms as set forth in the Subsequent Placement Notice. If the
Investors shall fail to notify the Company of their intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the persons and/or entities (or
Affiliates of such persons and/or entities) set forth in the Subsequent
Placement Notice and the Investors shall not have any further rights with regard
to the sale, conversion or exercise of the Company's securities pursuant to the
Subsequent Placement; provided, however, that the Company shall provide the
Investors with a second Subsequent Placement Notice, and the Investors shall
again have the right of first refusal set forth above in this Section, if the
Subsequent Placement subject to the initial subsequent Placement Notice shall
not have been consummated for any reason on conversion, reset and pricing terms
(including original issue discount, if any) and substantially on such other
terms set forth in such Subsequent Placement Notice within sixty (60) Trading
Days after the date of the initial Subsequent Placement Notice with the persons
and/or entities (or an Affiliate of such persons and/or entities) identified in
the Subsequent Placement Notice. In
addition, each Investor may elect to exchange its Convertible Debentures for the
securities to be issued in the Subsequent Placement, valued at the Purchase
Price originally paid by the Investor for the Convertible Debentures plus the
interest accrued thereon, on the same terms as the other investors in such
Subsequent Placement. The Investor shall notify the Company by 6:30 p.m. (New
York City time) on the third (3rd) Trading Day after their receipt of the
Subsequent Placement Notice of their exercise of exchange, subject to completion
of mutually acceptable documentation, financing to the Company on conversion,
reset and pricing terms (including original issue discount, if any) and
substantially on such other terms as set forth in the Subsequent Placement
Notice.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall redeem
any of the Convertible Debenture, that it shall offer such redemption pro-rata
among all Investors in proportion their respective initial purchases of such
securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants
made by each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement and certificate
entered into and delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date, unless such party had actual knowledge of such breach or violation prior
to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and
hold harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation or breach of any of the Company's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its material covenants, agreements, undertakings or
obligations set forth in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them or their respective Affiliates, by any stockholder of the Company
who is not an Affiliate of an Investor, with respect to any of the
transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement. or any failure by the Investor to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor pursuant to
this Agreement
Section 7.3. Prompt Notice. after receipt by either party hereto
seeking indemnification pursuant to Section 7.2 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party from whom indemnification
pursuant to Section 7.2 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually prejudiced
by such omission or delay. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should
have a claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Indemnifying Party. If the Indemnified Party disputes the
claim, such dispute shall be resolved by mutual agreement of the Indemnified
Party and the Indemnifying Party or by binding arbitration conducted in
accordance with the procedures and rules of the American Arbitration Association
as set forth in Article X. Judgment upon any award rendered by any arbitrators
may be entered in any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other proposed filings with the SEC, and all other
publicly available 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 publicly available
information reasonably requested by the Investors 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 Investors 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.
Section 8.2. Non-Disclosure of Non-Public Information.
The Company shall not disclose material non-public information to the Investors,
advisors to or representatives of the Investors unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. Other than disclosure of any comment letters received from the SEC staff
with respect to the Registration Statement, the Company may, as a condition to
disclosing any non-public information hereunder, require the Investors' advisors
and representatives to enter into a confidentiality agreement in form and
content reasonably satisfactory to the Company and the Investors.
(a) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
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, promptly notify the advisors and representatives of the
Investors 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 material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing the Securities will bear the following legend or equivalent (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION,
INCLUDING AS PROVIDED BY REGULATION S.
Section 9.2. Transfer Agent Instructions. Upon the execution and
delivery hereof, the Company is issuing to the transfer agent for its Common
Stock (and to any substitute or replacement transfer agent for its Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent) instructions substantially in the form of Exhibit E hereto. Such
instructions shall be irrevocable by the Company from and after the date hereof
or
from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders, " "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in the Instructions to Transfer Agent attached
hereto as Exhibit E.
Section 9.4. Investors' Compliance. Nothing in this Article shall
affect in any way each Investor's obligations to comply with all applicable
securities laws upon resale of the Common Stock.
ARTICLE X
ENFORCEMENT; CHOICE OF LAW
Section 10.1. Specific Enforcement; Consent to Jurisdiction.
The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
Each of the Company and the Purchasers (i) hereby irrevocably submits
to the jurisdiction of the United States District Court sitting in the Southern
District of New York for the purposes of any suit, action or proceeding arising
out of or relating to this Agreement or the Registration Rights Agreement and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement brought by either the Company or the Purchasers
shall be brought in the jurisdiction of the United States District Court sitting
in the Southern District of New York. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 9.2
shall affect or limit any right to serve process in any other manner permitted
by law.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible Debentures or Warrants purchased or acquired by any Investor
hereunder with respect to the Convertible Debentures or Warrants held by such
person, and (b) upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, each Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any Affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received)or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: Detour Magazine, Inc.
0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to (shall not constitute Xxxxxxxxxxx X. Xxxxxxx, Esq.
notice): Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to the Investors: As set forth on the signature pages hereto
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached
as Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 13.4. Headings. The headings used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors
parties to this Agreement, which Investors may be natural persons or entities.
All references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. 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 any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Xxxxxx Xxxxxx LLP, counsel to the Investors, in an amount equal
to $15,000, all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party
except for Union Atlantic, L.C., whose fee shall be paid by the Company. The
Company on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or tinder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any
press release or other public announcement, except as required by law, of the
transactions contemplated by this Agreement without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed release. No release shall
name the Investors without their express consent, except as required by
applicable federal or state law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as this 28th day of
December, 2000.
DETOUR MAGAZINE, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx, Chairman of the Board
INVESTORS:
AMRO INTERNATIONAL, S.A.
By: /s/ X.X. Xxxxxxxx
--------------------------------------
Name: X.X. Xxxxxxxx
Title: Director
MARKHAM HOLDINGS LTD.
By: /s/ Authorized Signatory
--------------------------------------
Name: Authorized Signatory
Title: Authorized Signatory
ESQUIRE TRADE & FINANCE INC.
By: /s/ Xxxxxx Xxxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxxx
Title: Authorized Signatory
XXXXXXX TRUST REG
By: /s/ Xxxxxx Xxxxx
--------------------------------------
Name: Xxxxxx Xxxxx
Title: Authorized Signatory
XXXXXXX XXXXXXXXX
By: /s/ Xxxxxxx Xxxxxxxxx
---------------------------------------
Xxxxxxx Xxxxxxxxx, Authorized Signatory
DISCLOSURE SCHEDULE
Schedule 4.3 - Capitalization.
------------ ---------------
1) Various Unit Purchase Agreements, Stock Purchase Agreements, or other
agreements grant registration rights or anti-dilution rights with Common Stock,
options or warrants issued as follows:
Jan. 19, 1997 -Private Placement 2,350,000 shares of Common Stock
Dec. 10, 1999 -Trilogy Capital, Inc. 800,000 warrants
-Lexington Ventures Inc. 800,000 warrants
Jan. 26,2000 -Xxxxx Xxxxxx 30,000 warrants
Xxxxxx Xxxxxxxxx 5,000 warrants
Xxxxxxx Xxxxxxxxx 5,000 warrants
Xxxxxxx Xxxxxx 10,000 warrants
Narj Sagubir 5,000 warrants
Xxxxxx Xxxxxxxxxxx 5,000 warrants
Xxxxx Xxxxx 10,000 warrants
Xxxxxx Xxxxx 5,000 warrants
Xxxxxxx Xxxx 5,000 warrants
Xxxxx Xxxxxxx 20,000 warrants
February 4, 2000-Koyah Partners, Ltd. 37,500 warrants
Koyah Leverage Partners, Ltd 112,500 warrants
February 10, 2000-Troop Xxxxxxx et al 15,000 warrants
-Xxxxxx & Xxxxxxx Xxxxxx 75,000 shares of Common Stock
-Xxxxxxxxx Xxxx 75,000 shares of Common Stock
February 14, 2000-Xxxxx Xxxxxx 10,000 warrants
March 7, 2000-NC Capital Markets, Inc. 150,000 shares of Common Stock
March 12, 2000-Karel Dirka 50,000 warrants
March 14, 2000-Summit Securities, Inc. 600,000 shares of Common Stock
-Western United Life Assurance Co. 600,000 shares of Common Stock
-Koyah Partners, L.P. 360,000 shares of Common Stock
-Koyah Leverage Partners, L.P. 690,000 shares of Common Stock
-Koyah Leverage Partners, L.P. 750,000 shares of Common Stock
March 29, 2000-Lotus Pictures, Inc. 50,000 warrants
March 0000 - Xxxxxx, Xxxx & Associates 75,000 warrants
April 3, 2000-Ace Investors, LLC 40,000 warrants
April 18, 2000-Das Werk, AG 1,000,000 shares of Common Stock
April 20, 2000-XxXxxxxxx Consulting Group 1,250 warrants
May 7, 2000 -NC Capital Markets Inc. 50,000 shares of Common Stock
June 2000-Capitalink, L.C. 437,500 shares of Common Stock (from the exercise
of 500,000 warrants)
Schedule 4.8 - No Conflicts.
------------
1) A provision in the Loan Agreement between IBF Special Purpose Corporation
("IBF") and the Company limits the Company's ability to "incur, create or assume
any indebtedness...," and the Company does not intend to seek a waiver from IBF.
2) The Company's financials have been restated pursuant to an SEC enforcement
action and the SEC has had no further contact with the Company.
Schedule 4.9 - No Material Adverse Change.
--------------------------
1) $200,000 loan from Sigmapath Corporation due on March 8, 2000 in default for
$100,000 and the Company is currently negotiating an extension thereon.
2) The Company is in default of its Loan Agreement with IBF Special Purpose
Corporation dated August 1998.
Schedule 4.11 - No Integrated Offering. See Schedule 4.3 above for other recent issuances.
----------------------
Schedule 4.12 - Litigation.
-----------
A complaint, for damages allegedly due to breach of contract, fraud and
common counts in excess of $132,009.25, was filed by Graphic Depot, Inc., a
California corporation against the Company, Xxxxxx X. Xxxxx, Xxxxx X. Xxxx,
Xxxxx Xxxxxx, Xxxxx Xxxxxxx, and Does 1 to 20, in the Los Angeles Superior
Court, Case No. VC 029730. The Company has settled this claim for $85,000 under
which payment will be due on or around June 21,2000.
See also Schedule 4.8 - for discussion of SEC enforcement action.
Schedule 4.15 - Tax Matters.
-----------
The Company has not filed 1997 and 1998 annual tax returns, but does
not expect a Material Adverse Effect as a result of the late filing thereof.
Schedule 4.17 - Property.
---------
The Promissory Note executed by the Company in favor of SigmaPath Corp.
which is in default grants a security interest in "all source codes, URL, ASP
files, service marks, trademarks and copyrights in respect of and relating to
the Maker's online Web site, idetour. com". See Section 4.9 for discussion of
default on the Promissory Note.
JCM CAPITAL CORP.
00 XXXXXXXX XXXX XXXX
XXXXXXXX, XXX XXXX 00000
(631) 753-1000
June 14, 2000
Xx. Xxxxxx X. Xxxxx, Chairman
DETOUR
0000 Xxxxxxxxx Xxxxxxxxx -Xxxxx 0000
Xxx Xxxxxxx, XX 00000
RE: DEMAND NOTE TO DETOUR $932,313 DATED 1995
Dear Xx. Xxxxx:
As per our conversation, please be advised that JCM Capital will extend its note
for twelve (12) months from the date of this letter as part of a $300,000 pay
down from Detour.
Sincerely,
Xxxxxxx Xxxxxx
