Exhibit 10.10
FORM OF INVESTOR AGREEMENT
Exhibit 10.10
[LOGO] Electronic Game Card Inc
London Office, Xxxxxxxx Xxxxx, 0xx Xxxxx
00 Xxxxxxx XX Xxxxxx, Xxxxxx XX0X 0XX XX
Tel: x00 (0)00 0000 0000
Fax: x00 (0)00 0000 0000
Email: xxxx@xxxxxxxxxxxxxxxxxx.xxx
Web: xxx.xxxxxxxxxxxxxxxxxx.xxx
November 23, 2006
Dear ______
As you know, we have been working to create and implement a plan to address
various outstanding matters in connection with the offering (the "Offering")
made pursuant to the Securities Purchase Agreement dated as of March 15, 2005
(the "Purchase Agreement"), as well as the related Warrants (the "Warrants") and
Registration Rights Agreement (the "Registration Rights Agreement"). In the
Offering, we offered Unsecured Convertible Promissory Notes (the "Notes") which
would be converted (upon the effectiveness of certain actions by the Company's
shareholders) into shares of Series A Convertible Preferred Stock (the
"Preferred Stock"). That Preferred Stock is convertible into shares of our
Common Stock. Warrants to purchase our Common Stock (the "Warrants") were also
issued in the Offering. Capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Purchase Agreement.
The Company previously mailed its 14C Information Statement relating to
authorization of the Preferred Stock to the Company's shareholders. The Company
is in the process of filing the applicable certificate of amendment with the
Secretary of State of Nevada. The Company covenants and agrees that it shall
have filed such certificate of amendment with the Secretary of State of Nevada
on or prior to the tenth business day following the date of this letter. Upon
that filing, the Notes shall automatically convert into the Preferred Stock.
The Company has determined to address certain issues raised in connection with
the Offering and, specifically, the Registration Rights Agreement, as follows:
1. The Company agrees that upon agreement with a majority in interest of the
holders (which holders, other than you, are herein referred to as the "Other
Holders") of Notes and Warrants on substantially the same terms as set forth
herein to amend the Registration Rights Agreement as provided herein (the
"Majority Consent"), the Company shall issue additional shares of its Common
Stock to investors in the Offering, in proportion to their investments in the
Offering, as additional penalty shares pursuant to the Registration Rights
Agreement in lieu of any Non-Registration Statement Penalty Payments (as defined
in the Registration Rights Agreement) that may have accrued through the date
hereof pursuant to the Registration Rights Agreement. A total of ________ Common
Stock penalty shares are to be issued to you in that connection (the "Penalty
Shares"). At that time, the Company also shall reduce the exercise price of the
Warrants to $0.50 per share. The Company covenants and agrees to use its best
efforts to obtain the Majority Consent within ten (10) business days after the
date hereof.
2. The Company acknowledges and agrees that as a result of the issuance of the
Penalty Shares pursuant to Paragraph 1 and the similar issuances of additional
Common Stock penalty shares to the Other Holders, and the reduction in the
exercise price of the Warrant pursuant to Paragraph 1 and the similar reduction
in the exercise price of the Warrants held by the Other Holders (as defined
below), the price at which the Preferred Stock converts into Common Stock will
be automatically adjusted downwards (in accordance with the terms of the
Preferred Stock for adjustment of the conversion price upon certain events) to
$1.01 per share of Common Stock to be acquired on conversion.
3. The Company hereby agrees that the Penalty Shares to be issued pursuant to
Paragraph 1 above shall be deemed "Registrable Securities" for the purposes of
the Registration Rights Agreement and, accordingly, shall be entitled to the
same registration rights as the other "Registrable Securities" covered by the
Registration Rights Agreement.
4. The Company hereby covenants and agrees to comply with each of the provisions
of the Registration Rights Agreement with respect to all Registrable Securities
(including, without limitation, the Penalty Shares); provided, that, for the
purposes of the Company's compliance with this Paragraph 4, (i) the date the
Majority Consent is obtained shall be deemed the "Commencement Date" for the
purposes of the Registration Rights Agreement, (ii) the time period thereafter
for the filing of the "Required Registration Statement" in respect of all
Registrable Securities under Section 1.1(x) of the Registration Rights Agreement
shall be reduced to ten (10) business days following the Commencement Date (as
so amended) and (iii) the "Effectiveness Date" by which the Required
Registration Statement in respect of all Registrable Securities shall be
required to become effective under Section 1.1(y) of the Registration Rights
Agreement shall be reduced to forty-five (45) business days following the
Commencement Date (as so amended).
5. You agree that other than as described in Paragraph 1, no Non-Registration
Statement Penalty Payments shall have accrued through the date hereof pursuant
to the Registration Rights Agreement. You acknowledge and agree that, assuming
the Company's compliance with the provisions of Paragraph 4 above (including,
without limitation, the effectiveness of the Required Registration Statement in
respect of all Registrable Securities prior to the Effectiveness Date (as so
amended by Paragraph 4)), no additional Non-Registration Statement Penalty
Payments shall accrue pursuant to the Registration Rights Agreement after the
date hereof; provided, that, in the event that the Company shall fail to comply
with the provisions of Paragraph 4 above, all Non-Registration Statement Penalty
Payments that would have otherwise accrued from and after the date hereof
pursuant to the Registration Rights Agreement but for the provisions of this
letter shall be deemed to have so accrued pursuant to the terms of the
Registration Rights Agreement from and after the date hereof until such time as
the applicable Non-Registration Event (as defined in the Registration Rights
Agreement) shall be cured in accordance with the terms of the Registration
Rights Agreement.
6. The Company and you agree to amend the Registration Rights Agreement to
effect the foregoing.
7. You hereby agree to amend the Warrants issued to you in the Offering to
effect the foregoing. The Company shall promptly execute and deliver an amended
Warrant to you to effect the foregoing amendment of the Warrant upon the receipt
of the Majority Consent.
8. Subject to agreement by a majority in interest of the holders of the
Preferred Stock (the "Preferred Consent"), the Company hereby covenants and
agrees that the Company shall repurchase all shares of Preferred Stock owned of
record by you on March 15, 2010, but that the repurchase shall only occur on
March 15, 2010 if, prior to such repurchase, you shall have delivered written
notice to the Company that you request the repurchase and specify the date, on
or after March 15, 2010, on which the Company shall repurchase such shares (such
notice, the "Repurchase Notice"), and any such repurchase shall be at a
repurchase price per share of Preferred Stock, payable to you in cash within
five (5) business days after the Company's receipt of the Repurchase Notice,
equal to the Liquidation Amount (as defined in the Certificate of Designations)
thereof plus all accrued and unpaid dividends thereon. The Company agrees to use
its best efforts to obtain the Preferred Consent on or prior to the tenth (10th)
business day following the date hereof and you hereby grant such consent in
respect of your shares of the Preferred Stock.
The changes set forth above affect the calculation of the price at which the
Preferred Stock will convert into Common Stock, and change your overall
investment in the Offering of the Notes/Preferred Stock, as follows:
a. You invested $_________ in the Notes/Preferred Stock, which Preferred
Stock is convertible into Common Stock at an initial conversion price of
$1.50 per share, or _______ shares of Common Stock, in the aggregate.
b. You also acquired Warrants to acquire _______shares of Common Stock at
$1.85 per share.
c. Your Warrant exercise price will be reduced to $0.50 per share.
d. You will receive _________ Penalty Shares.
e. The reduction in the exercise price of the Warrants to all of the
investors in the Offering and the issuance of additional Common Stock
penalty shares to all of the investors in the Offering shall trigger
anti-dilution provisions of the Preferred Stock and reduce the price at
which the Preferred Stock converts into Common Stock from $1.50 to $1.01
per share.
This would have the following effect -
Your $_________ investment would equal _______shares of Preferred Stock which
converts at $1.01 per share of Common Stock which would equal __________ shares
of Common Stock. You will also receive a total of _______ Penalty Shares.
Consequently, the total number of shares of Common Stock which you will receive
or be entitled to receive (assuming conversion of your shares of the Preferred
Stock) for your _________investment will be _________ shares of Common Stock =
______ cents per share of Common Stock (plus Warrants to purchase an additional
________ shares of Common Stock at $0.50 per share).
In addition, the Company is projecting realization of the following results for
its next 6 quarters:
Quarter Revenue Net Income (loss)
Q3 06 $290,000 ($344,000)
Q4 06 $1,057,000 ($90,000)
Q1 07 $1,500,000 $50,000
Q2 07 $2,150,000 $280,000
Q3 07 $2,750,000 $522,000
Q4 07 $4,200,000 $1,150,000
The Company hereby covenants and agrees that, within four business days of date
hereof, the Company shall file a Current Report on Form 8-K with the Commission
disclosing the foregoing projections and any other material non-public
information set forth herein. These projections are not guarantees of future
performance and actual results may differ materially. The Company undertakes no
obligation to update publicly any forward-looking statements.
However, the Board of Directors of the Company has determined that under
existing conditions if actual net income results are either (x) 20% or more
below the quarterly net income projections above for two consecutive quarters,
or (y) 20% or more below the aggregate quarterly net income projections over any
consecutive four quarter period, then under existing conditions it will be in
the best interests of the shareholders of the Company that the Company seek a
sale of the Company (taking into account the repurchase obligations described
below) and instruct its investment bankers to find a buyer for the Company. In
making this determination, the Company will make all calculations of revenue and
net income in accordance with generally accepted accounting principles in the
United States applied in a manner consistent with the Company's historical
accounting practices and policies. Any charges resulting from the issuance of
Penalty Shares or the reduction in the exercise price of the Warrant pursuant to
this agreement will be excluded from the net income calculation. Subject to the
receipt of the Preferred Consent, the Company covenants and agrees that, in the
event that (i) either of the conditions specified in clause (x) or (y) above
shall occur and (ii) the Company shall not be sold within the period (the "Sale
Period") of one hundred eighty (180) days following the occurrence of either
such condition, then the Company shall repurchase all shares of Preferred Stock
then owned of record by you. However, that repurchase shall be made only if,
prior to such repurchase, you shall have delivered written notice to the Company
that you request the repurchase and specify the date after the Sale Period on
which the Company shall repurchase such shares (such notice, the "Repurchase
Notice"). Any such repurchase shall be at a repurchase price per share of
Preferred Stock, payable to you in cash within five (5) business days after the
Company's receipt of the Repurchase Notice, equal to the Liquidation Amount (as
defined in the Certificate of Designations) thereof plus all accrued and unpaid
dividends thereon. The Company agrees to use it best efforts to obtain the
Preferred Consent referred to in this paragraph on or prior to the tenth (10th)
business day following receipt of such exercise notice, and you hereby grant
such consent in respect of your shares of the Preferred Stock.
Yours sincerely
ELECTRONIC GAME CARD INC.
By: _______________________
Xxx Xxxx
Interim CEO
