________________________________________________________________________________
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PREFERRED STOCK PURCHASE AGREEMENT
AMONG
XXXX.xxx, INC.
AND
DOMINION CAPITAL FUND, LTD.
SOVEREIGN PARTNERS LIMITED PARTNERSHIP
MAY , 1999
________________________________________________________________________________
________________________________________________________________________________
THE XXXXXXXXX LAW GROUP, P.C.
00 XXXXXXXX, 00XX XXXXX
XXX XXXX, N.Y. 10006
TELEPHONE: (000) 000-0000
FACSIMILE: (000) 000-0000
PREFERRED STOCK PURCHASE AGREEMENT
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THIS PREFERRED STOCK PURCHASE AGREEMENT, dated as of May , 1999 (the
"AGREEMENT"), among the entities listed on Schedule A annexed hereto
(hereinafter collectively referred to as the "INVESTORS"), and XXXX.xxx, Inc., a
corporation organized and existing under the laws of the State of Delaware (OTC
Bulletin Board symbol "IJNT", 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 an aggregate of 2,000 shares of Preferred Stock
(as defined below) and Warrants to purchase an aggregate of 50,000 Warrant
Shares (pro rata based upon each Investor's portion of the Purchase Price as set
forth on Schedule A); and
WHEREAS, such investment will be made in reliance upon the provisions
of Section 4(2) ("SECTION 4(2)") and Regulation D ("REGULATION D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "SECURITIES ACT"), 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 Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
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CERTAIN DEFINITIONS
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Section 1.1 "ADDITIONAL SHARES" shall have that meaning set forth in
Section 2.3 below.
Section 1.2 "BID PRICE" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "BUSINESS DAY" means any day except Saturday, Sunday and
any day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.4 "BYLAWS" shall mean the Company's bylaws, as amended and in
effect as of the Closing Date.
Section 1.5 "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 1.6 "CAPITAL SHARES EQUIVALENTS" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
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 1.7 "CERTIFICATE OF DESIGNATION" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock.
Section 1.8 "CERTIFICATE OF INCORPORATION" shall mean Company's
Certificate of incorporation, as amended and in effect as of the Closing Date.
and the Company's bylaws, as amended and in effect on the date hereof (the
"BYLAWS").
Section 1.9 "CERTIFICATE OF INCREASE" shall mean the Certificate of
Increase to the Certificate of Designation creating the shares of Preferred
Stock issued hereunder, as annexed hereto as Exhibit A and made a part hereof.
Section 1.10 "CLOSING" shall mean the closing of the purchase and sale
of the Preferred Stock and Warrants pursuant to Article II below.
Section 1.11 "CLOSING DATE" shall mean the date each of the conditions
precedent to the Closing as set forth in Section 2.6 below, have been satisfied
or waived in writing.
Section 1.12 "COMMON STOCK" shall mean the Company's common stock,
$0.01 par value per share.
Section 1.13 "DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.14 "EFFECTIVE DATE" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of 200%
of the number of Underlying Shares assuming a Conversion Date on the Closing
Date, and 100% of the Warrant Shares.
Section 1.15 "ESCROW AGENT" shall mean the law firm of The Xxxxxxxxx
Law Group, P.C., pursuant to the terms of the Escrow Agreement.
Section 1.16 "ESCROW AGREEMENT" shall mean the agreement regarding the
escrow of the Purchase Price, Preferred Stock and Warrants annexed hereto as
Exhibit B.
Section 1.17 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.18 "LEGEND" shall have the meaning set forth in Article VIII
below.
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Section 1.19 "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, 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 Certificate of Designation, the Certificate of Increase, Warrants,
Registration Rights Agreement, and/or Escrow Agreement, in any material respect.
Section 1.20 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "OUTSTANDING" when used with reference to shares of Common
Stock, preferred stock of the Company, 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 1.22 "PERSON" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.23 "PREFERRED STOCK" shall mean the Company's Series A
Preferred Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation, and the Certificate of Increase.
Section 1.24 "PRIME RATE" shall mean the rate of interest per annum
publicly announced from time to time by the principal New York City office of
the Chase Manhattan bank, or its successor, as its prime rate (which rate shall
change when and as such prime rate changes).
Section 1.25 "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the OTC Bulletin Board, 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.
Section 1.26 "PURCHASE PRICE" shall mean $2,000,000.
Section 1.27 "REGISTRABLE SECURITIES" shall mean the Underlying Shares,
Additional Shares, and Warrant Shares, (i) in respect of which the Registration
Statement (covering these securities) has not been declared effective by the
SEC, (ii) which have not 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) which have not been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, or (iv) the sales of which, in the opinion of counsel to the
Company, are subject to any time, volume or manner of sale limitations pursuant
to Rule 144(k) (or any similar provision then in effect) under the Securities
Act.
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Section 1.28 "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 on
the Subscription Date annexed hereto as Exhibit C.
Section 1.29 "REGISTRATION STATEMENT" shall mean a registration
statement on Form S-3 (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 of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investors of the Registrable Securities under
the Securities Act.
Section 1.30 "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.31 "SEC" shall mean the Securities and Exchange Commission.
Section 1.32 "SEC DOCUMENTS" shall mean the Form 10-KSB, Form 10-QSB's,
Form 8-K's, and Proxy Statements of the Company as supplemented to the date
hereof, filed by the Company for a period of at twelve (12) months immediately
preceding the date hereof and until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
Section 1.33 "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34 "SECURITIES" shall mean the Underlying Shares, the
Additional Shares, and the Warrant Shares.
Section 1.35 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "SUBSCRIPTION DATE" shall mean the date on which this
Agreement and all Exhibits and attachments hereto are executed and delivered by
the parties hereto.
Section 1.37 "TRADING DAY" shall mean any day during which the
Principal Market shall be open for business.
Section 1.38 "UNDERLYING SHARES" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.39 "WARRANTS" shall mean the Common Stock Purchase Warrant
annexed hereto as Exhibit D.
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Section 1.40 "WARRANT SHARES" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
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PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS
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Section 2.1 CLOSING. On the Closing Date, the Company will sell, and
the Investors will purchase, in reliance upon the representations, covenants,
and warranties contained in this Agreement and all Exhibits annexed hereto, and
subject to the terms and satisfaction of each of the conditions set forth in
Section 2.5 below, an aggregate of 2,000 shares of Preferred Stock and Warrants
to purchase an aggregate of 50,000 Warrant Shares (the number of shares of
Preferred Stock and Warrant Shares to be issued to each Investor is stated on
Schedule A).
Section 2.2 FORM OF PAYMENT. The Investors shall each pay their portion
of the Purchase Price by delivering good funds in United States Dollars by wire
transfer to the Escrow Agent, against delivery of the original shares of
Preferred Stock and original Warrants, as per the terms of the Escrow Agreement.
Section 2.3 ADDITIONAL SHARES. In the event that (a) the Investor(s)
have shares of Common Stock which are salable through the use of a prospectus,
or within five Trading Days of any Conversion Notice, the Company gives notice
to the Investor(s) of an impending blackout or suspension of the Registration
Statement, and (b) the Bid Price on the Trading Day immediately preceding such
"blackout period" (the "OLD BID PRICE") is greater than the Bid Price on the
first Trading Day following such blackout or suspension period (the "NEW BID
PRICE"), the Investor(s) may sell their Registrable Securities at the New Bid
Price pursuant to an effective Registration Statement, the Company shall issue
to the Investor(s) a number of additional shares equal to the difference between
(y) the product of the number of Registrable Securities held by the Investor(s)
during such blackout or suspension period that are not otherwise freely tradable
and the Old Bid Price, divided by the New Bid Price, less the number of
Registrable Securities held by the Investor(s) during such blackout or
suspension period that are not otherwise freely tradable.
Section 2.4 LIQUIDATED DAMAGES.
(a) In the event the Company does not deliver unlegended Common Stock
in connection with the sale of such shares of Common Stock by the Investor(s) as
set forth in Article VIII below, within five Business Days of surrender by the
Investor(s) of the Common Stock certificate as is set forth in Article VIII
below, (such date of receipt is referred to as the "RECEIPT DATE"), the Company
shall pay to the Investors, in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, for each 500 shares of
Common Stock to be so delivered by the Company as set forth above, $500 for each
of the first ten (10) calendar days and $1,000 per calendar day thereafter that
the unlegended shares of Common Stock are not delivered, which liquidated
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damages shall run from the fourth calendar day after the Receipt Date. Any and
all payments required pursuant to this paragraph shall be payable only in cash.
The parties hereto acknowledge and agree that the liquidated damages payable
pursuant to the Registration Rights Agreement, the Certificate of Designation,
and as set forth above, and the obligation to issue Registrable Securities shall
constitute liquidated damages and not penalties.
(b) In the event the Company fails to deliver the Underlying Shares
upon conversion of the Preferred Stock the Company will be subject to liquidated
damages as set forth in the Certificate of Designation. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, and (b) 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.
(c) The parties agree that the payment of liquidated damages pursuant
to the terms set forth herein, the Registration Rights Agreement, and in the
Certificate of Designation, shall not relieve the Company of the necessity to
perform its duties as set forth in this Agreement and all exhibits annexed
hereto.
(d) Notwithstanding the above, if event that the Company does not
deliver unlegended Common Stock in connection with the sale of such Common Stock
by the Investor(s) as set forth in Article VIII below within five Business Days
of the Receipt Date, the Company shall also pay to the Investor(s), in
immediately available funds, interest (at the then current Prime Rate), based
upon the product of (i) the number of undelivered unlegended freely tradable
shares, and (ii) the Bid Price of the Common Stock on the Receipt Date,
undelivered for every day thereafter that the unlegended shares of Common Stock
are not delivered. Any and all payments required pursuant to this Section shall
be payable only in cash, and any payment hereunder shall not relieve the Company
of its delivery obligations under this Section or elsewhere in this Agreement or
any Exhibit annexed hereto.
Section 2.5 CONDITIONS TO CLOSING.
(a) CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE THE PREFERRED STOCK
AND WARRANTS. The Company agrees to sell and the Investors agree to purchase an
aggregate of 2,000 shares of Preferred Stock and Warrants to purchase an
aggregate of 50,000 Warrant Shares upon the satisfaction, or written waiver, of
each of the following conditions:
(i) Acceptance by each of the Investors of a satisfactory Purchase
Agreement and due execution by all parties of this Agreement and the
Exhibits annexed hereto;
(ii) Delivery to the Escrow Agent by the Company of 2,000 original
shares of Preferred Stock and Warrants to purchase 50,000 Warrant
Shares in the correct denominations as set forth in Schedule A;
(iii) All representations, covenants, and warranties of the Company
contained herein shall remain true and correct in all material respects
as of the Closing Date;
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(iv) The Investors shall have received an opinion of counsel
substantially in the form of Exhibit E annexed hereto;
(v) The Company shall have obtained all permits and qualifications
required for the offer and sale of the Preferred Stock, Warrants, and
the proposed issuance of the Securities or shall have the availability
of exemptions therefrom. At the Closing Date, the sale and issuance of
the Preferred Stock and Warrants, and the proposed issuance of the
Securities, shall be legally permitted by all laws and regulations to
which the Company and the Investors are subject;
(vi) The Investors shall have received the instruction letter
executed by the Company and the Company's transfer agent as set forth
in Exhibit F annexed to this Agreement;
(vii) The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions
required by this Agreement, the Certificate of Designation, the
Certificate of Increase, the Escrow Agreement, the Registration Rights
Agreement and the Warrants, to be performed, satisfied or complied with
by the Company at or prior to the Closing Date;
(viii) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement or the Exhibits annexed
hereto, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement or the Exhibits annexed hereto;
(ix) The trading of the Common Stock has not been suspended by the
SEC or the OTC Bulletin Board, and the Common Stock has not been
delisted from the OTC Bulletin Board. The issuance of shares of Common
Stock with respect to the conversion of the Preferred Stock, and/or
exercise of the Warrants shall not violate the shareholder approval
requirements of the OTC Bulletin Board. The Company shall not have been
contacted by the NASD concerning the delisting of the Common Stock on
the OTC Bulletin Board and the Company currently meets all applicable
listing requirements of the OTC Bulletin Board;
(x) written proof that the Certificate of Designation remains in
effect and the Certificate of Increase has been filed with the
Secretary of State of the State of Delaware; and
(xi) Payment of fees as set forth in Section 12.7 below.
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(b) CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The Investors
understand that the Company's obligation to sell the Preferred Stock and
Warrants is subject to the satisfaction (or written waiver) on the Closing Date,
of each of the following conditions:
(i) Delivery by each of the Investors of a copy of this Agreement
and each Exhibit annexed hereto to which it is a party (substantially
in the form annexed hereto), in each case executed by each of the
Investors;
(ii) Delivery to the Escrow Agent by the Investors of good cleared
funds as payment for the Purchase Price for the purchase of the
Preferred Stock and Warrants;
(iii) All representations and warranties of the Investors contained
herein shall remain true and correct in all material respects as of the
Closing Date; and
(iv) The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Preferred Stock and
Warrants, or shall have the availability of exemptions therefrom. At
the Closing Date, the sale and issuance of the Preferred Stock,
Warrants, and Securities shall be legally permitted by all laws and
regulations to which the Investors and the Company are subject.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
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The Investors represent and warrant to the Company that:
Section 3.1 ORGANIZATION AND AUTHORIZATION. Investors are duly
incorporated or organized and validly existing in the country of their
incorporation or organization and have all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by the Investors, the performance
by the Investors of their obligations hereunder and the consummation by the
Investors of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investors. The undersigned has
all right, power and authority to execute and deliver this Agreement on behalf
of the Investors. This Agreement has been duly executed and delivered by the
Investors and, assuming the execution and delivery hereof and acceptance thereof
by the Company, will constitute the legal, valid and binding obligations of the
Investors, enforceable against the Investors in accordance with its terms.
Section 3.2 EVALUATION OF RISKS. Investors have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. They recognize that their investment in the Company involves a high
degree of risk.
Section 3.3 INDEPENDENT COUNSEL. Investors acknowledge that they have
been advised to consult with their own attorney regarding legal matters
concerning the Company and to consult with its tax advisor regarding the tax
consequences of acquiring the securities issuable hereunder.
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Section 3.4 NO REGISTRATION. The Investors understand that the
securities issuable hereunder have not been registered under the Securities Act
or any other securities laws but are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of Federal and State
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of Investors set forth herein in order to determine the applicability of such
exemptions and the suitability of Investors to acquire the securities hereunder.
Section 3.5 INVESTMENT INTENT. Without limiting their right to sell,
transfer or assign the Preferred Stock, Warrants and/or Securities, the
Investors are entering into this Agreement solely for their own account and the
Investors have no present arrangement (whether or not legally binding) at any
time to sell the Preferred Stock, Warrants, or Securities to or through any
person or entity. The Investors understand and agree that they may bear the
economic risk of its investment in the Securities for an indefinite period of
time.
Section 3.6 REGISTRATION RIGHTS. The parties have entered into the
Registration Rights Agreement.
Section 3.7 NO ADVERTISEMENTS. The Investors are not entering into this
Agreement as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3.8 SOPHISTICATED INVESTORS. The Investors are each
sophisticated investors (as described in Rule 506(b)(2)(ii) of Regulation D) and
accredited investors (as defined in Rule 501 of Regulation D), and each of the
Investors has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Preferred
Stock and Warrants. The Investors acknowledge that an investment in the
Preferred Stock and Warrants is speculative and involves a high degree of risk.
Section 3.9 NOT AN AFFILIATE. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants that:
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
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified as a foreign corporation to do business
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and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those (individually or in the aggregate) in which the failure so to
qualify would not reasonably be expected to have a Material Adverse Effect. The
Company is not in violation of any material terms of its Certificate of
Incorporation or ByLaws.
Section 4.2 AUTHORITY. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, and all Exhibits annexed hereto, and to issue the Preferred Stock,
Warrants, and the Securities, (ii) the execution, issuance and delivery of this
Agreement, and all Exhibits annexed hereto by the Company and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company, its shareholders, or its Board of Directors is
necessary, and (iii) this Agreement, and all Exhibits annexed hereto, have been
duly executed and delivered by the Company and 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. Upon their issuance and delivery pursuant to this
Agreement the Preferred Stock, Warrants, and Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances
other than those created hereunder or by the actions of the Investors; PROVIDED,
HOWEVER, that the Preferred Stock, Warrants, and the Securities are subject to
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Preferred Stock, Warrants, and Securities will not give
rise to any preemptive right or right of first refusal or right of participation
on behalf of any person other than the Investors pursuant to the terms of this
Agreement.
Section 4.3 CAPITALIZATION. As of April, 1999, the authorized capital
stock of the Company consisted of _____ shares of Common Stock, $0.01 par value,
of which _____ shares are outstanding, and ______ shares of preferred stock, of
which ___ shares are outstanding. All of the outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are fully
paid and nonassessable. No shares of Common Stock or preferred stock of the
Company are entitled to preemptive or similar rights. Except as disclosed in the
SEC Documents, there are no outstanding options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Preferred Stock and Warrants,
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any subsidiary is or may become bound to issue additional shares of
Common Stock or securities or rights convertible or exchangeable into shares of
Common Stock. Except as disclosed in the SEC Documents, to the knowledge of the
Company, no Person or group of Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of five percent of the Common Stock.
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Section 4.4 COMMON STOCK. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted, and trades, on the OTC Bulletin Board, and the Company is in
full compliance with the rules and regulations of the OTC Bulletin Board.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available
to the Investors true and complete copies of the SEC Documents filed by the
Company with the SEC during the twelve (12) months immediately preceding the
date hereof. 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. The SEC Documents comply in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder and none of the
SEC Documents 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 comply as to form 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. 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 may not include
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 statements, to normal year-end audit
adjustments).
Section 4.6 VALID ISSUANCES. Neither the issuance of the Preferred
Stock, Warrants, or Securities, nor the Company's performance of its obligations
under this Agreement, and all Exhibits annexed hereto, will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Warrants, Preferred Stock, or Securities, or any of the
assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares
to preemptive or other rights to subscribe to or acquire any Capital Shares or
other securities of the Company.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates, nor any distributor
or 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 in connection with the offer and sale of the Preferred
Stock, Warrants, or Securities, or (ii) has 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 Preferred Stock, Warrants, or Securities
under the Securities Act, except as contemplated by this Agreement.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to the Investors true and correct copies of the Certificate of
Incorporation and the Bylaws.
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Section 4.9 NO CONFLICTS/NO VIOLATIONS. The execution, delivery and
performance of this Agreement (including all Exhibits annexed hereto) by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including without limitation the issuance of the Preferred
Stock, Warrants, and Securities, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or ByLaws 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 agreement, patent,
patent license, indenture, 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 (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, nor is the Company otherwise in violation of, in
conflict with, or in default under, any of the foregoing except as would not
reasonably be expected to 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 reasonably
be expected to have a Material Adverse Effect.
Section 4.10 NO MATERIAL ADVERSE EFFECT. Since January 1, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations, known or unknown, absolute or otherwise, which are not disclosed
in the SEC Documents or otherwise publicly announced, or as incurred in the
ordinary course of the Company's businesses since January 1, 1999, or which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since January 1,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under 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 the SEC Documents.
Section 4.13 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would 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, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect.
Section 4.14 ACCURACY OF REPORTS AND INFORMATION. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Exchange Act. The Company has
complied in all material respects and to the extent applicable with all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the
Subscription Date.
12
Section 4.15 ACKNOWLEDGMENT OF DILUTION. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Preferred
Stock and/or exercise of the Warrants, may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Additional Shares in accordance with the terms herein, Underlying Shares in
accordance with the Certificate of Designation, Certificate of Increase, and
Warrant Shares in accordance with the Warrants is unconditional and absolute
regardless of the effect of any such dilution.
Section 4.16 EMPLOYEE RELATIONS. The Company is not involved in any
labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened which could reasonably be expected to have a Material Adverse Effect.
None of the Company's employees is a member of a union and the Company believes
that its relations with its employees are good.
Section 4.17 INSURANCE. The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company is engaged. The Company has no reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires, or obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not cause a Material
Adverse Effect.
Section 4.18 BOARD APPROVAL. The Board of Directors of the Company has
concluded, in its good faith business judgment, that the issuances of the
Preferred Stock, Warrants, and Securities in connection with this Agreement are
in the best interests of the Company.
Section 4.19 INTEGRATION. The Company, any of its affiliates, or any
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Preferred Stock and Warrants in a manner that would require the registration
under the Securities Act of the issue, offer or sale of the Preferred Stock and
Warrants to the Investors. The shares of Preferred Stock and Warrants are being
offered and sold pursuant to the terms hereunder, are not being offered and sold
as part of a previously commenced private placement of securities.
Section 4.20 PATENTS AND TRADEMARKS. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "INTELLECTUAL PROPERTY RIGHTS"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
13
Section 4.21 USE OF PROCEEDS. The Company represents that the net
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.
Section 4.22 SUBSIDIARIES. Except as disclosed in the SEC Documents,
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, partnership, association or other business
entity.
Section 4.23 NO PRIVATE PLACEMENTS. Except as disclosed in the SEC
Documents, the Company has not conducted a private placement of its Common Stock
or of any debt or equity instrument convertible into Common Stock within one
year prior to the Closing Date. Except for the transactions contemplated hereby
and as disclosed in the SEC Documents, there are no outstanding securities
issued by the Company that are entitled to registration rights under the
Securities Act. Except as disclosed in the SEC Documents, there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock,
that have anti-dilution or similar rights that would be affected by the issuance
of the Preferred Stock, Warrants, or Securities.
Section 4.24 PERMITS; COMPLIANCE. The Company and each of its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), and there is no action pending or, to the knowledge of the Company,
threatened regarding the suspension or cancellation of any of the Company
Permits except for such Company Permits, the failure of which to possess, or the
cancellation, or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. To the Company's knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
January 1, 1999 neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
Section 4.25 TAXES. All federal, state, city and other tax returns,
reports and declarations required to be filed by or on behalf of the Company
have been filed and such returns are complete and accurate and disclose all
taxes (whether based upon income, operations, purchases, sales, payroll,
licenses, compensation, business, capital, properties or assets or otherwise)
required to be paid in the periods covered thereby.
Section 4.26 NO BANKRUPTCY. The Company is aware of no facts or claims
against it which would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
14
Section 4.27 MATERIAL CONTRACTS. Except as set forth in the SEC
Documents, the agreements to which the Company is a party described in the SEC
Documents are valid agreements, in full force and effect. The Company is not in
material breach or material default under any of such agreements, except where
such breach or default would not cause a Material Adverse Effect.
Section 4.28 TITLE TO ASSETS. Except as set forth in SEC Documents, the
Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as would not cause a Material Adverse Effect.
Section 4.29 SENIORITY. No class of equity securities of the Company is
senior to the Preferred Stock in right of payment, whether with respect to
dividends or upon liquidation, dissolution or otherwise.
Section 4.30 FORM S-3 ELIGIBILITY. The Company is, and as of the
Closing Date will be, eligible to register securities for resale with the SEC
under Form S-3 under the Securities Act.
Section 4.31 FILINGS. Except for the filing of a Form D within 15 days
after the Closing Date (which the Company agrees it will file), and such other
form(s) required by "blue sky" laws, the Company is not required under 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 Preferred Stock, or Warrants, in
accordance with the terms hereof; 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 4.32 CERTIFICATE OF DESIGNATION. As of the Closing Date the
Certificate of Designation remains in full force and effect, and the Company has
full authority to amend the Certificate of Designation to include the shares of
Preferred Stock issued hereunder.
ARTICLE V
---------
COVENANTS OF THE INVESTORS
--------------------------
Section 5.1 4.99% LIMITATION. The number of shares of Common Stock
which may be acquired by any Investor pursuant to the terms of this Agreement
shall not exceed the number of such shares which, when aggregated with all other
shares of Common Stock then owned by such Investor, would result in such
Investor owning more than 4.99% of the then issued and outstanding Common Stock
at any one time. The preceding sentence shall not interfere with any Investor's
right to convert any share or shares of Preferred Stock and/or exercise the
Warrants over time which in the aggregate totals more than 4.99% of the then
outstanding shares of Common Stock so long as such Investor does not own more
than 4.99% of the then outstanding Common Stock at any given time.
15
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 so long as any
Registrable Securities remain outstanding 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 authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, that number of
shares of Common Stock equal to no less than 200% of the Underlying Shares
issuable pursuant to the terms of the Certificate of Designation, and
Certificate of Increase, and 100% of the Warrant Shares, for the purpose of
enabling the Company to satisfy any obligation to issue the Securities. 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 so obligated to issue by reason of adjustments to the Conversion
Price and/or Exercise Price as set forth in the Certificate of Designation, the
Certificate of Increase, and the Warrants.
Section 6.3 LISTING OF COMMON STOCK. The Company shall (a) not later
than the tenth Business Day following the Closing Date prepare and file with the
Principal Market (as well as any other national securities exchange, market or
trading facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) two times the number of
Underlying Shares as would be issuable upon a conversion in full of (and as
payment of dividends in respect of) the Preferred Stock, assuming such
conversion occurred on the Closing Date, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Principal Market (as well as on
any other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investors evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market for so long as the
Securities, Preferred Stock and/or Warrants are owned by the Investors. In
addition, if at any time the number of shares of Common Stock issuable on
conversion of all then outstanding shares of Preferred Stock, and upon exercise
in full of the Warrants is greater than the number of shares of Common Stock
theretofore listed with the Principal Market (and any such other national
securities exchange, market or trading facility), the Company shall promptly
take such action (including the actions described in the preceding sentence), if
required pursuant to the rules and regulations of the Principal Market, to file
an additional shares listing application with the Principal Market (and any such
other national securities exchange, market or trading facility) covering at
least a number of shares equal to the sum of (x) 200% of the number of
Underlying Shares as would then be issuable upon conversion in full of the
Preferred Stock, and (y) the number of Warrant Shares as would be issuable upon
exercise in full of the Warrants. The Company warrants that it (i) has not
16
received any notice, oral or written, affecting its continued listing on the OTC
Bulletin Board, and (ii) is in full compliance with the requirements for
continued listing on the OTC Bulletin Board. The Company will take no action,
which would impact its continued listing or the eligibility of the Company for
such listing unless it entails the Common Stock being listed immediately
thereafter on another Principal Market with no break in trading. The Company
will comply with the listing and trading requirements of its Common Stock on the
OTC Bulletin Board (and of any then Principal Market) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market for so long as the Preferred Stock,
Warrants and/or Securities are owned by any of the Investors. If the Company
receives notification from Nasdaq or any other controlling entity stating that
the Company is not in compliance with the listing qualifications of such
Principal Market, the Company will immediately thereafter give written notice to
the Investors and take all action necessary to bring the Company into compliance
with all applicable listing standards of the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company will maintain the
registration of its Common Stock under Section 12 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 file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act for so long as the Preferred Stock, Warrants and/or
Securities are owned by any of the Investors.
Section 6.5 LEGENDS. The securities to be sold by the Company pursuant
to this Agreement shall be free of restrictive legends, except as set forth in
Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The
Company will immediately notify the Investors 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 the 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 the
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 the 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
17
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate. The Company will
immediately make available to the Investors any such supplement or amendment to
the related prospectus.
Section 6.8 CONSOLIDATION; MERGER. For so long as the Preferred Stock,
Warrants, and/or Registrable Securities are owned by any of the Investors, 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 assumes by written instrument
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 all Exhibits annexed hereto.
Section 6.9 ISSUANCE OF UNDERLYING SHARES AND WARRANT SHARES. The
issuance of the Underlying Shares and the Warrant Shares pursuant to exercise of
the Warrants, and the conversion of the Preferred Stock, shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act or Regulation D and any applicable state securities law.
Section 6.10 LEGAL OPINION. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, an opinion in the
form of Exhibit E annexed hereto. The Company will obtain for the Investors, at
the Company's expense, any and all opinions of counsel which may be reasonably
required in order to convert the Preferred Stock and/or exercise the Warrants,
including, but not limited to, obtaining for the Investors an opinion of
counsel, subject only to receipt of a notice of conversion (the "NOTICE OF
CONVERSION") in the form of Exhibit G, and/or subject only to a receipt of a
notice of exercise in the form annexed to the Warrants, directing the Company's
transfer agent to remove the legend from the certificate.
Section 6.11 20% RULE. In the event the rules of the Principal Market
require, the Company agrees that it will call a stockholders' meeting for the
purpose of approving below market price issuances of Common Stock to the
Investors in excess of 20% of the number of shares of Common Stock outstanding
as of the Subscription Date. In the event that the aforementioned proposal is
not ratified by the stockholders, or no such meeting is held prior to the 45th
day after the date that the Company first becomes subject to such requirement
("RATIFICATION DATE"), the Company agrees that it shall seek a waiver from the
Principal Market for such issuance, if necessary. In the event the Company does
not get such a waiver within ten calendar days after the Ratification Date, the
Company agrees that it will pay to the Investors, on or before the fifteenth
calendar day after the Ratification Date, the "Economic Benefit" of that number
of shares of Common Stock issuable to the Investors above said 20%. The
"Economic Benefit" is defined as the number of shares of Common Stock issuable
to the Investors upon conversion pursuant to the terms hereunder and in the
Certificate of Designation and the Certificate of Increase, in excess of 20% of
the outstanding Common Stock as of the applicable Closing Date multiplied by the
Bid Price on the tenth trading day after the Ratification Date.
18
Section 6.12 RIGHT OF FIRST REFUSAL/RESTRICTIONS ON FUTURE FINANCING.
The Company and the Investors agree that each shall continue to be bound to
Section 6.17 RIGHT OF FIRST REFUSAL contained in the Preferred Stock and Private
Equity Line of Credit Agreement dated as of December 4, 1998, by and between the
Investors and the Company.
Section 6.13 CONVERSION OF PREFERRED STOCK. The Company will permit the
Investors to exercise their right to convert the Preferred Stock by telecopying
an executed and completed Notice of Conversion to the Company.
Section 6.14 EXERCISE OF WARRANTS. The Company will permit the
Investors to exercise their right to purchase shares of Common Stock upon
exercise of the Warrants as is set forth in the Warrants.
Section 6.15 INCREASE IN AUTHORIZED SHARES. At such time as the Company
would be, if a Notice of Conversion or notice of exercise (as the case may be)
were to be delivered to the Company via facsimile on such date, precluded from
(a) converting in full all of the shares of Preferred Stock that remain
unconverted at such date (and paying any accrued but unpaid dividends in respect
thereof in shares of Common Stock), or (b) honoring the exercise in full of the
Warrants, due to the unavailability of a sufficient number of shares of
authorized but unissued or re-acquired Common Stock, the Board of Directors of
the Company shall promptly (and in any case within 60 calendar days from such
date) hold a shareholders meeting in which the shareholders would vote for
authorization to amend the Company's Certificate of Incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue to
at least a number of shares equal to the sum of (i) all shares of Common Stock
then outstanding, (ii) the number of shares of Common Stock issuable on account
of all outstanding warrants, options and convertible securities (other than the
Preferred Stock and the Warrants) and on account of all shares reserved under
any stock option, stock purchase, warrant or similar plan, (iii) 200% of the
number of Underlying Shares as would then be issuable upon a conversion in full
of the then outstanding shares of Preferred Stock and as payment of all future
dividends thereon in shares of Common Stock in accordance with the terms of this
Agreement, the Certificate of Designation, the Certificate of Increase, and (iv)
such number of Warrant Shares as would then be issuable upon the exercise in
full of the Warrants. In connection therewith, the Board of Directors shall (x)
adopt proper resolutions authorizing such increase, (y) recommend to its
shareholders, and otherwise use its best efforts to promptly and duly obtain
shareholder approval to carry out such resolutions and (z) within five Business
Days of obtaining such shareholder authorization, file an appropriate amendment
to the Company's Certificate of Incorporation to evidence such increase. The
foregoing shall not relieve the Company from any claim for damages that the
Investors may have against the Company as a result of the Company not having a
sufficient number of authorized shares of Common Stock to satisfy its
obligations under this Agreement or any Exhibit annexed hereto.
19
Section 6.16 NOTICE OF BREACHES. Each of the Company on the one hand,
and the Investors on the other, shall give prompt written notice to the other of
any breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached. However, no disclosure by either party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in this Agreement or any
Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the
Company shall promptly notify the Investors of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement or any Exhibit
annexed hereto, violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to the Investors a copy of any written statement in support of or
relating to such claim or notice.
Section 6.17 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in the
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire).
Section 6.18 NOTICES. The Company agrees to provide all holders of
Preferred Stock and Warrants with copies of all notices and information,
including without limitation notices and proxy statements in connection with any
meetings, that are provided to the holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
Common Stock holders.
Section 6.19 QUESTIONS/ANSWERS. The Company shall provide the Investors
with the opportunity to ask additional questions of, and receive answers (all of
which information shall be limited to information in the public domain) from the
Company concerning the Company during the period which the Investors owns the
Initial Shares, Secondary Shares, Additional Shares, Warrants and/or Warrant
Shares.
ARTICLE VII
-----------
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
--------------------------------------------------------------
Section 7.1 DUE DILIGENCE REVIEW. 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 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, NASD
or other filing, all financial and other records, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investors or any such representative, advisor or
20
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 its respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 7.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose non-public information to
the Investors, or 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, and their advisors and
representatives, with the opportunity to accept or refuse to accept such
non-public information for review. 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 reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate 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, immediately 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 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 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) 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 its 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.
21
ARTICLE VIII
------------
LEGENDS
-------
Section 8.1 LEGENDS. The Investors agree to the imprinting, so long as
is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investors and their counsel, the parties
agreeing that any unacceptable legended securities shall be replaced promptly by
and at the Company's cost) on each of the Preferred Stock, Underlying Shares and
Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT THERE IS AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Company agrees that it will provide the Investors, upon request,
with a certificate or certificates representing the Securities, free from such
legend at such time as such legend is no longer required hereunder. The Company
may not take any action or make any notation on its records or give instructions
to any transfer agent of the Company which enlarge the restrictions of transfer
set forth in this Section.
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 in substantially the form
of Exhibit F 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, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing the Warrants, Preferred Stock, Underlying
Shares or Warrant Shares that bear the aforementioned Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
aforementioned legend to replace those surrendered; provided that (i) the
Registration Statement shall then be effective; (ii) the Investor(s) confirms to
the transfer agent that it has sold, pledged or otherwise transferred or agreed
to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a third party that is not an affiliate of the Company; and (iii)
the Investor(s) confirms to the transfer agent that the Investor(s) has complied
with the prospectus delivery requirement; or
22
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) the Investor(s) is permitted to dispose of such Registrable Securities,
without limitation as to amount or manner of sale pursuant to Rule 144(k) under
the Securities Act (or any other similar exemption as may then be in effect), or
(ii) the Investor(s) has sold, pledged or otherwise transferred or agreed to
sell, pledge or otherwise transfer such Registrable Securities, in a manner
other than pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradable securities. The Company
shall have counsel provide any and all opinions necessary for the sale under
Rule 144 (or such other applicable exemption).
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than that specified in this Article (or pursuant to the Registration
Statement) has been or shall be placed on the share certificates representing
the Common Stock, and no instructions or "stop transfer orders," so called,
"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 this Article.
ARTICLE IX
----------
CHOICE OF LAW
-------------
Section 9.1 CHOICE OF LAW; VENUE; JURISDICTION. This Agreement will be
construed and enforced in accordance with and governed exclusively by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS, to the bringing of any such proceeding in such jurisdictions.
ARTICLE X
---------
ASSIGNMENT; TERMINATION
-----------------------
Section 10.1 ASSIGNMENT. Each Investor's interest in this Agreement and
its ownership of the Preferred Stock and Warrants may be assigned or transferred
at any time, in whole or in part, to any other person or entity (including any
affiliate of each Investor) who agrees to, and truthfully can, make the
representations and warranties contained in Article III, and who agrees to be
bound by the covenants of Article V. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Preferred Stock and/or Warrants purchased or acquired by the Investors hereunder
with respect to the Common Stock held by such person.
23
Section 10.2 TERMINATION. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; or (ii) five years after
the Closing Date; provided, however, that the provisions of Articles III, IV, V,
VI, VII, VIII, IX, X, XI, and XII herein, and the registration rights provisions
for the Registrable Securities held by the Investors set forth in this
Agreement, and the Registration Rights Agreement, shall survive the termination
of this Agreement.
ARTICLE XI
----------
NOTICES
-------
Section 11.1 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) personally served,
(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 hand delivery, telegram, or 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), (b) on the second Business Day following the date of mailing by
reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur, or (c) five
calendar days after sent by regular mail. The addresses for such communications
shall be:
If to the Company:
XXXX.xxx, Inc.
0000 Xxxxxxxxx, Xxxxx X
Xxxxxxx Xxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investors at their respective addresses as set forth on
Schedule A.
with a copy to:
The Xxxxxxxxx Law Group, P.C.
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
24
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 11.1 by giving at least ten
calendar days' prior written notice of such changed address or facsimile number
to the other party hereto.
Section 11.2 INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Investors and each officer, director of the Investors or person, if
any, who controls the Investors within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Investors may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach by the Company of any term of this Agreement. This
indemnity agreement will be in addition to any liability, which the Company may
otherwise have.
The Investors agree that they will indemnify and hold harmless the
Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the breach by such Person of any
term of this Agreement. This indemnity agreement will be in addition to any
liability, which the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party. No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
25
Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury. If the Investors, or any person claimed to be
affiliated or associated with the Investors, becomes involved in any capacity in
any action, proceeding or investigation brought by or against any such person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in this Agreement or any Exhibit annexed hereto, the Company
shall reimburse the Investors and/or those claimed to be affiliated or
associated with the Investors for its legal fees and expenses and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as those fees and expenses are incurred, provided, however, that if
at the conclusion of such action, proceeding or investigation it shall be
finally judicially determined by a court of competent jurisdiction that
indemnity for such fees and expenses is contrary to law, or that the Investors
is not the prevailing party then in that event, the Investors and/or any other
person having received such advances of fees and/or expenses shall reimburse the
Company in full for the sums advanced.
Section 11.3 CONTRIBUTION. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the Investors shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
26
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 12.1 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 the Company on the one hand, and the Investors on the other hand.
Section 12.2 ENTIRE AGREEMENT. This Agreement, and the Exhibits annexed
hereto, 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 and Schedules to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 12.3 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. If 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 12.4 TITLE AND SUBTITLES. 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.
Section 12.5 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
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investors and the Company shall be required to rely upon
any other reporting entity.
27
Section 12.6 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 Preferred Stock, Warrants, or
Securities 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 and amount to the Company, and to the Company's transfer
agent, 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 12.7 FEES AND EXPENSES. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Closing Date, the sum of $10,000, in cash, out of escrow, to the Escrow Agent,
and fees to Havkit Corporation of $10% of the Purchase Price in cash, out of
escrow..
Section 12.8 PUBLICITY. The Company and the Investors shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Investors without the prior written consent of the
Investors, except to the extent required by law, in which case the Company shall
provide the Investors with prior written notice of such public disclosure.
EXHIBITS:
--------
A: Certificate of Increase
B: Escrow Agreement
C: Registration Rights Agreement
D: Common Stock Purchase Warrant
E: Opinion of Counsel
F: Instruction Letter to Transfer Agent
G: Notice of Conversion
[Remainder of page intentionally left blank]
[Signature page follows]
28
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
Purchase Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
XXXX.XXX, INC.
By _________________________________
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By_________________________________
DOMINION CAPITAL FUND, LTD.
By_________________________________
SCHEDULE A
LIST OF INVESTORS
-----------------
1. Sovereign Partners Limited Partnership
c/o Southridge Capital Management
00 Xxxxx Xxxxxx, Xxxxx #00
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Initial Investment Amount: $1,000,000
No. of Warrant Shares
underlying Warrant: 25,000
2. Dominion Capital Fund, Ltd.
c/o Citco Fund Services
Bahamas Financial Center, 3rd Floor
Xxxxxxx & Xxxxxxxxx Streets
CB 00000
Xxxxxx, Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Initial Investment Amount: $1,000,000
No. of Warrant Shares
underlying Warrant: 25,000
EXHIBIT A
[THIS WILL BE FILED AS AN AMENDMENT TO THE EXISTING COD FOR THE SERIES
A PREFERRED STOCK - COMPANY COUNSEL TO PREPARE AMENDMENT AND SUPPLY]
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the _ day of May, 1999 by and among
XXXX.XXX, INC., with its principal office at 0000 Xxxxxxxxx, Xxxxx X, Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000 (hereinafter the "COMPANY"), the entities specified on
Schedule A attached hereto, with their respective principal offices at the
addresses set forth in Schedule A (collectively referred to as the "INVESTORS"),
Havkit Corporation (the "PLACEMENT AGENT"), and The Xxxxxxxxx Law Group, PC, 00
Xxxxxxxx, 00xx Xx., Xxx Xxxx, XX 00000 (hereinafter the "ESCROW AGENT").
W I T N E S S E T H:
WHEREAS, the Investors will be purchasing shares of Preferred Stock and
Warrants from the Company at a purchase price as set forth in Preferred Stock
Purchase Agreement (the "PURCHASE AGREEMENT") dated as of May , 1999, which will
be issued as per the terms contained herein and in the Purchase Agreement
executed by the Company and Investors; all capitalized terms not defined herein
shall have the definition as set forth in the Purchase Agreement; and
WHEREAS, the Placement Agent is to receive a cash fee from the Company
as set forth in the Purchase Agreement in connection with transactions
contemplated thereby; and
WHEREAS, the parties hereby agree to establish an escrow account with
the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase
of the Preferred Stock and Warrants (collectively referred to as the
"SECURITIES"); and
WHEREAS, it is intended that the purchase of Securities be consummated
in accordance with the requirements set forth by Regulation D promulgated under
the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the
Purchase Price in escrow until the Escrow Agent has received the original shares
of Preferred Stock and Warrants, and all of the conditions precedent to the
Closing shall been satisfied as per the terms of the Purchase Agreement. The
Escrow Agent will then immediately wire transfer or otherwise deliver at the
Company's discretion immediately available funds to the Company's account and
arrange for delivery of the Preferred Stock and Warrants to Investors as per the
terms and conditions in the Agreement.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 Upon Escrow Agent's receipt of the Purchase Price into its attorney
trustee account, it shall notify the Company, or the Company's designated
attorney or agent, of the amount of funds it has received into its account.
1.2 The Company, upon receipt of said notice and acceptance of the
Purchase Agreement by all parties, as evidenced by the Company's and the
Investors' execution thereof, shall deliver to the Escrow Agent the original
Securities being purchased on the Closing Date.
1.3 Once Escrow Agent receives the original Securities, he shall
immediately wire that amount of funds necessary to purchase the Securities per
the written instructions of the Company net of all fees as set forth below. The
Company will furnish Escrow Agent with a "Net Letter" directing payment out of
escrow of (i) Placement Agent fees as per the terms of the Purchase Agreement to
the Placement Agent; and (ii) legal, administrative, and escrow costs as per the
terms of the Purchase Agreement to the Escrow Agent, such fees are to be
remitted in accordance with wire instructions that will be sent to Escrow Agent
from the Company, with the net balance payable to the Company. Once the funds
(as set forth above) have been wired to the Company, the Escrow Agent shall then
arrange to have the Securities delivered as per instructions from the Investors.
ARTICLE 2
MISCELLANEOUS
2.1 This Agreement may be altered or amended only with the consent of
all of the parties hereto. Should the Company or any of the Investors attempt to
change this Agreement in a manner which, in the Escrow Agent's discretion, shall
be undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Investors in writing. In the case of the Escrow Agent's
resignation or removal, its only duty, until receipt of notice from the Company
and the Investors or its agent that a successor escrow agent shall have been
appointed, shall be to hold and preserve the funds and/or Securities it has
received. Upon receipt by the Escrow Agent of said notice from the Company and
the Investors of the appointment of a successor escrow agent, the name of a
successor escrow account and a direction to transfer the funds and/or Securities
it has received, the Escrow Agent shall promptly thereafter transfer all of the
funds and/or Securities it has received to said successor escrow agent.
Immediately after said transfer, the Escrow Agent shall furnish the Company and
the Investors with proof of such transfer. The Escrow Agent is authorized to
disregard any notices, requests, instructions or demands received by it from the
Company or the Investors after notice of resignation or removal shall have been
given, unless the same shall be the aforementioned notice from the Company and
the Investors to transfer the funds and/or Securities it has received to a
successor escrow agent or to return same to the respective parties.
2.2 The Escrow Agent shall be reimbursed by the Company and the
Investors for any reasonable expenses incurred in the event there is a conflict
between the parties and the Escrow Agent shall deem it necessary to retain
counsel.
-2-
2.3 The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible except
for the Escrow Agent's own gross negligence or willful misconduct.
2.4 The Company and the Investors warrant to and agree with the Escrow
Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest or in
describing (whether specifically or generally) the Securities or
any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the
Securities or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Securities or
any part thereof.
2.5 The Escrow Agent in its capacity as such has no liability hereunder
to either party other than to hold the funds and/or Securities it has received
and to deliver them under the terms hereof. Each party hereto agrees to
indemnify and hold harmless the Escrow Agent in its capacity as such from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Escrow Agreement.
2.6 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
2.7 All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as follows:
(a) XXXX.xxx, Inc.
0000 Xxxxxxxxx, Xxxxx X
Xxxxxxx Xxxxx, XX 00000
Attention: President
Telephone:000-000-0000
Facsimile:000-000-0000
(b) If to the Investors, to such Investor's address set forth
on Schedule A.
(c) The Xxxxxxxxx Law Group, PC
00 Xxxxxxxx, 00xx Xx.
New York, NY 10006
Attention: Xxxxx X. Xxxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or to such other person at such other place as the such party shall
designate to the other party in writing.
-3-
2.8 This Agreement shall be binding upon and shall inure to the benefit
of the permitted successors and assigns of the parties hereto.
2.9 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may not
be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.
2.10 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
2.11 The Company acknowledges and confirms that it is not being
represented in a legal capacity by The Xxxxxxxxx Law Group, PC and it has had
the opportunity to consult with its own legal advisors prior to the signing of
this Agreement.
2.12 This Agreement will be construed and enforced in accordance with,
and exclusively governed by the laws of the State of New York, except for
matters arising under the Securities Act, without reference to principles of
conflicts of law. Each of the parties consents to the exclusive jurisdiction of
the U.S. District Court sitting in the Southern District of the State of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on FORUM NON CONVENIENS, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the ____ day of May, 1999.
XXXX.XXX, INC.
By________________________________
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By________________________________
DOMINION CAPITAL FUND, LTD.
By________________________________
The Xxxxxxxxx Law Group, PC
Escrow Agent
By________________________________
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the ___ day of May,
1999, between the entities listed on Schedule A attached hereto (collectively
referred to as the "INVESTORS"), and XXXX.xxx, Inc., a corporation incorporated
under the laws of the state of Delaware, and having its principle place of
business at 0000 Xxxxxxxxx, Xxxxx X, Xxxxxxx Xxxxx, XX 00000, (the "COMPANY").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to a
Preferred Stock Purchase Agreement dated as of the date hereof (the "PURCHASE
AGREEMENT"), an aggregate of 2,000 shares of Preferred Stock and Warrants to
purchase an aggregate of 50,000 Warrant Shares; All capitalized terms not
hereinafter defined shall have that meaning assigned to them in the Purchase
Agreement; and
WHEREAS, the Company desires to grant to the Investors the registration
rights set forth herein with respect to the Underlying Shares, Warrant Shares
and Additional Shares.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term "REGISTRABLE
SECURITY" means the Underlying Shares, Warrant Shares and Additional Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
of 1933, as amended (the "SECURITIES ACT") and disposed of pursuant thereto,
(ii) registration under the Securities Act is no longer required for the
immediate public distribution of such security as a result of the provisions of
Rule 144 promulgated under the Securities Act, or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 1.
Section 2. RESTRICTIONS ON TRANSFER. The Investors acknowledge and
understand that prior to the registration of the Registrable Securities as
provided herein, the Registrable Securities are "restricted securities" as
defined in Rule 144 promulgated under the Act. The Investors understand that no
disposition or transfer of the Registrable Securities may be made by Investors
in the absence of (i) an opinion of counsel to the Investors that such transfer
may be made without registration under the Securities Act or (ii) such
registration.
Section 3. REGISTRATION RIGHTS.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC"), within 15 calendar days after the
Subscription Date, an amendment to the Form S-3 registration statement which was
filed by the Company with the SEC on ________, under the Securities Act (the
"AMENDMENT", including the registration statement to which it is amending), at
the sole expense of the Company (except as provided in Section 3(c) hereof), in
respect of all holders of Registrable Securities, so as to permit a public
offering and sale of the Registrable Securities under the Act. The Company shall
use its best efforts to cause the Amendment to become effective within 45
calendar days from the Subscription Date. The number of shares of Common Stock
designated in the Amendment to be registered shall be (i) 200% of the number of
Underlying Shares that would be required if all of the shares of Preferred Stock
were converted on the Trading Day immediately preceding the filing of the
Amendment, plus (ii) 100% of the Warrant Shares.
In the event the number of shares of Common Stock included in
the Amendment shall be insufficient to cover the number of Registrable
Securities, the Company agrees that it shall file either another amendment or a
new registration statement covering the Registrable Securities as is then
outstanding, pursuant to the time requirements as set forth in this Agreement to
apply from such date the Amendment no longer covers an adequate number of
Registrable Securities due to the Investor(s) via conversion and/or exercise.
The Company agrees that in each such event it will file with the SEC either an
amendment to the Amendment or a new registration statement within 30 days of
when required hereunder, and use its best efforts to cause either the amendment
or such registration statement to become effective within 60 calendar days from
when required. If such amendment or new registration statement is not filed
and/or declared effective in a timely manner as set forth herein, the Company
shall be subject to liquidated damages as pursuant to the provisions of Section
3(e) below.
(b) The Company will maintain the Amendment or post-effective
amendment filed under this Section 3 hereof current under the Securities Act
until the earlier of (i) the date that all of the Registrable Securities have
been sold pursuant to the Amendment, (ii) the date the holders thereof receive
an opinion of counsel that the Registrable Securities may be sold under the
provisions of Rule 144 or (iii) five years after the Subscription Date.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Amendment under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Investors shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall qualify any of the securities for sale in such states as such
Investors reasonably designate and shall furnish indemnification in the manner
provided in Section 6 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers. The Company at its expense will supply the
Investors with copies of the Amendment (including the underlying registration
statement) and the prospectus or offering circular included therein and other
related documents in such quantities as may be reasonably requested by the
Investors.
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(d) The Company shall not be required by this Section 3 to
include a Investors' Registrable Securities in any amendment or registration
statement which is to be filed if, in the opinion of counsel for both the
Investors and the Company (or, should they not agree, in the opinion of another
counsel experienced in securities law matters acceptable to counsel for the
Investors and the Company) the proposed offering or other transfer as to which
such registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the Securities Act.
(e) In the event the Amendment to be filed by the Company
pursuant to Section 3(a) above is not filed with the SEC within 15 calendar days
from the Subscription Date and/or the Amendment is not declared effective by the
SEC within 45 days from the Subscription Date, then the Company will pay
Investors (pro rated on a daily basis), as liquidated damages for such failure
and not as a penalty, two (2%) percent of the Purchase Price of the then
outstanding shares of Preferred Stock for every 30 calendar day period until the
Amendment has been filed and/or declared effective. Such payment of the
liquidated damages shall be made to the Investors in cash, immediately upon
demand, provided, however, that the payment of such liquidated damages shall not
relieve the Company from its obligations to register the Registrable Securities
pursuant to this Section. If the Company does not remit the damages to the
Investors as set forth above, the Company will pay the Investors reasonable
costs of collection, including attorneys fees, in addition to the liquidated
damages. The registration of the Registrable Securities pursuant to this
provision shall not affect or limit Investors' other rights or remedies as set
forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) The Company agrees that it will declare the Amendment
effective within five days after being informed by the SEC that the Amendment
may be declared effective, and will respond to any questions and/or comments
from the SEC within five business days after receipt of same.
Section 4. COOPERATION WITH COMPANY. Investors will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. REGISTRATION PROCEDURES. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC such amendments and
supplements to the Amendment and the prospectus used in connection therewith as
may be necessary to keep it effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
covered by such registration statement whenever the Investors of such securities
shall desire to sell or otherwise dispose of the same (including prospectus
supplements with respect to the sales of securities from time to time in
connection with a registration statement pursuant to Rule 415 promulgated under
the Securities Act);
-3-
(b) furnish to each Investor such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such Investors
may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Investors;
(c) register and qualify the securities covered by the
Amendment under such other securities or blue sky laws of such jurisdictions as
the Investors shall reasonably request, and do any and all other acts and things
which may be necessary or advisable to enable each Investor to consummate the
public sale or other disposition in such jurisdiction of the securities owned by
such Investors, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;
(d) list such securities on the Nasdaq OTC Bulletin Board or
other national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the rules
of such exchange or Nasdaq;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each holder of Registrable Securities covered by the
Amendment, at any time when a prospectus relating thereto covered by the
Amendment is required to be delivered under the Securities Act, of the happening
of any event of which it has knowledge as a result of which the prospectus
included in the Amendment, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 6. INFORMATION BY INVESTORS. Each holder of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Investors and the distribution proposed by such
Investors as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 6.
Section 7. ASSIGNMENT. The rights granted the Investors under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. This Agreement is binding upon
and inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
-4-
Section 8. TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to this Agreement shall terminate as to each Investor (and permitted
transferee under Section 7 above) upon the occurrence of any of the following:
(a) all such Investors' securities subject to this Agreement
have been registered;
(b) all of such Investors' securities subject to this Agreement
may be sold without such registration pursuant to Rule 144 promulgated by the
SEC pursuant to the Securities Act;
(c) all of such Investors' securities subject to this Agreement
can be sold pursuant to Rule 144(k); or
(d) five years from the issuance of the Registrable Securities.
Section 9. INDEMNIFICATION.
(a) In the event of the filing of any amendment or registration
statement with respect to Registrable Securities pursuant to Section 3 hereof,
the Company agrees to indemnify and hold harmless the Investors and each officer
or director of the Investors or person, if any, who controls the Investors
within the meaning of the Securities Act ("DISTRIBUTING INVESTORS") against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which the Distributing Investors
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement, or any related
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Investors, specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Distributing Investor agrees that it will indemnify
and hold harmless the Company, and each officer, director of the Company or
person, if any, who controls the Company within the meaning of the Securities
Act, against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof; arise out of or are based upon any untrue statement
-5-
or alleged untrue statement of any material fact contained in a registration
statement requested by such Distributing Investor, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Investor,
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement contained in this Section 9(b) shall not inure to the
benefit of the Company with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Securities which are the
subject thereof if the Company failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such registration statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Company was obligated to do so under the Securities Act or
the rules and regulations promulgated thereunder. This indemnity agreement will
be in addition to any liability which the Distributing Investors may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Investor, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Investor and the indemnifying party and the Distributing Investor
shall have been advised by such counsel that there may be one or more legal
defenses available to the indemnifying party different from or in conflict with
any legal defenses which may be available to the Distributing Investor (in which
-6-
case the indemnifying party shall not have the right to assume the defense of
such action on behalf of the Distributing Investor, it being understood,
however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Distributing Investor, which firm shall be designated in
writing by the Distributing Investor). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 10. CONTRIBUTION. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Investor makes a claim for indemnification pursuant to Section 9 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Investor, then the Company and
the applicable Distributing Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
Distributing Investor, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 11. NOTICES. Any notice pursuant to this Agreement by the
Company or by the Investors shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Investors, to their respective address set forth
on Schedule A.
(b) If to the Company, at the address set forth herein, or to
such other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
days after they are mailed in the manner set forth above. If notice is delivered
by facsimile to the Company and followed by mail, delivery shall be deemed given
two days after such facsimile is sent.
-7-
Section 12. HEADINGS. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 13. JURISDICTION. This Agreement will be construed and enforced
in accordance with and exclusively governed by the laws of the State of New
York, except for matters arising under the Act, without reference to principles
of conflicts of law. Each of the parties consents to the exclusive jurisdiction
of the federal courts whose districts encompass any part of the State of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on FORUM NON CONVENIENS, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
Section 14. SEVERABILITY. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been contained
herein.
Section 15 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 the Company on the one hand, and the Investors on the other hand.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
Attest: XXXX.xxx, Inc.
By:_________________________________ By:________________________________
Name: Name:
Title: Title:
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By_________________________________
DOMINION CAPITAL FUND, LTD.
By_________________________________
EXHIBIT D
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
Act PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. 1
To Purchase 25,000 Shares of Common Stock of
IJNT INTERNATIONAL INC.
THIS CERTIFIES that, for value received, Dominion Capital Fund, Ltd.,
or its assigns (the "INVESTOR"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after the date hereof (the
"ISSUANCE DATE") and on or prior to May , 2004 (the "TERMINATION DATE") but not
thereafter, to subscribe for and purchase from IJNT INTERNATIONAL INC., a
Delaware corporation (the "COMPANY"), Twenty Five Thousand (25,000) shares of
Common Stock (the "WARRANT SHARES"). The purchase price of one share of Common
Stock (the "EXERCISE PRICE") under this Warrant shall be $ [125% OF THE BID
PRICE OF THE COMMON STOCK ON THE TRADING DAY IMMEDIATELY PRECEDING THE CLOSING
DATE]. The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant is
being issued in connection with the Preferred Stock Purchase Agreement dated as
of May , 1999 (the "AGREEMENT") entered into between the Company, the Investor
and another entity not a party to this Warrant. In the event of any conflict
between the terms of this Warrant and the Agreement, the Agreement shall
control.
1. TITLE OF WARRANT. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
Act PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
No. 2
To Purchase 25,000 Shares of Common Stock of
IJNT INTERNATIONAL INC.
THIS CERTIFIES that, for value received, Sovereign Partners Limited
Partnership, or its assigns (the "INVESTOR"), is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after the
date hereof (the "ISSUANCE DATE") and on or prior to May , 2004 (the
"TERMINATION DATE") but not thereafter, to subscribe for and purchase from IJNT
INTERNATIONAL INC., a Delaware corporation (the "COMPANY"), Twenty Five Thousand
(25,000) shares of Common Stock (the "WARRANT SHARES"). The purchase price of
one share of Common Stock (the "EXERCISE PRICE") under this Warrant shall be $
[125% OF THE BID PRICE OF THE COMMON STOCK ON THE TRADING DAY IMMEDIATELY
PRECEDING THE CLOSING DATE]. The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. This Warrant is being issued in connection with the Preferred Stock
Purchase Agreement dated as of May , 1999 (the "AGREEMENT") entered into between
the Company, the Investor and another entity not a party to this Warrant. In the
event of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. TITLE OF WARRANT. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. AUTHORIZATION OF SHARES. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. EXERCISE OF WARRANT.
(a) Exercise of the purchase rights represented by this
Warrant may be made at any time or times, in whole or in part, before the close
of business on the Termination Date, or such earlier date on which this Warrant
may terminate as provided in paragraph 11 below, by the surrender of this
Warrant and the Subscription Form annexed hereto duly executed, to the office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the Exercise
Price of the shares of Common Stock thereby purchased or pursuant to the
cashless exercise feature provided below; whereupon the holder of this Warrant
shall be entitled to receive a certificate for the number of shares of Common
Stock so purchased. Certificates for shares of Common Stock purchased hereunder
shall be delivered to the holder hereof within three Business Days after the
date on which this Warrant shall have been exercised as aforesaid. Payment of
the Exercise Price of the shares may be by certified check or cashier's check or
by wire transfer (of same day funds) to the Company in an amount equal to the
Exercise Price multiplied by the number of shares being purchased or pursuant to
the cashless exercise feature as set forth in Section 3(b) below.
(b) The Investor may pay the Exercise Price in cash (as set
forth in Section 3(a) above) or, pursuant to a cashless exercise, as follows:
the Investor shall surrender this Warrant to the Company together with a notice
of cashless exercise, in which event the Company shall issue to the Investor the
number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Investor.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) Trading
Days immediately prior to (but not
including) the date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Investor, and the holding period for the Warrant Shares shall be deemed to have
been commenced on the Issuance Date.
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4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of issuing fractional shares, the Company shall round up to the
nearest whole share the number of Warrant Shares due upon exercise of this
Warrant.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; PROVIDED, HOWEVER, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and PROVIDED FURTHER, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
8. ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
PROVIDED, HOWEVER, that this Warrant may not be resold or otherwise transferred
except (i) in a transaction registered under the Securities Act, or (ii) in a
transaction pursuant to an exemption, if available, from such registration and
whereby, if requested by the Company, an opinion of counsel reasonably
satisfactory to the Company is obtained by the holder of this Warrant to the
effect that the transaction is so exempt.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of this Warrant or stock certificate.
-3-
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. ADJUSTMENTS. The Exercise Price shall be adjusted as
provided for below in this Section (the Exercise Price, and the Exercise Price
as thereafter then adjusted, shall be included in the definition of Exercise
Price) and the Exercise Price from time to time shall be further adjusted as
provided for below in this Section. Upon each adjustment of the Exercise Price,
the Investor shall thereafter be entitled to receive upon exercise of this
Warrant, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by (i) multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment and (ii) dividing the
product thereof by the Exercise Price resulting from such adjustment. The
Exercise Price shall be adjusted as follows:
(a) In the case of any amendment to the Company's Certificate of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the Common Stock or
division of the Common Stock, this Warrant shall be adjusted so as to provide
that upon exercise thereof, the Investor shall receive, in lieu of each share of
Common Stock theretofore issuable upon such exercise, the kind and amount of
shares, other securities, money and property receivable upon such designation,
change or division by the holder issuable upon such exercise had the exercise
occurred immediately prior to such designation, change or division. This Warrant
shall be deemed thereafter to provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section. The provisions of this Subsection (a) shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
(b) If the Company shall at any time subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock, or declare a
dividend or make any other distribution upon the Common Stock payable in shares
of Common Stock, the Exercise Price in effect immediately prior to such
subdivision or dividend or other distribution shall be proportionately reduced,
and conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased.
(c) If the Company shall, through either a private placement or a
public offering (but other than pursuant to options granted under the Company's
stock option plans or shares or options issued in an acquisition or shares
issuable upon conversion of shares of the Company's convertible debentures or
shares issuable pursuant to the exercise of warrant or options outstanding on
the Issuance Date and other than the issuance of up to an aggregate of 100,000
shares of Common Stock pursuant to transactions not described in this
parenthetical) issue shares of Common Stock, or options to purchase Common Stock
or rights to subscribe for Common Stock or securities convertible into or
exchangeable for Common Stock at a price (such price, if other than cash, as
determined by the Board of Directors) less than the Exercise Price (the "LOWER
PRICE"), the Exercise Price shall be automatically reduced to the Lower Price.
Notwithstanding the foregoing, in no event shall the Exercise Price ever be
increased as a result of this Subsection (c). There will be no adjustment in the
event that the Company pays a dividend in cash to its holders of Common Stock;
provided, however, the Company will give the holder written notice at least
thirty (30) days prior to the record date for the cash dividend, that the
Company intends to declare a cash dividend.
-4-
(d) If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with or into
another corporation or other entity, or the sale of all or substantially all of
the Company's assets to another corporation or other entity shall be effected in
such a way that holders of shares of Common Stock shall be entitled to receive
stock, securities, other evidence of equity ownership or assets with respect to
or in exchange for shares of Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale (except as
otherwise provided below in this Section) lawful and adequate provisions shall
be made whereby the holder shall thereafter have the right to receive upon the
exercise hereof upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of this Warrant under this Section had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of shares of Common Stock receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, other evidence of equity ownership or assets thereafter
deliverable upon the exercise hereof including an immediate adjustment, by
reason of such consolidation or merger, of the Exercise Price to the value for
the Common Stock reflected, by the terms of such consolidation or merger if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation or merger. Subject to the terms of this Warrant, in the
event of a merger or consolidation of the Company with or into another
corporation or other entity as a result of which the number of shares of common
stock of the surviving corporation or other entity issuable to Investors of
Common Stock, is greater or lesser than the number of shares of Common Stock
outstanding immediately prior to such merger or consolidation, then the Exercise
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock. The Company shall not effect any such
consolidation, merger or sale, unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to the Investor, the
obligation to deliver to the Investor such shares of stock, securities, other
evidence of equity ownership or assets as, in accordance with the foregoing
provisions, the Investor may be entitled to receive or otherwise acquire. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than fifty (50%) percent of the outstanding shares of Common Stock, the
Company shall not effect any consolidation, merger or sale with the person
having made such offer or with any affiliate of such person, unless prior to the
consummation of such consolidation, merger or sale the Investor shall have been
given a reasonable opportunity to then elect to receive upon the exercise of
this Warrant the amount of stock, securities, other evidence of equity ownership
or assets then issuable with respect to the number of shares of Common Stock in
accordance with such offer.
-5-
(e) In case the Company shall, at any time prior to exercise of this
Warrant, consolidate or merge with any other corporation or other entity (where
the Company is not the surviving entity) or transfer all or substantially all of
its assets to any other corporation or other entity, then the Company shall, as
a condition precedent to such transaction, cause effective provision to be made
so that the Investor of this Warrant upon the exercise of this Warrant after the
effective date of such transaction shall be entitled to receive the kind and,
amount of shares, evidences of indebtedness and/or other securities or property
receivable on such transaction by the Investor of the number of shares of Common
Stock as to which this Warrant was exercisable immediately prior to such
transaction (without giving effect to any restriction upon such exercise); and,
in any such case, appropriate provision shall be made with respect to the rights
and interest of the Investor of this Warrant to the end that the provisions of
this Warrant shall thereafter be applicable (as nearly as may be practicable)
with respect to any shares, evidences of indebtedness or other securities or
assets thereafter deliverable upon exercise of this Warrant. Upon the occurrence
of any event described in this Subsection (e), the Investor of this Warrant
shall have the right to (i) exercise this Warrant immediately prior to such
event at an Exercise Price equal to lesser of (A) the then Exercise Price or (B)
the price per share of Common Stock paid in such event, or (ii) retain ownership
of this Warrant, in which event, appropriate provisions shall be made so that
the Warrant shall be exercisable at the Investor's option into shares of stock,
securities or other equity ownership of the surviving or acquiring entity,
(f) Whenever the Exercise Price shall be adjusted pursuant to this
Section the Company shall issue a certificate signed by its President or Vice
President and by its Treasurer, or Secretary, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company made any determination
hereunder), and the Exercise Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to the Investor of this Warrant. The Company shall make such
certificate and mail it to the Investor immediately after each adjustment.
12. NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made.
-6-
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at
its option, at any time during the term of this Warrant, reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
domestic securities exchange or market upon which the Common Stock may be
listed.
16. 4.99% LIMITATION. The number of shares of Common Stock
which may be acquired by the Investor pursuant to the terms herein shall not
exceed the number of such shares of Common Stock which, when aggregated with all
other shares of Common Stock then owned by the Investor, would result in the
Investor owning more than 4.99% of the then issued and outstanding Common Stock
at any one time. The preceding shall not interfere with the Investor's right to
this Warrant over time which in the aggregate totals more than 4.99% of the then
outstanding shares of Common Stock so long as the Investor does not own more
than 4.99% of the then outstanding Common Stock at any given time.
17. MISCELLANEOUS.
(a) ISSUE DATE; CHOICE OF LAW; VENUE; JURISDICTION. The
provisions of this Warrant shall be construed and shall be given effect in all
respects as if it had been issued and delivered by the Company on the Issuance
Date. This Warrant shall be binding upon any successors or assigns of the
Company. This Warrant will be construed and enforced in accordance with and
exclusively governed by the laws of the State of New York, except for matters
arising under the Securities Act, without reference to principles of conflicts
of law. The parties consent to the exclusive jurisdiction of the U.S. District
Court sitting in the Southern District of the State of New York in connection
with any dispute arising under this Warrant and hereby waives, to the maximum
-7-
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if the other party to this Warrant obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) RESTRICTIONS. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered (or
if no exemption from registration exists), will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing the
Warrant Shares issued to the Holder upon exercise (if not registered or if no
exemption from registration exists) will bear the following 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
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) MODIFICATION AND WAIVER. This Warrant and any
provisions hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.
(d) NOTICES. Any notice, request or other document
required or permitted to be given or delivered to the holders hereof of the
Company shall be delivered or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address set forth in the Agreement.
-8-
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May , 1999
IJNT INTERNATIONAL INC.
By: ________________________________
Name:
Title:
NOTICE OF EXERCISE
------------------
To: IJNT INTERNATIONAL INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
IJNT INTERNATIONAL INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
------------------------------
Signature
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
________________________________________________________________.
________________________________________________________________
Dated: _______________,
Holder's Signature: _________________________________
Holder's Address: _________________________________
_________________________________
Signature Guaranteed: _________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT E
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Address
Re: Preferred Stock Purchase Agreement dated May , 1999
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Preferred Stock
Purchase Agreement by and between, the entities (the "INVESTORS") listed on
Schedule A, and XXXX.xxx, Inc. (the "COMPANY"), dated May , 1999 (the "PURCHASE
AGREEMENT"), which provides for the issuance of Preferred Stock, and sale by the
Company of up to 2,000 shares of Series A Preferred Stock of the Company (the
"PREFERRED STOCK"), warrants (the "WARRANTS") to purchase 50,00 shares of Common
Stock (the "WARRANT SHARES"), and certain additional shares of Common Stock as
set forth in the Purchase Agreement (the "ADDITIONAL SHARES"). All terms used
herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Certificate of Designation, the
Certificate of Increase, the Registration Rights Agreement (the "REGISTRATION
RIGHTS AGREEMENT") between the Investors, the Placement Agent and the Company,
dated May , 1999, and the Escrow Agreement between the Investors, Placement
Agent, Company and the Escrow Agent, dated May , 1999 (the "ESCROW AGREEMENT",
and together with the Purchase Agreement and the Registration Rights Agreement,
the "AGREEMENTS"). As counsel, we have made such legal and factual examinations
and inquires as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined, among other things,
originals or copies of such corporate records of the Company, certificates of
public officials and such other documents and questions of law that we consider
necessary or advisable for the purpose of rendering this opinion. In such
examination we have assumed the genuineness of all signatures on original
documents, the authenticity and completeness of all documents submitted to us as
originals, the conformity to original documents of all copies submitted to us as
copies thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investors in the Agreements and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority (corporate and other) to carry on its business and to own,
lease and operate its properties and assets as described in the Company's SEC
Documents. To our knowledge, except as stated in the SEC Documents, the Company
does not own or control any other business entity. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the Company owns or leases property, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements, and the Certificate of
Designation, the Certificate of Increase, and to issue the Additional Shares,
Preferred Stock, and the shares of Common Stock underlying the Preferred Stock
(the "UNDERLYING SHARES"), and Warrants (the "WARRANT SHARES"). The execution
and delivery of the Agreements, and the execution, issuance and delivery of the
Warrants, Warrant Shares, Additional Shares, the Preferred Stock, and the
Underlying Shares, by the Company and the consummation by it of the transactions
contemplated thereby 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. Each of the Agreements has been duly executed and
delivered, and the Preferred Stock and Warrants have been duly executed, issued
and delivered, by the Company and each of the Agreements, the Certificate of
Designation, and the Certificate of Increase, constitutes valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective 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.
3. The execution, delivery and performance of the Agreements, and the
issuance of the Preferred Stock and Warrants, by the Company and the
consummation by the Company of the transactions contemplated thereby, including,
without limitation, the issuance of the Warrants, Warrant Shares, Additional
Shares, Preferred Stock, and Underlying Shares, do not and will not (i) result
in a violation of the Company's Certificate of Incorporation or ByLaws; (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, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, except for
such conflicts, defaults, terminations, amendments, accelerations and
cancellations as would not, individually or in the aggregate, have a Material
Adverse Effect; or (iii) result in a violation of any federal or state law, rule
or regulation applicable to the Company or by which any property or asset of the
Company is bound or affected, except for such violations as would not,
individually or in the aggregate, have a Material Adverse Effect. To our
knowledge, the Company is not in violation of any terms of its Certificate of
Incorporation or ByLaws.
-2-
4. The issuance of the Preferred Stock, Warrants, Additional Shares,
Warrant Shares, and Underlying Shares in accordance with the Purchase Agreement
will be exempt from registration under the Securities Act of 1933 and will be in
compliance with Delaware state securities laws. When so issued, the Preferred
Stock, Additional Shares, Warrants, Warrant Shares, and Underlying Shares, will
be duly and validly issued, fully paid and nonassessable, and free of any liens,
encumbrances and preemptive or similar rights contained in the Company's
Certificate of Incorporation or ByLaws or, to our knowledge, in any agreement to
which the Company is party.
5. To our knowledge, except as disclosed in the SEC Documents, there
are no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or against any officer or director of the
Company in his or her capacity as such, nor has the Company received any written
threat of any such claims, actions, suits, proceedings, or investigations which
are required to be and have not been disclosed in the SEC Documents.
6. To our knowledge, there are no outstanding options, warrants, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, except as described in the SEC
Documents. To our knowledge, the Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
7. The issuance of the Preferred Stock, Underlying Shares, Additional
Shares, Warrants, and Warrant Shares, will not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed.
8. As more specifically described in the SEC Documents, the authorized
capital stock of the Company consists of shares of Common Stock, $0.01 par value
per share ("COMMON STOCK") and shares of Preferred Stock, par value $0.01 per
share.
This opinion is furnished to the Investors solely for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
-3-
EXHIBIT F
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT THE
SERIES A PREFERRED STOCK)
The undersigned hereby irrevocably elects to convert the Series A Preferred
Stock No. ____ into shares of common stock of XXXX.XXX, INC. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to an
exemption from registration under the Securities Act of 1933,
as amended (the "Securities Act"), or pursuant to registration
of the Common Stock under the Securities Act, subject to any
restrictions on sale or transfer set forth in the Preferred
Stock Purchase Agreement (the "Purchase Agreement") between
the Company and the original holder of the Series A Preferred
Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series
of transaction that is a part of or a plan or scheme to evade
the registration requirements of the Securities Act; and
(iii) upon the issuance of Common Stock pursuant to this Notice of
Conversion, the undersigned will not own more than 4.99% of
the then outstanding shares of Common Stock of the Company.
---------------------------- ----------------------------
Date of Conversion Applicable Conversion Price
---------------------------- ----------------------------
Number of Common Shares upon $ Amount of Conversion
Conversion
---------------------------- ----------------------------
Signature Name
Address: Delivery of Shares to:
* The original Preferred Stock Certificate and Notice of Conversion must be
received by the Company by the third business day following the Conversion Date
(as defined in the Purchase Agreement).
EXHIBIT G
INSTRUCTIONS TO TRANSFER AGENT
XXXX.XXX, INC.
_______________, 1999
Insert
[Name and address of Transfer Agent]
Dear Sirs:
Reference is made to the Preferred Stock Purchase Agreement and all
Exhibits and Schedules thereto (the "AGREEMENT") dated as of May , 1999, between
the entities listed in Schedule A (collectively referred to as the "INVESTORS")
and XXXX.xxx, Inc. (the "COMPANY"). Pursuant to the Agreement, subject to the
terms and conditions set forth in the Agreement the Investors have agreed to
purchase from the Company and the Company has agreed to sell to the Investors
shares of Series A Preferred Stock (the "PREFERRED STOCK"), and warrants (the
"WARRANTS") to purchase shares of Common Stock of the Company, par value $0.01
per share (the "COMMON STOCK"). As a condition to the effectiveness of the
Agreement, the Company has agreed to issue to you, as the transfer agent for the
Common Stock (the "TRANSFER AGENT"), these instructions relating to the Common
Stock to be issued to the Investors (or a permitted assignee) pursuant to the
Agreement, upon conversion of the Preferred Stock, or upon exercise of the
Warrants. All terms used herein and not otherwise defined shall have the meaning
set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file
with the SEC, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investors under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investors certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor(s) or
its counsel or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon any surrender of
one or more certificates evidencing Common Stock which bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, the Transfer Agent shall deliver to
the Investors the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investor(s) shall request.
In the event the Company files a Form S-3 registration statement and
such registration statement is declared effective by the SEC in connection with
any such event, the Investor(s) (or its permitted assignee) shall confirm in
writing to the Transfer Agent that (i) the Investor(s) has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (ii) the Investor(s) confirm(s) to the transfer
agent that the Investor(s) has complied with the prospectus delivery
requirement.
In the event the Company files a registration statement other than on
Form S-3, which is subsequently declared effective by the SEC, the Investors
need not confirm the above in writing to the Transfer Agent.
In the event a registration statement is not filed by the Company, or
for any reason the registration statement which is filed by the Company is not
declared effective by the SEC the Investor(s), or its permitted assignee, or
either of their brokers confirms to the Transfer Agent that (i) the Investor(s)
has(ve) held the shares of Common Stock for at least one year, (ii) counting the
shares surrendered as being sold upon the date the unlegended Certificates would
be delivered to the Investor(s) (or the Trading Day immediately following if
such date is not a Trading Day), the Investor(s) will not have sold more than
the greater of (a) one percent (1%) of the total number of outstanding shares of
Common Stock or (b) the average weekly trading volume of the Common Stock for
the preceding four weeks during the three months ending upon such delivery date
(or the Trading Day immediately following if such date is not a Trading Day),
and (iii) the Investor(s) has(ve) complied with the manner of sale and notice
requirements of Rule 144 under the Securities Act.
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of (___) ___-____.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investors acquires
Common Stock under the Agreement, the Transfer Agent shall deliver to the
Transfer Agent as defined in the Agreement certificates representing Common
Stock (with or without the Legend, as appropriate) immediately.
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3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the
Investors are an express third party beneficiary of these Irrevocable
Instructions and shall be entitled to rely upon, and enforce, the provisions
thereof.
XXXX.XXX, INC.
By:__________________________________
AGREED:
[NAME OF TRANSFER AGENT]
By:__________________________________
Name:
Title:
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