CONVERTIBLE DEBENTURE AND
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
CONVERTIBLE DEBENTURE AND PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated
as of May 22, 1998 (the "Agreement"), between the entities listed on Schedule A
attached hereto (collectively referred to as the "Investor" or "Investors"),
SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement Agent") located at
Xxxxxxxxx Xxxxx, Xxxxxxxxx Xxxxxx, X.X. Xxx X. 0000, Xxxxxx, Bahamas, a
corporation organized under the laws of Bahamas, and DYNATEC INTERNATIONAL,
INC., Nasdaq Small Cap Stock Market Symbol "DYNX", a corporation organized and
existing under the laws of the State of Utah (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,
from time to time as provided herein, and the Investors shall purchase the (a)
Company's $1,500,000 Convertible Debentures (as defined below) on the Closing
Date (as defined below), (b) Company's $500,000 Convertible Debentures on the
Closing Date (as defined below), (c) a Warrant (as defined below) to purchase up
to 300,000 shares of Common Stock (as defined below) and (d) pursuant to the
equity line of credit established herein whereby the Company must exercise their
"Put" rights upon the Investors for the purchase and sale of an additional
$1,000,000 Purchase Price of Put Shares, and has the option of exercising its
"Put" rights upon the Investor for the purchase and sale of up to an additional
$9,000,000 of the Purchase Price of Put Shares, for a total aggregate purchase
price of $12,000,000 (the "Aggregate Purchase Price"); and
WHEREAS, the Company shall issue to the Placement Agent, in return for
services rendered (in addition to the fees set forth in Section 13.7), from time
to time as provided herein, a Warrant A (as defined below) to purchase 450,000
shares of Common Stock (as defined below), and 80,000 shares of Common Stock (as
more fully set forth in Section 2.10 below and the Escrow Agreement); and
WHEREAS, such investments 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; and
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 the Common Stock on the Principal Market.
Section 1.2 "CAPITAL SHARES" shall mean the Common Stock and any shares
of any other
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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, exchangeable for, or have 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
security convertible into, or exchangeable for Capital Shares.
Section 1.4 "CLOSING" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "CLOSING DATE" shall mean with respect to a Closing for (i)
the $1,500,000 Convertible Debentures shall be the date upon which all of the
conditions set forth in Section 2.8 have been satisfied; (ii) the $500,000
Convertible Debentures shall be the Fifth Trading Day following the satisfaction
of the conditions set forth in Section 2.9; and (iii) the Put Shares shall be
the fifth Trading Day following the Put Date related to such Closing; provided
all conditions to such Closing have been satisfied on or before such Trading
Day.
Section 1.6 "COMMITMENT AMOUNT" shall mean the $12,000,000 up to which
the Investor has agreed to provide to the Company in order to purchase the
Convertible Debentures and Put Shares pursuant to the terms and conditions of
this Agreement.
Section 1.7 "COMMITMENT PERIOD" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investors may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investors shall have purchased
Put Shares pursuant to this Agreement for an aggregate Purchase Price of
$10,000,000, (y) the date this Agreement is terminated pursuant to Section 2.4,
or (z) the date occurring two years from the date of commencement of the
Commitment Period.
Section 1.8 "COMMON STOCK" shall mean the Company's common stock, par
value $0.01 per share.
Section 1.9 "CONDITION SATISFACTION DATE" shall have the meaning set
forth in Section 7.2.
Section 1.10 "CONVERTIBLE DEBENTURES" shall mean collectively, the
$1,500,000 Convertible Debentures in the form of Exhibit A annexed hereto and
the $500,000 Convertible Debentures in the form of Exhibit B annexed hereto.
Section 1.11 "CONVERTIBLE DEBENTURES MARKET PRICE" shall have that
meaning as set forth in the $1,500,000 Convertible Debentures in the form of
Exhibit A annexed hereto and the $500,000 Convertible Debentures in the form of
Exhibit B annexed hereto.
Section 1.12 "DAMAGES" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "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 this Agreement and all exhibits annexed
hereto.
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Section 1.14 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "LEGEND" See Section 9.1.
Section 1.16 "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 Registration Rights Agreement, the Escrow Agreement, or the Warrant in any
material respect.
Section 1.17 "MAXIMUM PUT AMOUNT" on any Put Date shall mean the amount
indicated opposite the range in which the Closing Price is on such Put Date and
below the 30 Day Average Daily trading Volume on such Put Date, as set forth in
the Table below:
------------------------------------------------------------------------------------
30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg.
Daily Trading Trading Daily Daily Trading Daily Trading
Closing Price Volume Volume Volume Volume
7,500-25,000 25,001-50,000 50,001-75,000 75,001-Above
------------------------------------------------------------------------------------
$3.00 - $6.00 $600,000 $750,000 $1,000,000 $1,250,000
------------------------------------------------------------------------------------
$6.01 - $8.00 $750,000 $1,000,000 $1,250,000 $1,500,000
------------------------------------------------------------------------------------
$8.01 - $10.00 $1,000,000 $1,250,000 $1,500,000 $1,750,000
------------------------------------------------------------------------------------
$10.01 - $12.00 $1,250,000 $1,500,000 $1,750,000 $2,000,000
------------------------------------------------------------------------------------
$12.01 - $14.00 $1,500,000 $1,750,000 $2,000,000 $2,250,000
------------------------------------------------------------------------------------
$14.01 - ABOVE $1,750,000 $2,000,000 $2,250,000 $2,500,000
------------------------------------------------------------------------------------
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "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 1.20 "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.
Section 1.21 "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq
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Small-Cap Market or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.22 "PURCHASE PRICE" shall mean (a) $1,500,000, with respect to
the $1,500,000 Convertible Debentures to be purchased upon the completion of the
conditions set forth in Section 2.8 below; (b) $500,000, with respect to the
$500,000 Convertible Debentures to be purchased by the Investors on the Fifth
Trading Day following the satisfaction of the conditions set forth in Section
2.9 below; and (c) with respect to Put Shares, eighty (80%) percent (the
"Purchase Price Percentage") of the Put Market Price upon a Put Date (or such
other date on which the Purchase Price is calculated in accordance with the
terms and conditions of this Agreement).
Section 1.23 "PUT" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.24 "PUT DATE" shall mean the Trading Day during the Commitment
Period that a Put Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
Section 1.25 "PUT FLOOR PRICE" shall mean a Bid Price of Three ($3.00)
Dollars per share of Common Stock.
Section 1.26 "PUT INVESTMENT AMOUNT" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.27 "PUT MARKET PRICE" on any given date shall mean the average
of the three lowest Bid Prices during the Valuation Period.
Section 1.28 "PUT NOTICE" shall mean a written notice to the Investor
(with a copy to the Placement Agent and Escrow Agent) setting forth the Put
Investment Amount that the Company intends to sell to the Investor in the form
of the Compliance Certification from the Company as attached hereto as Exhibit
C.
Section 1.29 "PUT SHARES" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to a Put that has occurred or may occur
in accordance with the terms and conditions of this Agreement.
Section 1.30 "REGISTRABLE SECURITIES" shall mean any of the shares of
Common Stock issued hereunder (including those issued to the Placement Agent),
the Underlying Shares, and the Warrant Shares (i) in respect of which the
Registration Statement 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, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) the sales of which, in the opinion of counsel to the Company, are subject
to any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
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Section 1.31 "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, the Placement Agent,
and the Investor annexed hereto as Exhibit D.
Section 1.32 "REGISTRATION STATEMENT" shall mean a registration
statement on Form S-1 (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, the Registration Rights Agreement, and the Warrant
and in accordance with the intended method of distribution of such securities),
for the registration of the Common Stock upon resale by the Investor and/or
Placement Agent of the Registrable Securities under the Securities Act.
Section 1.33 "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
Section 1.35 "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.37 "SEC DOCUMENTS" shall mean the Form 10-KSB, Form 10-QSB's,
Form 8-K's, or Proxy Statements filed by the Company for a period of at twelve
(12) months immediately preceding the date hereof until such time the Company
no longer has an obligation to maintain the effectiveness of a Registration
Statement as set forth in the Registration Rights Agreement.
Section 1.38 "TRADING CUSHION" shall mean the mandatory fifteen (15)
Trading Days between Put Dates.
Section 1.39 "TRADING DAY" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.40 "UNDERLYING SHARES" shall mean the shares of Common Stock
issued or issuable upon conversion of the Debentures.
Section 1.41 "VALUATION EVENT" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above, at a price per share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter
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be issuable pursuant to such warrants, options or other rights shall be less
than the Bid Price in effect immediately prior to such issuance, except for
those stock option plans currently outstanding as fully disclosed in the Reports
(as defined below);
(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put or exercise of the Warrant.
Section 1.42 "VALUATION PERIOD" shall mean with respect to the Purchase
Price on any Put Date, the six (6) Trading Days beginning three (3) Trading Days
immediately preceding, and ending on the second (2nd) Trading Day following the
Trading Day on which an Put Notice is deemed to be delivered, as well as the
Trading Day on which such notice is deemed to be delivered; provided, however,
that if a Valuation Event occurs during a Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the seventh Trading Day thereafter.
Section 1.43 "WARRANTS" shall mean both the Warrant A and Warrant B
collectively.
Section 1.44 "WARRANT A" shall have the meaning set forth in Section 2.5
(a) and be substantially in the form of Exhibit E.
Section 1.45 "WARRANT B" shall have the meaning set forth in Section 2.5
(b) and be substantially in the form of Exhibit F.
Section 1.46 "WARRANT SHARES" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
Section 1.47 "$500,000 CONVERTIBLE DEBENTURES" shall mean the Company's
Five Hundred Thousand ($500,000) Dollar principal amount Convertible Debentures
with the rights and privileges as set forth in Exhibit B annexed hereto.
Section 1.48 "$1,500,000 CONVERTIBLE DEBENTURES" shall mean the
Company's One Million Five Hundred Thousand ($1,500,000) Dollar principal amount
Convertible Debentures with the rights and privileges as set forth in Exhibit A
annexed hereto.
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ARTICLE II
PURCHASE AND SALE OF COMMON STOCK PURSUANT TO A PUT
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date the
Company may make a Put by the delivery of a Put Notice in the form attached
hereto as Exhibit C. The number of Put Shares that the Investors shall receive
pursuant to such Put shall be determined by dividing the Put Investment Amount
specified in the Put Notice by the Purchase Price on such Put Date, which number
of shares shall not exceed the Maximum Put Amount on such date.
(b) Maximum Aggregate Purchase of Common Stock. Unless the Company
obtains Shareholder approval pursuant to the applicable corporate governance
rules of the Nasdaq Stock Market, the Investors may not be compelled to make a
purchase which results in the issuance to the Investors of more than 19.99% of
the shares of Common Stock as a result of the transactions contemplated by this
Agreement, including the conversion of the Convertible Debentures.
Section 2.2 MECHANICS.
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investors (on a pro rata basis), subject
to the conditions set forth in Section 2.4; provided, however, the Put
Investment Amount for each Put as designated by the Company in the applicable
Put Notice shall not be less than $50,000 nor more than the Maximum Put Amount
on the Put Date. The Company must Put to the Investors (pro rata) Put Shares
for an aggregate Purchase Price of One Million ($1,000,000) Dollars during the
Commitment Period, except in the event such Put results in any of the Investors
becoming a beneficial owner of more than 4.99% of the outstanding Common Stock
as more thoroughly laid out in Section 7.2(h) below.
(b) Date of Delivery of Put Notice. A Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 PUT CLOSINGS. On each Closing Date for a Put (i) the
Company shall deliver to the Escrow Agent one or more certificates, at the
Investor's option, representing the Put Shares to be purchased by the Investors
pursuant to Section 2.1 herein, registered in the name of the Investor, and (ii)
the Investors shall deliver to the Escrow Agent the Put Investment Amount
specified in the Put Notice by wire transfer of immediately available funds to
the Escrow Agent on or before the Closing Date.
In addition, on or prior to the Closing Date, each of the Company and the
Investors shall deliver to the Escrow Agent all documents, instruments and
writings required to be delivered or
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reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein. Payment of funds to
the Company and delivery of the certificates to the Investors shall occur out
of escrow in accordance with the conditions set forth above and those contained
in the Escrow Agreement referred to in Section 7.2(n); provided, however, that
to the extent the Company has not paid the fees, expenses, and disbursements of
the Investor's counsel in accordance with Section 13.7, the amount of such fees,
expenses, and disbursements shall be paid in immediately available funds, at the
direction of the Investor, to Investor's counsel with no reduction in the number
of Put Shares issuable to the Investor on such Closing Date.
Section 2.4 TERMINATION OF INVESTMENT OBLIGATION. The obligation of the
Investors to purchase the Put Shares shall terminate permanently (including with
respect to a Closing Date that has not yet occurred) in the event that (i) there
shall occur any stop order or suspension of the effectiveness of the
Registration Statement for an aggregate of twenty (20) Trading Days during the
Commitment Period, for any reason other than deferrals or suspensions in
accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Closing Date for the $1,500,000 Convertible
Debentures that would require such Registration Statement to be amended to
reflect such event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (ii) the Company shall at any time fail to
comply with the requirements of Section 6.3, 6.4 or 6.6.
Section 2.5 THE WARRANTS.
(a) On the Closing Date for the $1,500,000 Convertible Debentures, the
Company will issue pro rata to the Investors a Warrant A exercisable beginning
on the issuance date of the Warrant A and then exercisable any time over the
three year period from this Closing Date, to purchase 50,000 Warrant Shares per
$500,000 funded, at the Exercise Price (as defined in the Warrant A). The
Warrant A shall be delivered by the Company to the Escrow Agent, and delivered
to the Investors pursuant to the terms of this Agreement and the Escrow
Agreement. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
(b) On the Closing Date for the $1,500,000 Convertible Debentures, the
Company will also issue pro rata to the Investors a Warrant B exercisable
beginning six months after the issuance date of the Warrant B and then
exercisable any time over the three year period from this Closing Date, to
purchase an aggregate of 150,000 Warrant Shares at the Exercise Price (as
defined in the Warrant B). The Warrant B shall be delivered by the Company to
the Escrow Agent, and delivered to the Investors pursuant to the terms of this
Agreement and the Escrow Agreement. The Warrant Shares shall be registered for
resale pursuant to the Registration Rights Agreement.
(c) On the Closing Date for the $500,000 Convertible Debentures, the
Company will issue pro rata to the Investors a Warrant A exercisable beginning
on the issuance date of the Warrant A and then exercisable any time over the
three year period after this Closing Date, to purchase 50,000 Warrant Shares,
at the Exercise Price (as defined in the Warrant A). The Warrant A shall be
delivered by the Company to the Escrow Agent, and delivered to the Investors
pursuant to the terms of this Agreement and the Escrow Agreement. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement.
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Section 2.6 ADDITIONAL SHARES. In the event that (a) the Investors
have shares of Common Stock which are salable through the use of a prospectus,
or within five Trading Days of any Put Notice or Conversion Notice, the Company
gives notice to the Investor 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 may sell its Registrable Securities at the New
Bid Price pursuant to an effective Registration Statement, the Company shall
issue to the Investor a number of additional shares equal to the difference
between (y) the product of the number of Registrable Securities held by the
Investor 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 during such blackout or suspension
period that are not otherwise freely tradable.
Section 2.7 LIQUIDATED DAMAGES.
(a) In the event the Company does not deliver Common Stock as set
forth in Article IX below, within three (3) business days of surrender by the
Investor and/or the Placement Agent of the Common Stock certificate as is set
forth in Article IV below, (such date of receipt is referred to as the "Receipt
Date"), the Company shall pay to the Investor and/or the Placement Agent, 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 Investor and/or the Placement Agent, as set forth above, $500 for each of
the first ten (10) days and $1,000 per day thereafter that the shares of Common
Stock are not delivered, which liquidated damages shall run from the fourth
business 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 sum payable pursuant to the Registration Rights Agreement and
as set forth above, and the obligation to issue Registrable Securities under
Section 2.6 above shall constitute liquidated damages and not penalties.
(b) In the event the Company fails to deliver shares of Common Stock
upon conversion of the Convertible Debentures the Company will be subject to
liquidated damages as set forth in the Convertible Debentures. 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 forth herein, and in the Convertible Debentures, shall not relieve
the Company of the necessity to perform its duties as set forth in this
Agreement and all related documents.
Section 2.8 PURCHASE OF $1,500,000 CONVERTIBLE DEBENTURES.
(a) The Company agrees to sell and the Investors agree to purchase the
$1,500,000 Convertible Debentures upon the satisfaction of the conditions set
forth in Section 2.8(b) below. The
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number of shares of Common Stock issuable upon conversion of the $1,500,000
Convertible Debentures shall be determined by dividing $1,500,000 by the
conversion formula contained in the $1,500,000 Convertible Debentures.
(b) The $1,500,000 Convertible Debentures shall be purchased by the
Investors and issued by the Company upon the completion of each of the following
conditions:
(i) the execution and delivery by the Company, and the
Investors, of this Agreement, and all Exhibits and Attachments hereto as
more fully set forth in the Escrow Agreement attached hereto as Exhibit
G;
(ii) delivery into escrow by the Company, of the original
Warrants as more fully set forth in the Escrow Agreement;
(iii) delivery into escrow by the Company of the original
$1,500,000 Convertible Debentures, as more fully set forth in the Escrow
Agreement;
(iv) delivery into escrow by Investors of good cleared funds as
payment for the $1,500,000 Convertible Debentures, as more fully set
forth in the Escrow Agreement;
(v) all representations and warranties of the Investors and of
the Company contained herein being true and correct as of the Closing
Date for the $1,500,000 Convertible Debentures;
(vi) receipt of opinion of counsel of the Company as set forth
in this Agreement;
(vii) payment of fees as set forth in Section 13.7 below; and
(viii) written proof that the Company has filed its Form 10-K for
the year ended December 31, 1998 with the SEC.
Section 2.9 PURCHASE OF $500,000 CONVERTIBLE DEBENTURES.
(a) The Company agrees to sell and the Investors agree to purchase the
$500,000 Convertible Debentures within five Trading Days after the Effective
Date upon the satisfaction of each of the conditions set forth in Section 2.9(b)
below, and subject to Section 6.8 below. The number of shares of Common Stock
issuable upon conversion of the $500,000 Convertible Debentures shall be
determined by dividing $500,000 by the conversion formula contained in the
$500,000 Convertible Debentures.
(b) The $500,000 Convertible Debentures shall be purchased by the
Investors, and issued by the Company, within five Trading Days after the
completion of each of the following conditions:
(i) the Investors shall have received certification that the
Company has obtained shareholder approval for the Company's issuance of
more than twenty (20%) percent of its
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Common Stock in connection with the transactions contemplated hereby, if
required under the rules of the Principal Market;
(ii) the execution and delivery by the Company, and the
Investors, of this Agreement, and all Exhibits and Attachments hereto as
more fully set forth in the Escrow Agreement attached hereto as Exhibit
G;
(iii) delivery into escrow by the Company of the original
$500,000 Convertible Debentures, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit G;
(iv) delivery into escrow by Investor of good cleared funds as
payment for the $500,000 Convertible Debentures, as more fully set forth
in the Escrow Agreement attached hereto as Exhibit G;
(v) the Investors shall have received an opinion of counsel of
the Company as set forth in this Agreement;
(vi) the Investors shall have received written proof that the
Registration Statement to be filed by the Company with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the
SEC, and remains effective on this Closing Date;
(vii) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
$500,000 Convertible Debentures, or shall have the availability of
exemptions therefrom. The sale and issuance of the $500,000 Convertible
Debentures shall be legally permitted by all laws and regulations to
which the Company is subject;
(viii) the representations and warranties of the Company shall be
true and correct in all material respects as of the Closing Date for the
$500,000 Convertible Debentures as though made at such time (except for
representations and warranties specifically made as of a particular date)
with respect to all periods, and as to all events and circumstances
occurring or existing to and including the Closing Date for the $500,000
Convertible Debentures, except for any conditions which have temporarily
caused any representations or warranties herein to be incorrect and which
have been corrected with no continuing impairment to the Company or the
Investors;
(ix) the Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions
required by this 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 for the $500,000 Convertible Debentures;
(x) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority
Page 15 of 54
of competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, 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;
(xi) since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a Material
Adverse Effect has occurred;
(xiv) the trading of the Common Stock is not suspended by the SEC
or the Principal Market, and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock issuable upon
conversion of the $500,000 principal amount of the Convertible Debentures
s shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice
threatening the listing of the Common Stock on the Principal Market;
(xv) payment of fees as set forth in Section 13.7 below; and
(xvi) on the Closing Date for the $500,000 Convertible
Debentures, the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by the Investors in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in this
Section, including, without limitation, a certificate in substantially
the form and substance of Exhibit C hereto, executed in either case by an
executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of
each such certificate.
(c) Notwithstanding Sections 2.9(a) and (b) above, the Investors will
not be obligated to purchase the $500,000 Convertible Debenture in the event the
Registration Statement has not been declared effective by the SEC prior to the
first anniversary of the Closing Date for the $1,500,000 Convertible Debentures.
Section 2.10 ISSUANCE OF SHARES OF COMMON STOCK TO PLACEMENT AGENT. The
Company agrees that it will issue to the Placement Agent an aggregate of eighty
thousand (80,000) shares of Common Stock as follows (in addition to the fees set
forth in Section 13.7 below):
(i) twenty thousand (20,000) shares of Common Stock upon the
Closing of the $1,500,000 Convertible Debentures; and
(ii) the remaining sixty thousand (60,000) shares of Common
Stock shall be issued in the name of the Placement Agent and held in
escrow by the Escrow Agent pursuant to the Escrow Agreement and
distributed to the Placement Agent as follows: six thousand (6,000)
shares of Common Stock per every One Million ($1,000,000) Dollars of
aggregate Put Investment Amount. These shares of Common Stock shall be
free trading, without any restrictive legend.
Page 16 of 54
The issuance of the Common Stock set forth in (ii) above is subject to
the following conditions: (a) that the issuance of any of the shares of Common
Stock under this Agreement (taking into consideration all other shares of Common
Stock issued prior to the date of this Agreement) does not trigger the
requirement of shareholder approval under the Nasdaq corporate governance
provisions applicable to the Company; and (b) that the independent auditors of
the Company agree and give written confirmation that the expenses reflected by
the grant of the issuance set forth in (i) and (ii) above is to be reflected in
the financial statements of the Company only incrementally on a pro rata basis
as the Puts are made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTORS AND THE PLACEMENT AGENT
Each of the Investors, and the Placement Agent, represent and warrant to
the Company that:
Section 3.1 ORGANIZATION AND AUTHORIZATION. The Placement Agent and
each of the Investors are duly incorporated or organized and validly existing in
the country, or state, of their incorporation or organization and have all
requisite power and authority to purchase and hold the securities issuable
hereunder. The decision to invest (by the Investors) and the execution and
delivery of this Agreement by the Investors and the Placement Agent, the
performance by the Investors of their obligations hereunder and the consummation
by the Investors, and the Placement Agent, 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 and the Placement Agent.
This Agreement has been duly executed and delivered by the Investors and the
Placement Agent, and, assuming the execution and delivery hereof and acceptance
thereof by the Company, will constitute the legal, valid and binding obligations
of the Investors and the Placement Agent, enforceable against the Investors and
the Placement Agent 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. The Investors recognize that their investment in the Company
involves a high degree of risk.
Section 3.3 INDEPENDENT COUNSEL. Investors and the Placement Agent
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.
Section 3.4 NO REGISTRATION. The Investors and the Placement Agent
understand that the securities issuable hereunder have not been registered under
the 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 and the Placement Agent set forth herein in order to
determine the applicability of such exemptions and the suitability of Investors
and the Placement Agent to acquire the securities hereunder.
Section 3.5 INVESTMENT INTENT. The Investors and the Placement Agent
are entering into
Page 17 of 54
this Agreement solely for their own account and have no present arrangement
(whether or not legally binding) at any time to sell the shares of Common Stock,
or the Common Stock underlying the Convertible Debentures, to or through any
person or entity. Investors understand and agree that they may bear the
economic risk of its investment in the securities issuable hereunder for an
indefinite period of time.
Section 3.6 TRANSFER RESTRICTIONS REGARDING THE CONVERTIBLE DEBENTURES.
Upon conversion of any part or all of the Convertible Debentures, if the holder
of the Convertible Debentures being converted makes the certification, pursuant
to the Notice of Conversion attached hereto as Exhibit H, that such holder has
complied with all of the requirements as set forth herein, then the Company
shall cause the Transfer Agent to deliver the Common Stock underlying the
Convertible Debentures (the "Underlying Shares") upon such conversion without a
restrictive legend or stop transfer instructions if the Registration Statement
has been declared effective or if such shares are not restricted securities as
defined under Rule 144 promulgated by the SEC, otherwise the Underlying Shares
shall be considered restricted securities and certificates representing such
shares shall contain restrictive legends and stop transfer instructions will be
placed with the Company's transfer agent regarding such shares.
Section 3.7 REGISTRATION RIGHTS. The parties have entered into a
Registration Rights Agreement (Exhibit D).
Section 3.8 NO ADVERTISEMENTS. The Investors and the Placement Agent
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 3.9 SOPHISTICATED INVESTORS. The Investors and the Placement
Agent are sophisticated investors (as described in Rule 506(b)(2)(ii) of
Regulation D) and are each accredited investors (as defined in Rule 501 of
Regulation D), and Investors have such experience in business and financial
matters that they are each capable of evaluating the merits and risks of an
investment in the Common Stock. Each of the Investors acknowledge that an
investment in the Common Stock is speculative and involves a high degree of
risk.
Section 3.10 NOT AN AFFILIATE. None of the Investors are either an
officer, director or "affiliate" (as that term is defined in Rule 405
promulgated under the Securities Act) of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, subject to the qualifications and disclosures of the May 8,
1998, Confidential Disclosure Memorandum delivered to the Investors, hereby
represents and warrants to the Investors and the Placement Agent that:
Section 4.1 ORGANIZATION; QUALIFICATION. The Company is a corporation
duly organized and validly existing under the laws of the State of Utah and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do
Page 18 of 54
business as a foreign corporation in each jurisdiction in which the ownership of
its property or the nature of its business requires such qualification, except
where failure to so qualify would not have a material adverse effect on the
Company.
Section 4.2 CAPITALIZATION. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, $0.01 par value per
share, of which 2,780,112 are outstanding. All issued and outstanding shares
of Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable.
Section 4.3 AUTHORIZATION. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Convertible
Debentures and Warrants issuable hereunder and the performance of the Company's
obligations hereunder have been taken. When this Agreement has been duly
executed and delivered by the Company it shall constitute a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in this
Agreement. Upon their issuance and delivery pursuant to this Agreement, the
Convertible Debentures and Warrants 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 or the Placement Agent;
PROVIDED, HOWEVER, that the Convertible Debentures and Warrants are subject to
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Convertible Debentures and Warrants hereunder will not
give rise to any preemptive right or right of first refusal or right of
participation on behalf of any person.
Section 4.4 NO CONFLICT. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
Section 4.5 NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no
liabilities or obligations other than those disclosed in (i) the Form 10 KSB,
Form 10 QSBs, Form 8-Ks, or Proxy Statements filed by the Company for a period
of at twelve (12) months immediately preceding the date hereof (the "SEC
Filings" or the "Reports"), (ii) this Agreement or (iii) those incurred in the
ordinary course of the Company's business since January 1, 1997, and, in each
case, which individually or in the aggregate, do not or would not constitute a
Material Adverse Effect. No event or circumstances has occurred or exists with
respect to the Company or its properties, business, condition (financial or
otherwise), results of operations or prospects, which, 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.
Section 4.6 NO DEFAULT. The Company is not in default in the
performance or observance
Page 19 of 54
of any material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it is or its property is bound, and neither the
execution, nor the delivery by the Company, nor the performance by the Company
of its obligations under this Agreement or any of the Exhibits, including the
conversion provision of the Convertible Debentures, will conflict with or result
in the breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Memorandum or Articles of the Company, or any decree, judgment,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, or the Company's listing
agreement for its Common Stock, in each case which default, lien or charge is
likely to cause a material adverse effect on the Company's business and
financial condition.
Section 4.7 ABSENCE OF EVENTS OF DEFAULT. No Event of Default, as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (as so defined), has occurred and is continuing,
which would have a Material Adverse Effect.
Section 4.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Convertible Debentures and Warrants hereunder, or the consummation of any other
transaction contemplated hereby.
Section 4.9 INTELLECTUAL PROPERTY RIGHTS. The Company has sufficient
trademarks, trade names, patent rights, copyrights and licenses to conduct its
business as presently conducted, except where failure to have any such
intellectual property would not cause a Material Adverse Effect. To the
Company's knowledge, neither the Company nor its products is infringing or will
infringe any trademark, trade name, patent right, copyright, license, trade
secret or other similar right of others currently in existence; and there is no
claim being made against the Company regarding any trademark, trade name,
patent, copyright, license, trade secret or other intellectual property right
which could have a Material Adverse Effect.
Section 4.10 MATERIAL CONTRACTS. The agreements to which the Company is
a party described in the Reports are valid agreements, in full force and effect,
and 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 4.11 LITIGATION. There is no action, proceeding or
investigation pending, or to the Company's knowledge threatened, against the
Company which might result, either individually or in the aggregate, in a
Material Adverse Effect. 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.
Section 4.12 TITLE TO ASSETS. The Company has good and marketable title
to all properties and material assets described in the Reports as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company.
Section 4.13 SUBSIDIARIES. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership,
Page 20 of 54
association or other business entity.
Section 4.14 REQUIRED GOVERNMENTAL PERMITS. The Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
Section 4.15 LISTING. The Company's Common Stock is listed on the
NASDAQ Small Cap Stock Market or other organized United States stock market or
quotation system. The Company has received written notice from the Nasdaq Stock
Market stating that the Company's Common Stock will be delisted from the Nasdaq
Small Cap Stock Market effective the opening of business on April 27, 1998 (see
copy of letter annexed hereto as Exhibit I). The Company hereby represents that
it has had a conversation with the Nasdaq representative who authored Exhibit I,
who confirmed that the Company is not, at this time, in jeopardy of being
delisted from the Nasdaq Small Cap Stock Market by reason of the late filing of
the Company's 1998 Form 10-KSB report. As long as the Convertible Debentures
and Warrants are outstanding, the Company will take no action which would impact
their continued listing or eligibility of the Company for such listing. The
Company represents that it is currently in compliance with all listing
requirements of the Nasdaq Small Cap Stock Market.
Section 4.16 OTHER OUTSTANDING SECURITIES/FINANCING RESTRICTIONS. Other
than warrants and options to acquire shares of Common Stock disclosed in the
Reports, there are no other outstanding securities, debt or equity presently
convertible into Common Stock. Except as disclosed in the Reports, the Company
has no outstanding restricted shares, or shares of Common Stock sold under
Regulation S, Regulation D or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
Section 4.17 RESTRICTIONS ON FUTURE FINANCINGS. The Company agrees
that it will not, without the prior written consent of all of the Investors,
enter into any subsequent or further offer or sale of Common Stock, or any
securities convertible into shares of Common Stock, with any third party until
the sixty (60) days after the Effective Date. This provision shall not apply
to: (a) the issuance of securities (other than for cash) in connection with a
merger, consolidation, sale of assets, or other disposition, or (b) the exchange
of capital stock for assets, stock or joint venture interest, or (c) an offering
of Common Stock at or above the then current market price; provided, however,
that any action contemplated under this Section is subject to the condition that
registration rights, if any, in connection with such action shall not require
the filing of a registration statement in respect of such stock prior to ninety
(90) days after the Effective Date.
Section 4.18 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.
Section 4.19 FURTHER REPRESENTATIONS AND WARRANTIES OF THE COMPANY. For
so long as any securities issuable hereunder held by the Investors and the
Placement Agent remain outstanding, the Company acknowledges, represents,
warrants and agrees as follows:
(i) It will maintain the listing of its Common Stock on the
NASDAQ Small Cap Stock Market or other organized United States market or
quotation systems.
(ii) It will permit the Investors to exercise their right to
convert the Convertible Debentures by telecopying an executed and completed
notice of conversion (the "Notice of Conversion" in the form annexed hereto as
Exhibit H) to the Company and delivering the original Notice of Conversion and
the Convertible Debenture to the Company by express courier, and be subject to
all of the terms and conditions set forth in the Convertible Debentures
including, but not limited to, being subject to liquidated damages.
Page 21 of 54
Section 4.20 SEC FILINGS/FULL DISCLOSURE. For a period of at least
twelve (12) months immediately preceding this offer and sale, none of the
Company's filings with the Securities and Exchange Commission (as they may have
been amended or supplemented as provided in the Reports) 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 light of the
circumstances under which they were made, not misleading as of the date of such
filing (or in such amendment or supplement, as the case may be, or in
subsequently filed Reports correcting such information, or providing complete
information, though not amending the prior Reports). Except for the Company's
failure to file (i) Form 8-Ks which were due to be filed between February, 1997
and July 20, 1997 (the Company represents that such information required to be
included in these Form 8-Ks has been publicly disclosed in subsequent filings
with the SEC) and (ii) the Form 10-KSB for the year ended December 31, 1997,
which was due on April 15, 1998 (but was subsequently filed on April 24, 1998),
the Company has timely, subject to permitted extensions, filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
Section 4.21 FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Investors and the Placement Agent that
could reasonably be expected to have a Material Adverse Effect or could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
Section 4.22 OPINION OF COUNSEL. Each of the Investors, and the
Placement Agent, shall receive an opinion letter from counsel to the Company
(updated where applicable) prior to the Closing Date for the $1,500,000
Convertible Debentures, prior to the Closing Date for the $500,000 Convertible
Debentures (only the Investors), and prior to the Closing Dates for each Put
(only the Investors), by the Company to the effect that:
(i) The Company is incorporated and validly existing in the
jurisdiction of its incorporation. To the best of Counsel's knowledge
(based solely on the representation of the Company as provided in
paragraph 4.1 of the Credit Agreement, and not based on any independent
inquiry), the Company and/or its subsidiaries are duly qualified to do
business as a foreign corporation and is in good standing in all
jurisdictions where, to such counsel's knowledge, the Company and/or its
subsidiaries owns or leases properties, maintains employees or conducts
business, except for jurisdictions in which the failure to so qualify
would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and
conducts its business.
(ii) There is no action, proceeding or investigation pending, or
threatened against the Company which might result, either individually or
in the aggregate, in any material adverse change in the business or
financial condition of the Company, except as has been described in the
Reports.
(iii) 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, except as has been described in the
Reports.
(iv) There is no action, suit, proceeding or investigation by
the Company currently pending, except as has been described in the
Reports.
(v) The Convertible Debentures which shall be issued, have been
duly authorized and, when such Convertible Debentures have been duly
executed and delivered in the manner provided in this Agreement and paid
for in accordance with this Agreement, will be
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validly issued under the laws of the Company's state of incorporation.
(vi) This Agreement, the issuance of the securities hereunder,
and upon conversion and exercise of the Convertible Debentures, have been
duly approved by all required corporate action and that all such
securities, upon execution and delivery of the certificate evidencing
such security in the manner provided in the Convertible Debentures and
Private Equity Line Of Credit Agreement or the certificate evidencing the
Warrants (the "Warrant Certificates") and payment therefor in the
accordance with the Convertible Debentures and Private Equity Line Of
Credit Agreement or the Warrant Certificates, shall be validly issued and
outstanding, fully paid and nonassessable.
(vii) The issuance of the Common Stock, Convertible Debentures,
and Put 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.
(viii) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, $0.01 par value per share, of which
2,780,112 are outstanding, All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
(ix) The Common Stock is registered pursuant to Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended, and, to
such counsel's knowledge, the Company has timely, subject to permitted
extensions, filed all the reports (without confirming as to the
completeness or accuracy of such reports) required to be filed pursuant
to Sections 13(a) or 15(d) of such Act for a period of at least twelve
months preceding the date hereof.
(x) The Company has the requisite corporate power and authority
to enter into this Agreement, Registration Rights Agreement, the Escrow
Agreement and the Warrant Certificates, and to issue and deliver the
Common Stock and Warrants to the Placement Agent, and to sell and deliver
the Convertible Debentures, and Put Shares and the Common Stock to be
issued to the Investors upon the conversion or exercise, as the case may
be, as described in the Agreement, the Convertible Debentures, or the
Warrant Certificates; each of the Agreement, Registration Rights
Agreement, the Escrow Agreement and the Warrant Certificates has been
duly and validly authorized by all necessary corporate action by the
Company to our knowledge, no approval of any governmental or other body
is required for the execution and delivery of each of the Agreement,
Registration Rights Agreement, the Escrow Agreement or the Warrant
Certificates by the Company or the consummation of the transactions
contemplated thereby; each of the Agreement, Registration Rights
Agreement, Escrow Agreement and the Warrant Certificates has been duly
and validly executed and delivered by and on behalf of the Company, and
is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as (i) enforceability may be limited by
general equitable principles, bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other laws affecting creditors'
rights generally, (ii) to compliance with federal, state and foreign
securities laws and (iii) to provisions providing for indemnification or
contribution, in each case, as to which no opinion is expressed.
(xi) The execution, delivery and performance of the Agreement,
the Registration Rights Agreement, the Escrow Agreement, the Common
Stock, the Convertible Debentures, and the Warrant Certificates by the
Company and the performance of its obligations
Page 23 of 54
thereunder do not and will not constitute a breach or violation of any of
the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of
Incorporation or By-Laws, (ii) any indenture, mortgage, deed of trust,
agreement or other instrument to which the Company is a party or by which
it or any of its property is bound, (iii) any applicable statute or
regulation, (iv) or any judgment, decree or other order of any court or
governmental body having jurisdiction over the Company or any of its
property.
Section 4.23 OPINION OF COUNSEL. The Company will obtain for the
Investors, and the Placement Agent, at the Company's expense, any and all
opinions of counsel which may be required in order to convert, exercise or sell
the securities issuable hereunder, including, but not limited to, obtaining for
the Investors, at the Company's expense an opinion of counsel, subject only to
receipt of a Notice of Conversion in the Form of Exhibit H, duly executed by the
Investors which shall be satisfactory to the Transfer Agent, directing the
Transfer Agent to remove the legend. Such draft of opinion of counsel shall be
received by the Investors on or before the Closing Dates for the Convertible
Debentures.
Section 4.24 MANDATORY CONVERSION. In the event either of the
Convertible Debentures has not been converted three (3) years from the
applicable date of issuance, the Convertible Debentures shall automatically be
converted as if the Investors voluntarily elected such conversion in accordance
with the procedure, terms and conditions set forth in this Agreement.
Section 4.25 DILUTION. The Company is aware and acknowledges that the
issuance of the Common Stock, the conversion of the Convertible Debentures,
and/or the exercise of the Warrants, could cause dilution to existing
shareholders and could significantly increase the outstanding number of shares
of Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE PLACEMENT AGENT, AND THE
INVESTORS
Each of the Investors, the Placement Agent, and the Company represent to
the other the following with respect to itself:
Section 5.1 CONVERTIBLE DEBENTURES AND PRIVATE EQUITY LINE OF CREDIT
AGREEMENT. This Agreement has been duly authorized, validly executed and
delivered on behalf of the Company, the Placement Agent, and each of the
Investors and is a valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
Section 5.2 NON-CONTRAVENTION. The execution and delivery of this
Agreement along with all Exhibits and Attachments, and the consummation of the
issuance of the securities and the transactions contemplated by this Agreement
do not and will not conflict with or result in a breach by the Company, the
Placement Agent, or any Investor of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws of the
Company or any Investor, or any indenture, mortgage, deed of trust of other
material agreement or instrument to which the Company or any Investor is a party
or by which it or any of its properties or assets are bound, or any existing
applicable law, rule or regulation or any applicable decree, judgment or order
of any court, Federal or State regulatory body, administrative agency or other
governmental body having jurisdiction over the Company, the Placement Agent, or
any Investor or any of its properties or
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assets.
Section 5.3 APPROVALS. Neither the Company, the Placement Agent, nor
any Investor, is aware of any authorization, approval or consent of any
governmental body which is legally required for the issuance and sale of the
securities issuable hereunder.
Section 5.4 INDEMNIFICATION. Each of the Company, the Placement Agent
and the Investors agree to indemnify the other and to hold the other harmless
from and against any and all losses, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) which the other may sustain or incur in
connection with the breach by the indemnifying party of any representation,
warranty or covenant made by it in this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has authorized and reserved, and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to issue
the Common Stock, the Underlying Shares, and the Warrant Shares; such amount of
shares of Common Stock to be reserved shall be calculated based upon the minimum
Purchase Price and exercise price therefor under the terms of this Agreement,
the Convertible Debentures, and the Warrants respectively. The number of shares
of Common Stock so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares actually
delivered hereunder and the number of shares so reserved shall be increased or
decreased to reflect potential increases or decreases in the Common Stock that
the Company may thereafter be so obligated to issue by reason of adjustments to
the Warrants.
Section 6.3 LISTING OF COMMON STOCK. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Common Stock issuable to the Placement Agent, the Underlying
Shares, the Put Shares and the Warrant Shares. 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 of Common Stock issuable
to the Placement Agent, the Underlying Shares, the Put Shares, and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of a majority of the Investors, or the Placement Agent, to cause the
Common Stock 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 the Principal Market (including, without limitation,
maintaining sufficient net tangible
Page 25 of 54
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.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company will cause its
Common Stock to continue to be registered under Section 12(b) of the Exchange
Act, will use its best 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 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.
Section 6.5 LEGENDS. The certificates evidencing the Common Stock to
be sold by the Investors pursuant to Section 9.1 shall be free of legends,
except as set forth in Article IX.
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 ADDITIONAL SEC DOCUMENTS. The Company will deliver to each
Investor, and the Placement Agent, as and when the originals thereof are
submitted to the SEC for filing, copies of all SEC Documents so furnished or
submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO MAKE A PUT, OR INVESTORS OBLIGATION TO PURCHASE $500,000 CONVERTIBLE
DEBENTURE. The Company will immediately notify each Investor, and the Placement
Agent, upon the occurrence of any of the following events in respect of a
registration statement or related prospectus relating to 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 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; and the Company will promptly make available to
each Investor, and the Placement Agent, any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investors any Put
Notice during the continuation of any of the foregoing events, nor shall the
Investors be obligated to purchase the $500,000 Convertible Debentures
(notwithstanding the provisions of Section 2.9 above).
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Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify each Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying each of
the Investors, in writing, at any time as to its reasonable expectations with
respect to the current calendar quarter.
Section 6.10 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 the
obligation to deliver to each of the Investors, and the Placement Agent, such
shares of stock and/or securities as each of the Investors, and the Placement
Agent is entitled to receive pursuant to this Agreement.
Section 6.11 ISSUANCE OF CONVERTIBLE DEBENTURES, UNDERLYING SHARES, PUT
SHARES AND WARRANT SHARES. The sale of the Convertible Debentures, Put Shares,
and the issuance of the Common Stock to the Placement Agent, the Underlying
Shares pursuant to the conversion of the Convertible Debentures, and the Warrant
Shares pursuant to exercise of the Warrants, 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. Issuance of the
Underlying Shares pursuant to the conversion of the Convertible Debentures, and
the Warrant Shares pursuant to the exercise of the Warrants shall be made in
accordance with the provisions and requirements under the Securities Act and any
applicable state securities law.
Section 6.12 LEGAL OPINION ON CLOSING DATES FOR THE CONVERTIBLE
DEBENTURES. The Company's independent counsel shall deliver to each of the
Investors, and to the Placement Agent, upon each Closing Date for the
Convertible Debentures, an opinion in the form of Exhibit J annexed hereto.
Section 6.13 20% LIMITATION. The Company agrees that it will call a
stockholders' meeting within ninety (90) days after the Closing Date for the
$1,500,000 Convertible Debenture for the purpose of approving below market price
issuances of Common Stock to the Subscribers in excess of twenty percent (20%)
of the number of shares of Common Stock outstanding as of Closing Date for the
$1,500,000 Convertible Debenture. In the event that the aforementioned proposal
is not ratified by the stockholders, the Company agrees that it shall seek a
waiver from the Nasdaq Stock Market for such issuance if necessary. In the
event the Company does not get stockholders approval as set forth above, or the
Company does not get such a waiver within ten (10) days after the stockholder
meeting, the Company agrees that it will pay to the Investors the "Economic
Benefit" of that number of shares of Common Stock issuable to the Investors
above said twenty (20%) percent. 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 Convertible Debentures in excess of twenty (20%)
percent of the outstanding Common Stock as of Closing Date for the
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$1,500,000 Convertible Debenture multiplied by the Bid Price on the tenth (10th)
Trading Day after the aforementioned stockholder meeting. Accordingly, in such
event, the principal amount of the Debentures shall be reduced, and/or canceled
in the amount of payment made hereunder.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL PUT SHARES. The obligation hereunder of the Company to issue and
sell the Put Shares to the Investor incident to each Closing therefor is subject
to the satisfaction, or waiver by the Company, at or before each such Closing,
of each of the conditions set forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of each of the Investors shall be true and
correct in all material respects as of the date of this Agreement and as of the
date of each such Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER
A PUT NOTICE AND THE OBLIGATION OF THE INVESTORS TO PURCHASE PUT SHARES. The
right of the Company to deliver a Put Notice and the obligation of the Investors
hereunder to acquire and pay for the Put Shares incident to a Closing therefor
is subject to the satisfaction or waiver by the Investors, on (i) the date of
delivery of such Put Notice and (ii) the applicable Closing Date (each a
"Condition Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investors shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first Put
Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Put Shares,
or shall have the availability of exemptions therefrom. The sale and issuance
of the Put Shares shall be legally permitted by all laws and regulations to
which the Company is subject.
(c) Accuracy of the Company's Representations and Warranties. The
representations
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and warranties of the Company shall be true and correct in all material respects
as of each Condition Satisfaction Date as though made at each such time (except
for representations and warranties specifically made as of a particular date)
with respect to all periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations or warranties
herein to be incorrect and which have been corrected with no continuing
impairment to the Company or the Investors.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights Agreement and
the Warrants to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
(e) No Injunction. 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, 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.
(f) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice threatening
the listing of the Common Stock on the Principal Market.
(h) 4.99% Percent Limitation. On each Closing Date for Put Shares,
the number of Put Shares then to be purchased by each Investor will not exceed
the number of such shares which, when aggregated with all other shares of Common
Stock then owned by such Investor beneficially or deemed beneficially owned
(including those shares of Common Stock underlying the Convertible Debentures
which have not yet been converted) by each Investor and which were acquired
under this Agreement, would result in the Investor owning more than 4.99% of all
of such Common Stock as would be outstanding on such Closing Date, as determined
in accordance with Rule 13d-3 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 7.2(j), in the event that
the amount of Common Stock outstanding as determined in accordance with Rule
13d-3 of the Exchange Act and the regulations promulgated thereunder is greater
on a Closing Date than on the date upon which the Put Notice associated with
such Closing Date is given, the amount of Common Stock outstanding on such
Closing Date shall
Page 29 of 54
govern for purposes of determining whether such Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and, if any, Warrant
Shares, would own more than 4.99% of the Common Stock following such Closing.
Then, in such event, the Company would reduce that number of Put Shares so
issuable so that it would not exceed the aforementioned 4.99% limitation. Such
Investor shall notify the Company as soon as possible, but in any event within
three (3) business days of receiving a Put Notice, if such Investor believes
Investor's purchase of the Put Shares specified in the Put Notice would result
in any of the Investors exceeding the 4.99% limitation described above.
(i) Minimum Bid Price. The Bid Price equals or exceeds the Put Floor
Price during the applicable Valuation Period (as adjusted for stock splits,
stock dividends, reverse stock splits, and similar events).
(j) Minimum Average Trading Volume. The average trading volume for
the Common Stock over the previous thirty (30) Trading Days exceeds 7,500 shares
per Trading Day.
(k) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on which such Notice
is deemed delivered).
(l) Trading Cushion. The Trading Cushion shall have elapsed since the
next preceding Put Date.
(m) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement for the Purchase Price due hereunder.
(n) Other. On each Condition Satisfaction Date, the Investors shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investors in order for
the Investors to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2, including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
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ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by each of the Investors, and the Placement Agent,
advisors to and representatives of each of the Investors, and the Placement
Agent (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 Investor 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 the Placement Agent, 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, or
the Placement Agent, 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 non-public information to the
Investors, or the Placement Agent, advisors to or representatives of the
Investors, or the Placement Agent unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investors, and the Placement Agent, and such
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 Investor's, and the
Placement Agent's, advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investors and
the Placement Agent.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investors and the Placement Agent 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 the Placement Agent, 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
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statements, therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 8.2 shall be construed to mean
that such persons or entities other than the Investors (without the written
consent of the Investor 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 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
Section 9.1 Legends. Unless otherwise provided below, and subsequent to
the Effective Date, each certificate representing the shares of Common Stock
underlying the Convertible Debentures and Warrants will be issued free of any
Legend. The 20,000 shares issued pursuant to paragraph 2.10(i) will bear the
legend provided below. If the Convertible Debentures are converted, or Warrants
exercised, prior to the Effective Date) or if no exemption to the registration
requirements is available, the shares issued pursuant to such actions (the
"Unregistered Common Stock"), will bear the following legend (the "Legend"),
unless such shares are not restricted securities as defined under Rule 144
promulgated by the SEC:
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.
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 K 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 at any time after the Effective Date upon
transfer of the Unregistered Common Stock by the Investors and the Placement
Agent to
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issue certificates evidencing such Unregistered Common Stock free of the Legend
during the following periods and under the following circumstances and 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 Investor or the Placement
Agent:
(a) at any time after the Effective Date, upon surrender of one or
more certificates evidencing the Unregistered Common Stock, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered; provided that (i)the Registration Statement
shall then be effective; (ii) (if required by law) the Investor and/or Placement
Agent 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) (if required by law) the Investor and/or Placement Agent
confirms to the transfer agent that the Investor and/or Placement Agent has
complied with the prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates
evidencing Unregistered Common Stock, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor and/or the
Placement Agent 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 (ii) the Investor and/or the Placement Agent 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.
Any of the notices referred to above in this Section 9.1 may be sent by
facsimile to the Company's transfer agent.
Section 9.2 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 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 IX.
Section 9.3 PLACEMENT AGENT AND INVESTOR'S COMPLIANCE. Nothing in this
Article shall affect in any way each of the Investor's, and the Placement
Agent's, obligations under any agreement to comply with all applicable
securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW/JURISDICTION
Section 10.1 CHOICE OF LAW; VENUE; JURISDICTION. This Agreement will be
construed and enforced in accordance with and 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
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York sitting in
Manhattan in connection
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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. Each party to this
Agreement agrees that it hereby waives its right to a trial by jury with the
litigation of any dispute in connection with this Agreement and all Exhibits
annexed hereto.
ARTICLE XI
ASSIGNMENT; TERMINATION
Section 11.1 ASSIGNMENT. The provisions of this Agreement may be
assigned by any of the Investors to any party who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the covenants of Article V, by a party to any other person, and the
provisions herein shall inure to the benefit of, and be enforceable by, any
transferee of any of the Common Stock purchased or acquired by the Investor(s)
hereunder with respect to the Common Stock held by such person, upon the prior
written consent of the Company, which consent shall not unreasonably be
withheld.
Section 11.2 TERMINATION. This Agreement shall terminate upon the later
of (i) three and one-half (3-1/2) years after the Closing Date for the
$1,500,000 Convertible Debentures, (ii) two years after the expiration of the
Commitment Period, or (iii) none of the Convertible Debentures are outstanding;
provided, however, that the provisions of Articles III, IV, V, VI, VII, VIII,
IX, X, XI, and XII of this Agreement, and the terms of the Registration Rights
Agreement, Convertible Debentures, and Warrants shall survive the termination 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) 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
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business hours where such notice is to be received) or (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. The addresses for such communications shall be:
If to Dynatec International, Inc.:
Dynatec International, Inc.
0000 Xxxx Xxxxx Xxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxx X. Xxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to the Placement Agent:
Settondown Capital International Ltd.
Xxxxxxxxx Xxxxx, Xxxxxxxxx Xxxxxx
P.O. Box N. 9204
Nassau, Bahamas
Attn: Xxxxxxx X. X. Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investors, at the address listed on Schedule A.
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
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 Exhibits or
Attachments 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
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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 Attachments 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 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. 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 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 13.5 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
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
a majority of the Investors and the Company shall be required to employ any
other reporting entity.
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 Put 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 and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 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 for the $1,500,000 Convertible Debentures (i) one (1%) percent of
the total proceeds to Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP for legal,
administrative, and escrow fees, and (ii) to the Placement Agent (A) ten (10%)
percent of the gross proceeds, (B) a Warrant A to purchase one hundred fifty
thousand (150,000) shares of Common Stock, (C) a Warrant B to purchase three
hundred thousand (300,000) shares of Common Stock, and (D) the 20,000 shares of
Common Stock referred to in paragraph 2.10 (i) to be included in the
Registration Statement, for Placement Agent fees. On the Closing Date for the
$500,000 Convertible Debentures, (i) one (1%) percent of the total proceeds to
Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP for legal, administrative, and escrow fees, and
(ii) to the Placement Agent, (A) ten (10%) percent of the gross proceeds, and
(B) a Warrant A to purchase fifty thousand (50,000) shares of Common Stock. On
each Closing Date for a Put, the Company shall pay (i) one (1%) percent of the
proceeds to Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP for legal, administrative, and
escrow agent fees, and (ii) six (6%) percent of the proceeds, and 60,000 shares
of Common Stock (as set forth in Section 2.10 above) to the Placement Agent.
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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.
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 CONFIDENTIALITY. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof and obtained from sources besides the other parties to this Agreement,
and except as required by court order) and shall promptly return to the other
parties all schedules, documents, instruments, work papers or other written
information, without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herewith.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture and Private Equity Line of Credit Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
Agreed to and Accepted on
this 15th day of May, 1998
DYNATEC INTERNATIONAL, INC. SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By By
---------------------------- -----------------------------
Xxxxxx X. Xxxx, CEO Its:
XXXXX ENTERPISES
By
-----------------------------
Its:
TLG REALTY
By
-----------------------------
Its:
BALMLORE FUNDS S.A.
By
-----------------------------
Its:
AUSTOST ANSTALT XXXXXX
By
-----------------------------
Its:
HEWLETTE FUND
By
-----------------------------
Its:
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