EXHIBIT 10.11
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT
BETWEEN
FOCUS ENHANCEMENTS, INC.
AND
THE INVESTORS SIGNATORY HERETO
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT dated as of June __, 2000 (the
"Agreement"), between the Investors signatory hereto (each an "Investor" and
together the "Investors"), and Focus Enhancements, Inc., a corporation organized
and existing under the laws of the State of Delaware (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 (i) $1,500,000 of Common Stock (as defined
below) at the Purchase Price (as defined below) and (ii) Warrants (as defined
below) to purchase up to 120,000 shares of the Common Stock (as defined below)
at the price of 100% of the Bid Price on the date of execution hereto (as
defined below).
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and 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 securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of Common Stock on the Principal Market on the date in question.
Section 1.2. "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.3. "Capital Shares Equivalents" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any right
to subscribe for any Capital Shares of
the Company or any warrants, options or other rights to subscribe for or
purchase Capital Shares or any such convertible or exchangeable securities.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Common Stock and Warrants pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $.01 par
value per share.
Section 1.7. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.8. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.9. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.10. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit A hereto executed and delivered
contemporaneously with this Agreement.
Section 1.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.12. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.13. "Material Adverse Effect" shall mean any effect on the business,
operations, properties 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 Registration Rights Agreement,
the Escrow Agreement or the Warrants in any material respect.
Section 1.14. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.15. "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
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Section 1.16. "Principal Market" shall mean the American Stock Exchange, the
New York Stock Exchange, the NASDAQ National or SmallCap Markets or the OTC
Bulletin Board whichever is at the time the principal trading exchange or market
for the Common Stock, based upon share volume.
Section 1.17. "Purchase Price" shall mean $1.07 per share of Common Stock,
adjusted for any splits, reverse splits or Common Stock dividends declared by
the Company after the execution hereof.
Section 1.18. "Registrable Securities" shall mean the Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Shares and Warrant Shares have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Shares and Warrant Shares have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Shares and Warrant Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.19. "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 Investor as of
the Closing Date in the form annexed hereto as Exhibit B.
Section 1.20. "Registration Statement" shall mean a registration statement on
Form S-1 (or on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate, and
which form shall be available for the resale by the Investors of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement and in accordance with the intended
method of distribution of such securities), for the registration of the resale
by the Investor of the Registrable Securities under the Securities Act.
Section 1.21. "Regulation D" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.22. "SEC" shall mean the Securities and Exchange Commission.
Section 1.23. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.24. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.25. "SEC Documents" shall mean the Company's latest Form 10 or Form
10-SB, Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB
and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as
of the time in question 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.
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Section 1.26. "Shares" shall mean the $1,500,000 of Common Stock purchased at
the pursuant to this Agreement.
Section 1.27. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.28. "Warrants" shall mean the Warrants substantially in the form of
Exhibit C to be issued to the Investors hereunder.
Section 1.29. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors, severally and not jointly, agree to
purchase the Shares together with the Warrants as follows:
(i) Closing. Upon satisfaction by the Company of the Closing
conditions set forth in Section 2.1(b), the Investors shall
purchase in the aggregate $1,500,000 of Common Stock at the
Purchase Price. The Investors purchasing in the Closing shall
deliver to the Escrow Agent immediately available funds in
the amounts set forth next to their signatures hereto and the
Company shall deliver the Common Stock certificates
representing the shares of Common Stock so purchased and the
applicable number of Warrants for each Investor to the Escrow
Agent, each to be held by the Escrow Agent pursuant to the
Escrow Agreement.
(ii) Satisfaction of Closing. Upon satisfaction of the conditions
set forth in Section 2.1(b), the Closing shall occur at the
offices of the Escrow Agent at which the Escrow Agent (x)
shall release the Common Stock and the Warrants to the
Investors and (y) shall release the Purchase Price (after all
fees have been paid as set forth in the Escrow Agreement),
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the party
sought to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the Investors,
of this Agreement and all Exhibits hereto;
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(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the
Common Stock and the Warrants, as more fully set forth in the
Escrow Agreement;
(iii) all representations and warranties of the Investors contained
herein shall remain true and correct as of Closing Date (as a
condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale
of the Common Stock and Warrants, or shall have the
availability of exemptions therefrom;
(vi) the sale and issuance of the Common Stock and Warrants
hereunder, and the proposed issuance by the Company to the
Investors of the Common Stock underlying the Warrants upon
the conversion or exercise thereof shall be legally permitted
by all laws and regulations to which the Investors and the
Company are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions contemplated
by this Agreement;
(vii) delivery of the original fully executed Common Stock
certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of the general
counsel to the Company, in the form of Exhibit D;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions
to Transfer Agent in the form attached hereto as Exhibit E;
and
(x) delivery to the Escrow Agent of the Registration Rights
Agreement; and
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Shares, the Warrants or the Warrant
Shares to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Shares and Warrant Shares at any time in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Common Stock and Warrants. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an
Exhibit hereto which is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid and
binding agreement of the Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and executed
by the Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
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Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as set forth
in the SEC Documents or the Disclosure Schedule attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants and to issue the Shares, the Warrants and the Warrant Shares pursuant
to their respective terms, (ii) the execution, issuance and delivery of this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the Common
Stock certificates and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Common Stock
certificates representing the Shares and the Warrants have been duly executed
and delivered by the Company and at each Closing shall constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for exercise of the
Warrants and the Shares.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock, $.01 par value per share, of
which 24,504,203 shares are
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issued and outstanding as of May 31, 2000 and 3,000,000 preferred stock, $.01
par value per share, of which no shares are issued and outstanding as of May 31,
2000. Except for (i) outstanding options and warrants as set forth in the SEC
Documents, and (ii) as set forth in the Disclosure Schedule, there are no
outstanding Capital Shares Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding, nor is
the Company a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock on the Principal Market. As of the date hereof, the Principal
Market is the Nasdaq Small Cap Market and the Company has not received any
notice regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided to
the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, (i)
the SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder; (ii)
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (iii) the financial statements of the
Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto at the
time of such inclusion. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the financial statements or in the
notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto included in the SEC Documents or was not incurred in the ordinary course
of business consistent with the Company's past practices since the last date of
such financial statements.
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Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Shares, the Warrants and the Warrant Shares will not require registration under
the Securities Act and/or any applicable state securities law. When issued and
paid for in accordance with the Warrants, the Warrant Shares will be duly and
validly issued, fully paid, and non assessable. Neither the sales of the Shares,
the Warrants or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement, the Registration Rights Agreement, the
Escrow Agreement or the Warrants will (i) result in the creation or imposition
by the Company of any liens, charges, claims or other encumbrances upon the
Shares, the Warrants or the Warrant Shares or, except as contemplated herein,
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe for or acquire the
Capital Shares or other securities of the Company. The Shares, the Warrants and
the Warrant Shares shall not subject the Investors to personal liability to the
Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Shares or
the Warrants, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Warrants in
accordance with the terms hereof (other than any SEC or state securities filings
that may be required to be made by the Company subsequent to each Closing, any
registration statement that may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
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Section 4.9. No Material Adverse Change. Since December 31 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed herein and in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since December 31, 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 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any Person of the Shares
or Warrants), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Shares or the Warrants (and the Warrant Shares) as contemplated
by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Shares or the Warrants in connection with
the transaction contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
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Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to (S) 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to (S) 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of (S) 897(c)(2) of the Internal Revenue Code
during the applicable period specified in (S) 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under (S) 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. (S) 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under (S) 280G of the Internal
Revenue Code.
11
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns
any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property, mineral or water rights, and buildings held under
lease by the Company as tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and intended to be made of such property, mineral or water
rights, and buildings by the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.19. Regulatory Compliance. The Company has all necessary permits and
licenses and has made all filings to such regulatory bodies to conduct its
business as it is now being conducted, and is not in material violation of any
thereof.
Section 4.20. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated
12
assets is permitted only in accordance with management's authorization; and (iv)
all transactions to which the Company or any subsidiary is a party or by which
its properties are bound are recorded as necessary to permit preparation of the
financial statements of the Company in accordance with U.S. generally accepted
accounting principles.
Section 4.21. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.22. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company that:
Section 5.1. Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof and shall use best efforts to
timely prepare and file the Registration Statement.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock and Warrant Shares
pursuant to any exercise of the Warrants. The number of shares so reserved from
time to time, as theretofore increased or reduced as hereinafter provided, may
be reduced by the number of shares actually delivered pursuant to any exercise
of the Warrants and the number of shares so reserved shall be increased or
decreased to
13
reflect potential increases or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to use all
commercially reasonable efforts to maintain the listing of the Common Stock on a
Principal Market, and as soon as reasonably practicable following the Closing to
list the Shares and the Warrant Shares on the Principal Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Principal Market, it will include in such application the Shares and the
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Investors to cause the Shares and Warrant Shares to be listed
on such other Principal Market as promptly as possible. The Company will take
all action to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
Section 6.4. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or (g) of the Exchange
Act, will use commercially reasonable efforts to 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 the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act until the Investors
have disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX. If the Transfer
Agent requires an opinion of counsel from the Company's counsel pursuant to the
Instructions to Transfer Agent attached hereto as Exhibit F to issue new
certificates free of a legend and Company's counsel fails to deliver such
opinion within five (5) days from such a request, then the Company will pay the
Investor (pro rated on a daily basis), as liquidated damages for such failure
and not as a penalty, ten percent (5%) of the market value of shares of Common
Stock purchased from the Company and surrendered by the Investor to the Transfer
Agent for removal of the legend for each week until such opinion is provided,
notwithstanding the fact that the Company has instructed the Transfer Agent to
accept such an opinion from Investor's counsel.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will
take all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or
14
by operation of law the obligation to deliver to the Investors such shares of
stock and/or securities as the Investors are entitled to receive pursuant to
this Agreement.
Section 6.8. Issuance of Common Stock and Warrant Shares. The sale of the
Shares and the Warrants and the issuance of the Warrant Shares pursuant to
exercise of the Warrants shall be made in accordance with the provisions and
requirements of Section 4(2), 4(6) or Regulation D and any applicable state
securities law. The Company shall make any necessary SEC and "blue sky" filings
required to be made by the Company in connection with the sale of the Securities
to the Investors as required by all applicable laws, and shall provide a copy
thereof to the Investors promptly after such filing.
Section 6.9. Future Financing. The Company agrees that it will enter into an
equity financing arrangement for up to Five Million Dollars ($5,000,000)
arranged through Rhino Advisors, Inc. or other equity financing agreement
approved by all of the Investors within thirty (30) days of the Closing Date,
provided the terms and conditions of such equity financing arrangement are
mutually agreeable to all parties. The Company agrees that it will not enter
into any other sale of its securities for cash at a discount to its then-current
bid price until 180 days after the Effective Date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been, or will be at the Company's annual meeting of
stockholders to be held on July 28, 2000, approved by the Company's
stockholders, (ii) pursuant to any compensatory plan or stock option plan for a
director, full-time employee or key consultant, (iii) pursuant to any
underwritten public offering (including any equity line of credit), (iv) the
exercise of any other warrants or options which are issued and outstanding on
the date hereof, or (v) with the prior approval of a majority in interest of the
Investors, which will not be unreasonably withheld, in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive Closing and
the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses
15
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Investor Indemnitees and to the extent arising out
of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material respect
any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this
Agreement; or
(iii) any action instituted against the Investors, or any of them,
by any stockholder of the Company who is not an Affiliate of
an Investor, with respect to any of the transactions
contemplated by this Agreement.
Notwithstanding anything to the contrary herein, the Company shall not be
liable under this Section 7.2(a) for any amount in excess of the net proceeds to
such Investor Indemnitee as a result of the sale of Registrable Securities
pursuant to the Registration Statement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to
reimburse the Company Indemnitees for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Company Indemnitees
and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of
the Investor's representations or warranties contained in
this Agreement, the annexes, schedules or exhibits hereto or
any instrument, agreement or certificate entered into or
delivered by the Investor pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor
pursuant to this Agreement; or
any action instituted against the Investors, or any of them, by any stockholder
of the Company who is not an Affiliate of an Investor, with respect to any of
the transactions contemplated by this Agreement. Notwithstanding anything to the
contrary herein, the Investor shall not be liable under this Section 7.2(b) for
any amount in excess of the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to the Registration Statement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"),
16
the Indemnified Party promptly shall notify the party from whom indemnification
pursuant to Section 7.2 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually prejudiced
by such omission or delay. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
All fees and expenses of the Indemnified Party (including reasonable costs
of defense and investigation in a manner not inconsistent with this Section and
all reasonable attorneys' fees and expenses) shall be paid to the Indemnified
Party, as incurred, within ten (10) Trading Days of written notice thereof to
the Indemnifying Party; provided, that the Indemnifying Party may require such
Indemnified Party to undertake to reimburse all such fees and expenses
immediately upon notice to the extent it is determined that such Indemnified
Party is not entitled to indemnification hereunder).
Section 7.4. Direct Claims. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnifying Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
17
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Principal Market
or other filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such publicly available
information reasonably requested by the Investors or any such representative,
advisor or underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless
prior to disclosure of such information the Company identifies such
information as being non-public information and provides the
Investors, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review.
Other than disclosure of any comment letters received from the SEC
staff with respect to the Registration Statement, the Company may, as
a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory
to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material non-
public information to the Investors or their advisors or
representatives, and the Company represents that it does not
disseminate material non-public information to any investors who
purchase stock in the Company in a public offering, to money managers
or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove
provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of
any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting
material non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence
by such persons or entities), which, if not disclosed in the
prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material
fact required to be stated therein in order to make the statements,
therein in light of the circumstances in which they were made, not
misleading.
18
Nothing contained in this Section 8.2 shall be construed to mean that
such persons or entities other than the Investors (without the written
consent of the Investors prior to disclosure of such information as
set forth in Section 8.2(a)) may not obtain non-public information in
the course of conducting due diligence in accordance with the terms of
this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a
material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit E hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
19
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The prevailing party shall be awarded its costs, including attorneys'
fees, from the non-prevailing party as part of the arbitration award. Any party
shall have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. The prevailing party in
such injunctive action shall be awarded its costs, including attorney's fees,
from the non-prevailing party.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Shares or Warrants purchased or acquired by any Investor hereunder
with respect to the Shares or Warrants held by such person, and (b) upon the
20
prior written consent of the Company, which consent shall not unreasonably be
withheld or delayed, each Investor's interest in this Agreement may be assigned
at any time, in whole or in part, to any other person or entity (including any
Affiliate of the Investor) who agrees to make the representations and warranties
contained in Article III and who agrees to be bound by the terms of this
Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: 000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to Xxxx Xxxxxxx, Esq.
(shall not constitute notice) Mintz, Levin, Xxxx, Xxxxxx & Pompeo, PC
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxxx X. Xxxxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
21
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which, include but are not limited to the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. 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 Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company (which shall not include the positing of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate of like tenor.
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Section 13.7. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Xxxxxxx Xxxxxx & Green, P.C., counsel to the Investors, in an amount equal to
$10,000 all as set forth in the Escrow Agreement.
Section 13.8. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party, except for
Union Atlantic, LLC, whose fee shall be paid by the Company. The Company on the
one hand, and the Investors, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 13.9. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then it may do so without the prior written consent of the
Investors, although it shall be required to provide prior notice (which may be
by telephone) to the Investors that it intends to issue such press release or
public announcement. No release shall name the Investors without their express
consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
this __ day of June, 2000.
FOCUS ENCHANCEMENTS, INC.
By: /s/ Xxxxx Xxxxx
----------------------------------------
Xxxxx Xxxxx, Executive Vice President &
Chief Operating Officer
INVESTORS:
ADDRESS: AMRO International, S.A.
C/o UltraFinanz
Grossmuensterplatz 6 By: /s/ X.X. Xxxxxxxx
Xxxxxx XX-0000 Xxxxxxxxxxx ----------------------------------------
Fax: 000-000-000-0000 X.X. Xxxxxxxx, Director
Purchase Amount:
$1,500,000
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