Exhibit 4.3
INVESTMENT AGREEMENT
between
SENIOR CARE INDUSTRIES, INC.
and
BAYVIEW LLC
Dated as of November 17, 2000
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of November 17, 2000 by and
among SENIOR CARE INDUSTRIES, INC., a Nevada corporation with offices located at
000 Xxxxxxxx, 0xx Xxxxx, Xxxxxx Xxxxx, XX 00000 (the "COMPANY"), and Bayview
LLC, a Cayman corporation, with an office at Harbour House, 2nd Floor,
Waterfront Drive, Road Town, Tortola, BVI (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $20,000,000 to
purchase the Company's common stock, $.001 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"),
Regulation D, and the rules and regulations promulgated thereunder, and/or upon
such other exemption from the registration requirements of the 1933 Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
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1. PURCHASE AND SALE OF COMMON STOCK
a. PURCHASE AND SALE OF COMMON STOCK. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of shares of Common Stock
(the "SHARES") having an aggregate Purchase Price (as defined in Section 1(b))
of $20,000,000.
b. DELIVERY OF PUT NOTICES. Subject to the satisfaction of the
conditions set forth in this Section 1, at any time and from time to time during
the period beginning on and including the Trading Day (as defined below)
immediately following the date on which the initial Registration Statement (as
defined in the Registration Rights Agreement) filed pursuant to the Registration
Rights Agreement is declared effective (the "EFFECTIVE DATE") by the Securities
and Exchange Commission (the "SEC") and ending on the earlier of (i) the date
which is twenty-four (24) months from the Effective Date, and (ii) termination
of this Agreement in accordance with Section 8, (the time period between the
Effective Date and the earlier of (i) and (ii) being known as the "OPEN
PERIOD"), the Company may, in its sole discretion, deliver a written notice to
the Investor (the "PUT NOTICE"). The Put Notice shall state the dollar amount
(the "DOLLAR AMOUNT") of Shares which the Company intends to sell to the
Investor during the period beginning on the Trading Day immediately following
the date which the Investor receives the Put Notice (the "PUT NOTICE DATE") and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date (the "PURCHASE PERIOD"). A Put Notice shall be deemed delivered on
(x) the Trading Day it is received by facsimile or otherwise by the Investor if
such notice is received prior to 12:00 noon Eastern Standard Time (receipt being
deemed to occur if the Company possess a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern
Standard Time on a Trading Day (receipt being documented as described in (x)
above). No Put Notice may be deemed delivered, on a day that is not a Trading
Day. For purposes of this Agreement, "TRADING DAY" shall mean any day on which
the Principal Market (as defined in Section 1(f)) for the Common Stock is open
for trading.
In addition, the Dollar Amount designated by the Company in a Put
Notice shall be in increments of not less than $100,000 and not more $2,000,000
subject to the requirements set forth in this Agreement. Once the Put Notice is
received by the Investor the Put Notice shall not be, terminated, withdrawn or
otherwise revoked by the Company. During the Open Period, Put Notices may be
delivered no more frequently than once in each period of fifteen (15)
consecutive Trading Days. The Dollar Amount that the Company is permitted to
request with respect to each Put Notice depends on the product of the daily
trading volume and the closing bid price of the Company's Common Stock on the
Principal Market (as defined in Section 1(f)), (the "DOLLAR TRADING VOLUME").
The maximum Dollar Amount of the Put Notice will be calculated by multiplying
the average of the Dollar Trading Volume for the thirty (30) Trading Days
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immediately preceding the Put Notice Date, by 1.5 (the "MAXIMUM PUT AMOUNT").
The amount that the Company is able to draw down can be increased or decreased
if mutually agreed upon by both parties in writing. For the ten (10) Trading
Days immediately preceding both the Put Notice Date and the applicable Closing
Date, the average Dollar Trading Volume must be at least $75,000 and the average
closing bid price for such ten (10) Trading Day period shall be greater than
$.50. The price at which the Investor will purchase the Common Stock ("PURCHASE
PRICE") will be 87.5% of the average of the lowest three closing bid prices
during the ten (10) Trading Days immediately preceding the "Closing Date", as
that term is defined in subsection 1(h);
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor 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 with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. Warrants.
(i) MINIMUM DRAW DOWN WARRANT. If the Company fails to deliver such
number of Put Notices as allows the Investor to purchase Shares having
an aggregate Purchase Price of at least $5,000,000 during the Open
Period (whether due to failure to draw or breach by the Company), the
Company shall (a) issue to Investor, upon termination, warrant coverage
for the full undrawn minimum amount (based on lowest closing bid price
during the three (3) months prior to termination), with an exercise
price equal to 100% of the lowest closing bid price during the three
(3) months prior to termination, and (ii) pay to the Investor an amount
equal to the product of the undrawn minimum amount times (Market Price
minus Purchase Price using the last Trading Day of the Open Period as
the Closing Date). Market Price shall equal the average of the three
(3) lowest closing bid prices over the ten (10) Trading Days preceding
the end of the Open Period.
The Investor shall not be entitled to the Warrants and amount
issuable pursuant to the terms of this Section 1(c)(i), if the
Investor's ownership of Shares prevents the Company from issuing Put
Notices to reach the $5,000,0000 minimum, UNLESS Investor's ownership
is due to its inability to sell the Shares caused by or the result of
(x) the SEC or the NASD suspending trading in the Common Stock; (y) the
Common Stock ceasing to be registered under the 1933 Act or listed or
traded on the Nasdaq National Market, American Stock Exchange, the
Nasdaq Small Cap Market or the OTC Bulletin Board; or (z) the
registration statement, after being declared effective, is suspended
for more than thirty (30) consecutive Trading Days.
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(ii) DRAW DOWN WARRANT. The Investor shall receive warrants to purchase
a number of Shares of Common Stock equal to 20% of the number of Shares
purchased on each Closing Date. The warrant will have a five (5) year
term and an exercise price of 120% of the average of the closing bid
prices for the five (5) Trading Day period immediately preceding the
applicable Closing Date. The draw down warrants shall be exercisable on
a cash or cashless basis anytime after its issuance and shall have
piggy- back registration rights to be included in the registration
statement covering the Shares.
If the Company fails to issue the warrants within thirty (30) calendar
days of a Closing Date, the Company shall pay to the Investor, compounded annual
interest of the 18% of the net value of the Warrants until issued.
Nothing contained in this Agreement shall be deemed to establish or
require the payment of interest to the Purchaser at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Purchaser to the Company.
d. INVESTOR OBLIGATION TO PURCHASE SHARES. Subject to the conditions
set forth in this Agreement, following the Investor's receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company during the related Purchase Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Dollar Amount set forth
in the Put Notice (subject to reduction during the Purchase Period as may be
provided pursuant to the terms of this Agreement), and (ii) 15% of the total
Dollar Trading Volume during the applicable Purchase Period, but only if 200% of
said number of Shares are being held in escrow, pursuant to Section 1(h), prior
to the applicable Closing Date.
e. LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and the Company shall in no event sell to
the Investor, that number of Shares, which when added to the sum of the number
of Shares beneficially owned, (as such term is defined under Section 13(d) and
Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934 ACT")), by the
Investor, would exceed 4.99% of the number of Shares outstanding on the Put
Notice Date for such Purchase Period, as determined in accordance with Rule
13d-1(j) of the 1934 Act. In no event shall the Investor purchase Shares of the
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Common Stock other than pursuant to this Agreement until such date as this
Agreement is terminated. Each Put Notice shall include a representation of the
Company as to the number of Shares of Common Stock outstanding on the related
Put Notice Date as determined in accordance with Section 13(d) of the 1934 Act.
In the event that the number of Shares of Common Stock outstanding as determined
in accordance with Section 13(d) of the 1934 Act is different on any date during
a Purchase Period than on the Put Notice Date associated with such Purchase
Period, then the number of Shares of Common Stock outstanding on such date
during such Purchase Period shall govern for purposes of determining whether the
Investor would be acquiring beneficial ownership of more than 4.99% of the
number of Shares of Common Stock outstanding during such period.
f. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and require the Investor to purchase any
Shares at a Closing (as defined in Section 1(h)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared effective and
shall remain effective and available for the resale of all the
Registrable Securities (as defined in the Registration Rights
Agreement) at all times during the Purchase Period;
(ii) at all times during the period beginning on the related Put Notice
Date and ending on and including the related Closing Date, the Common
Stock shall have been listed on The American Stock Exchange, Inc. or
The New York Stock Exchange, Inc. or designated on the Nasdaq National
Market, The Nasdaq SmallCap Market, or , the National Association of
Securities Dealer's, Inc. OTC electronic bulletin board (the "PRINCIPAL
MARKET") and shall not have been suspended from trading thereon for a
period of five (5) consecutive Trading Days during the Open Period and
the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock;
(iii) during the period beginning on the date of this Agreement and
ending on and including the applicable Closing Date, there shall not
have occurred a Major Transaction (as defined in Section 1(g)) or the
public announcement of a pending Major Transaction which has not been
abandoned or terminated;
(iv) the Company has complied with its obligations and is otherwise not
in breach of a material provision, or in default under, this Agreement,
the Registration Rights Agreement or any other agreement executed in
connection herewith which has not been corrected prior to delivery of
the Put Notice Date;
(v) no Material Adverse Effect (as defined in Section 3(a)) has
occurred since the Execution Date;
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(vi) no injunction shall have been issued, or action commenced by a
governmental authority, prohibiting the purchase or the issuance of the
Common Stock; and
(vii) the issuance of the Common Stock will not violate the shareholder
approval requirements of Nasdaq.
If any of the events described in clauses (i) through (vii) above
occurs during a Purchase Period, then the Investor shall have no
obligation to purchase the Dollar Amount of Common Stock set forth in
the applicable Put Notice.
g. For purposes of this Agreement, a "MAJOR TRANSACTION" shall be
deemed to have occurred at the closing of any of the following events: (i) the
consolidation, merger or other business combination of the Company with or into
another person (other than pursuant to a migratory merger effected solely for
the purposes of changing the jurisdiction of incorporation of the Company),
unless in the ordinary course of the Company's business; (ii) the sale or
transfer of all or substantially all of the Company's assets; or (iii) the
consummation of a purchase, tender or exchange offer made to, and accepted by,
the holders of more than 51% of the economic interest in, or the combined voting
power of all classes of voting stock of, the Company.
h. MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the
satisfaction of the conditions set forth in Sections 1(f), 6 and 7, the closing
of the purchase by the Investor of Shares (a "CLOSING") shall occur on the date
which is eleven (11) Trading Days following the applicable Put Notice Date (or
such other time or later date as is mutually agreed to by the Company and the
Investor) (a "CLOSING DATE"). Prior to each Closing Date, (i) the Company shall
deliver to Xxxxxx X. XxXxxxx ("ESCROW AGENT") pursuant to the Escrow Agreement,
annexed hereto as Exhibit F, certificates representing the Shares (and Common
Stock underlying Warrants that may be issuable upon exercise pursuant to the
terms of this Agreement) to be issued to the Investor on such date and
registered in the name of the Investor, or in street name as may be requested by
Investor, or deposit such Shares into the account(s) (with the Investor
receiving confirmation that the Shares are in such account(s)) designated by the
Investor for the benefit of the Investor and (ii) the Investor shall deliver to
the Escrow Agent the Purchase Price to be paid for such Shares (after receipt of
confirmation of delivery of such Shares), determined as aforesaid, by wire
transfer. In addition, each of the Company and the Investor shall deliver all
documents, instruments and writings required to be delivered by either of them
to the Escrow Agent pursuant to this Agreement at or prior to each Closing. In
the alternative to physical delivery of certificates for Common Stock to the
Escrow Agent, if delivery of the Shares may be effectuated by electronic
book-entry through The Depository Trust Company ("DTC"), then delivery of the
Shares pursuant to such purchase shall, unless requested otherwise by such
Investor (or holder of such Shares), settle by book-entry transfer through DTC
by the Closing Date. The parties agree to coordinate with DTC to accomplish this
objective.
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i. DELISTING; SUSPENSION. If at any time during the Open Period or
within thirty (30) calendar days after the end of the Open Period, (i) the
Registration Statement, after it has been declared effective, shall not remain
effective and available for sale of all the Registrable Securities, (ii) the
Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
trading day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock, (iii) there shall have occurred a Major
Transaction (as defined in Section 1(g)) or the public announcement of a pending
Major Transaction which has not been abandoned or terminated, or (iv) the
Registration Statement is no longer effective or stale for a period of more than
five (5) Trading Days as a result of the Company to timely file its financials,
the Investor shall have the right (the "REPURCHASE OPTION"), as partial relief
for the damages to the Investor by reason of the occurrence of the events listed
in clauses (i), (ii), (iii) or (iv)above (which remedy shall not be exclusive of
any other remedies available at law or equity), in its sole discretion, which
right shall be exercised within thirty (30) calendar days of such event or
occurrence (a "REPURCHASE EVENT"), to sell to the Company, and the Company
agrees to buy, promptly upon the exercise of such right by the Investor, but in
any event within ten (10) calendar days of the exercise of such right, and
subject to the limitations imposed by applicable federal and state law, all or
any part of the Shares issued to the Investor within the sixty (60) Trading Days
preceding the Investor's exercise of the Repurchase Option and then held by the
Investor at a price per Share equal to the highest Dollar Trading Volume during
the period beginning on the date of the Repurchase Event and ending on and
including the date on which the Investor exercises its Repurchase Option (the
"PAYMENT AMOUNT"). If the Company fails to pay to the Investor the full
aggregate Payment Amount within ten (10) calendar days of the Investor's
exercise of the Repurchase Option hereunder, the Company shall pay to the
Investor, on the first Trading Day following such tenth (10th) calendar day, in
addition to and not in lieu of the Payment Amount payable by the Company to the
Investor upon exercise of the Repurchase Option, an amount equal to 2% of the
aggregate Payment Amount then due and payable to the Investor, in cash by wire
transfer, plus compounded annual interest of 18% on such Payment Amount during
the period, beginning on the day following such tenth calendar day, during which
such Payment Amount, or any portion thereof, is outstanding.
j. OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything
contained herein to the contrary, if the Company is no longer listed on the OTC
electronic bulleting board, the number of Shares issuable by the Company and
purchasable by the Investor including the shares of Common Stock issuable in
connection with the warrants issuable hereunder, shall not exceed 19.99% of the
shares of Common Stock outstanding as of the date hereof, subject to appropriate
adjustment for stock splits, stock dividends, combinations or other similar
recapitalization affecting the Common Stock (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of Shares, including any Common Stock to be
issued in connection with Warrants that may be issuable hereunder, in excess of
the Maximum Common Stock Issuance shall first be approved by the Company's
shareholders in accordance with applicable law and the By-laws and Articles of
Incorporation of the Company, if such issuance of shares of Common Stock could
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cause a delisting on the Principal Market. Without limiting the generality of
the foregoing, such shareholders' approval must duly authorize the issuance by
the Company of shares of Common Stock totaling 19.99% or more of the shares of
Common Stock outstanding on the date hereof. The parties understand and agree
that the Company's failure to seek or obtain such shareholder approval shall in
no way adversely affect the validity and due authorization of the issuance and
sale of Shares hereunder or the Investor's obligation in accordance with the
terms and conditions hereof to purchase a number of Shares in the aggregate up
to the Maximum Common Stock Issuance limitation, and that such approval pertains
only to the applicability of the Maximum Common Stock Issuance limitation
provided in this Section 1(j).
k. "VALUATION EVENT" shall mean an event in which the Company at any
time during a "Purchase Period" (as defined in Section 2(l)) takes any of the
following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for
dividends paid with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for
or purchase Common Stock and the price per share for
which Common Stock may at any time thereafter be
issuable pursuant to such options or other rights
shall be less than the Bid Price in effect
immediately prior to such issuance;
(iv) issues any securities convertible into or
exchangeable for Common Stock and the consideration
per share for which shares of Common Stock 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;
(v) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (i) through
(iv), 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;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock 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 (i) through (v); or
(vii) takes any action affecting th number of shares of
Common Stock outstanding, other than an action
described in any of the foregoing subsections (i)
through (vi) hereof, inclusive, which in the opinion
of the Company's Board of Directors, determined in
good faith, would have a materially adverse effect
upon the rights of Investor at the time of a Put
Notice is delivered to Investor.
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l. If a Valuation Event occurs during a Purchase Period, the Investor
at its option may either (i) chose a new Purchase Period beginning on the
Trading Day immediately after the occurrence of such Valuation Event, (ii) use
the Purchase Period during which the Valuation Event occurred or (iii) decline
the Put Notice.
m. Right of First Refusal. Investor is hereby given a Right of First
Refusal to participate in any subsequent financing conducted by the Company
during the Open Period. The Investor is also granted the right to assign the
Right of First Refusal to a Nominee. If the Company violates the Right of First
Refusal and sells any Common Stock or securities convertible into Common Stock
at a discount on terms more favorable than the Purchase Price stated herein, the
Purchase Price shall be adjusted accordingly.
n. COVER. If, the number of Shares represented by any Put Notices
become restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor, in addition to all other amounts contemplated in other provisions of
the Transaction Documents, and not in lieu thereof, the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor
in immediately available funds immediately upon demand by the Investor. By way
of illustration and not in limitation of the foregoing, if the Investor
purchases Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to the Common Stock it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Investor will be $1,000.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
a. INVESTMENT PURPOSE. The Investor is acquiring the Shares and
warrants issuable pursuant to the Agreement ("SECURITIES") for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
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registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, the Investor does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The Investor is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the 1933 Act. The Investor has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities.
c. RELIANCE ON EXEMPTIONS. The Investor understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire such Securities.
d. INFORMATION. The Investor and its advisors, if any, have been
furnished with or have had access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Investor. The Investor
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigations
conducted by the Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in Section 3 below. The Investor
understands that its investment in the Securities involves a high degree of
risk. The Investor has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. The Investor understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered for resale thereunder and sold, assigned or transferred in accordance
with an effective registration statement, (B) the Investor shall have delivered
to the Company an opinion of counsel, in a generally acceptable form, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
the Investor provides the Company with assurance reasonably acceptable to the
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Company that such Securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("RULE
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Investor
agrees that the sale of the Securities will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market, if applicable.
g. LEGENDS. The Investor understands that, until such time as the
Securities have been transferred to a person who may trade the Shares without
restriction under the 1933 Act as contemplated by the Registration Rights
Agreement, the certificates representing the Securities, except as set forth
below and in Section 7(r), shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with assurances reasonably acceptable
to the Company that such Securities can be sold pursuant to Rule 144 without any
restriction as to (A) the number of securities acquired as of a particular date
that can then be immediately sold or (B) manner of sale. The Investor covenants
that, in connection with any transfer of Securities by it pursuant to an
effective registration statement under the 1933 Act, it will (i) comply with the
applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Investor, and (ii) comply with the "Plan of
Distribution" section of the current prospectus relating to such effective
registration statement.
11
h. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies..
j. SECTION 9 OF THE 1934 ACT. During the Open Period, the Investor will
comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
k. NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation or the By-laws or (ii) conflict with,
or constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
l. The Investor is an entity duly organized, existing and in good
standing under the laws of the Cayman Islands, and has the requisite power and
authority to enter into the transactions contemplated by the Transaction
Documents, as that term is defined in Section 3(b) below.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) (a complete list of which is set forth in Schedule 3(a)) are
12
corporations duly organized and validly existing in good standing under the laws
of the State of Nevada, and have the requisite corporate power and authorization
to own their properties and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 3(b)).
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Warrants, and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Shares and the
Warrants in accordance with the terms hereof and thereof, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby, including without
limitation the reservation for issuance and the issuance of the Shares and the
Warrants pursuant to this Agreement, have been duly and validly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors, or its shareholders, (iii) the
Transaction Documents have been duly and validly executed and delivered by the
Company, and (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.
c. CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) __________ shares of Common Stock, of which as of
the date hereof, __________ shares are issued and outstanding, __________ shares
of Preferred Stock, of which as of the date hereof ____________ shares are
issued and outstanding, and _________ shares of Common Stock are issuable upon
the exercise of options warrants and conversion rights. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding shares
of capital stock, options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
13
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (v) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement, (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (viii) there is no dispute as to the class of any
shares of the Company's capital stock. The Company has furnished to the
Investor, or the Investor has had access through XXXXX to, true and correct
copies of the Company's Articles of Incorporation, as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS '), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. ISSUANCE OF SHARES. A number of shares of Common Stock equal to at
least 200% of the aggregate number of Shares issuable pursuant to this Agreement
but not more than 19.99% of the shares of Common Stock outstanding as of the
date hereof, to the extent that the provisions of Section 1(j) are applicable
hereunder, based on the Purchase Price per Share as of the date hereof and an
aggregate Purchase Price of $20,000,000 (regardless of any limitation on the
timing or amount of such purchases) initially has been duly authorized and
reserved for issuance (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) pursuant to this Agreement. Upon issuance in
accordance with this Agreement, the Securities will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof. The issuance by the Company of the Securities is exempt
from registration under the 1933 Act. In the event the Company cannot register
the 200% required, due to the remaining number of authorized shares of Common
Stock being insufficient, the Company will use its best efforts to register the
maximum number of shares it can based on the remaining balance of authorized
shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
14
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act, the Company is not required to obtain any consent, authorization,
permit or order of, or make any filing or registration (except the filing of a
registration statement) with, any court, governmental authority or agency,
regulatory or self-regulatory agency or other third party in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 3(e), the Company
and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not, and will not be, in violation
of the listing requirements of the Principal Market as in effect on the date
hereof and on each of the Closing Dates and is not aware of any facts which
would reasonably lead to delisting of the Common Stock by the Principal Market
in the foreseeable future.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since February 1999, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1933 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Investor or its
representatives, or they have had access through XXXXX, true and complete copies
of the SEC Documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1933 Act and the rules and
15
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date.
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g) or
the SEC Documents filed at least five (5) days prior to the date hereof, since
October 19, 2000, there has been no change or development in the business,
properties, assets, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries which has had or reasonably could
have a Material Adverse Effect. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. ABSENCE OF LITIGATION. Except as set forth in Schedule 3(h), there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self- regulatory organization or body pending
or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
16
i. ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists, or to
its knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
l. NO INTEGRATED OFFERING. To its knowledge, neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration under the 1933 Act of the Company's sale and issuance of the
Securities to the Investor or cause this offering of Shares to the Investor to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration under the 1933 Act of the Company's sale and issuance of
the Securities to the Investor or cause the offering of the Securities to be
integrated with other offerings.
m. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
17
n. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service xxxx registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
o. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
p. TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(p) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
18
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
q INSURANCE. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
r. REGULATORY PERMITS. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
s. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
u. TAX STATUS. The Company and each of its Subsidiaries has made or
filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
19
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
v. CERTAIN TRANSACTIONS. Except as set forth on Schedule 3(v) and in
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
w. DILUTIVE EFFECT. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances. The Company's executive
officers and directors have studied and fully understand the nature of the
transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
x. RIGHT OF FIRST REFUSAL. The Company shall not, directly or
indirectly, without the prior written consent of the Investor, or its designee,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition) any of
its Common Stock or securities convertible into Common Stock at a price that is
less than the market price of the Common Stock at the time of issuance of such
security or investment (a "SUBSEQUENT FINANCING") for a period of one year after
the Effective Date, except (i) the granting of options or warrants to employees,
officers, directors and consultants, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares issued upon exercise of any currently
outstanding warrants or options and upon conversion of any currently outstanding
convertible debenture, in each case disclosed pursuant to Section 3(c), (iii)
securities issued in connection with the capitalization or creation of a joint
20
venture with a strategic partner, (iv) shares issued to pay part or all of the
purchase price for the acquisition by the Company of a person (which, for
purposes of this clause (iv), shall not include an individual or group of
individuals), and (v) shares issued in a bona fide public offering by the
Company of its securities, unless (A) the Company delivers to Investor, or its
designee, a written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the person with whom
such Subsequent Financing shall be effected, and attached to which shall be a
term sheet or similar document relating thereto and (B) Invesotr, or its
designee, shall not have notified the Company by 5:00 p.m. (New York time) on
the fifteenth (15th) Trading Day after its receipt of the Subsequent Financing
Notice of its willingness to provide, subject to completion of mutually
acceptable documentation, financing to the Company on substantially the terms
set forth in the Subsequent Financing Notice. If Investor, or its designee,
shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms and to the persons (or affiliates of such
persons) set forth in the Subsequent Financing Notice; PROVIDED THAT the Company
shall provide Investor, or its designee, with a second Subsequent Financing
Notice, and Investor, or its designee, shall again have the right of first
refusal set forth above in this Section, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice with
the person (or an affiliate of such person) identified in the Subsequent
Financing Notice. The rights granted to Investor, or its designee, in this
Section are not subject to any prior right of first refusal given to any other
person except as disclosed on Schedule 3(c).
4. COVENANTS OF THE COMPANY
a. BEST EFFORTS. The Company shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Section 7 of
this Agreement.
b. BLUE SKY. The Company shall, at its sole cost and expense, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as specified by Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to the Closing
Date. The Company shall, at its sole cost and expense, make all filings and
reports relating to the offer and sale of the Securities required under the
applicable securities or "Blue Sky" laws of such states of the United States
following each of the Closing Dates.
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c. REPORTING STATUS. Until the earlier of (i) the first date which is
after the date this Agreement is terminated pursuant to Section 8 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities acquired pursuant to this Agreement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Holders shall have sold all the
Securities issuable hereunder and (B) this Agreement has been terminated
pursuant to Section 8 (the "REGISTRATION PERIOD"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as a reporting company under the 1933
Act.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for legal fees, finder's fees,
draw down fees, and escrow fees) for general corporate and working capital
purposes.
e. FINANCIAL INFORMATION. The Company agrees to make available to the
Investor via XXXXX or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc.
f. RESERVATION OF SHARES. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 200% of the number of shares
of Common Stock needed to provide for the issuance of all the Securities
hereunder at the then current Purchase Price. In the event that the Company
determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this
Section 4(f), the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking shareholder approval for the
authorization of such additional shares.
g. LISTING. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
22
quotation on the Principal Market, unless the Investor and the Company agree
otherwise. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market (excluding suspensions of not more than
one trading day resulting from business announcements by the Company). The
Company shall promptly provide to the Investor copies of any notices it receives
from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
h. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
i. FILING OF FORM 8-K. On or before the date which is three (3) Trading
Days after the Execution Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
j. CORPORATE EXISTENCE. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
k. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (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
23
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 any 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 Shares 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 such 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 a 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
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
l. REIMBURSEMENT. If (i) Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
24
Investor and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, Investor and any such affiliate and any such person.
m. DILUTION. The number of Shares issuable pursuant to a Put Notice may
increase substantially in certain circumstances, including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines during the period between the Effective Date and the end of the Open
Period. The Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon issuance of a Put
Notice is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company.
5. INTENTIONALLY LEFT BLANK.
6. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Shares to
the Investor is further subject to the satisfaction, at or before each Closing
Date, of each of the following conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
a. The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Company the Purchase Price
for the Shares being purchased by the Investor at the Closing (after receipt of
confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
c. The representations and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or
prior to such Closing Date.
25
d. 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 which prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since th applicable Put
Notice Date.
7. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject
to the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below. These conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion.
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for (i) representations and warranties that speak as
of a specific date and (ii) with respect to the representations made in Sections
3(g), (h) and (j) and the third sentence of Section 3(m) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the applicable Put
Notice Date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company on or before such
Closing Date. The Investor shall have received a certificate, executed by the
Chief Executive Officer and Chief Financial Officer of the Company, dated as of
the applicable Closing Date, in the form of Exhibit C attached hereto, to the
foregoing effect and as to such other matters as may be reasonably requested by
the Investor including, without limitation, an update as of such Closing Date
regarding the representation contained in Section 3(c) above.
d. Investor shall have received an opinion letter of the Company's
counsel on or before the Execution Date, in the form of Exhibit D attached
hereto, and if required by the Company's transfer agent any additional opinion
letters after the Effective Date so as to allow for the issuance of Securities
to Investor as may be required pursuant to the Transaction Documents.
e. The Company shall have executed and delivered to the Escrow Agent or
Investor the certificates representing, or have executed electronic book-entry
transfer of, the Shares and the Warrants, if applicable, (in such denominations
as such Investor shall request) being purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 3(b)(ii) above and in a form reasonably acceptable to
the Investor (the "RESOLUTIONS") and such Resolutions shall not have been
amended or rescinded prior to such Closing Date.
g. If requested by the Investor, the Investor shall receive a letter of
the type, in the form and with the substance of the letter described in Section
3(s) of the Registration Rights Agreement from the Company's auditors.
h. The Company shall have delivered to the Investor a copy of its
Articles of Incorporation, as amended and in effect on such Closing Date,
certified by the Secretary of State of the Company's state of incorporation
within ten (10) days of such Closing Date.
i. The Company shall have delivered to the Investor a secretary's
certificate, dated as of such Closing Date, in the form of Exhibit E attached
hereto, as to (i) the Resolutions described in Section 7(f), (ii) the Articles
of Incorporation and (iii) the Bylaws, each as in effect on such Closing Date.
j. 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 which prohibits the
consummation of any of the transactions contemplated by this Agreement.
k. The Registration Statement shall be effective on each Closing Date
and no stop order suspending the effectiveness of the Registration statement
shall be in effect or shall be pending or threatened. Furthermore, on each
Closing Date (i) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and 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 such Registration Statement or related
prospectus shall exist.
27
l. At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall 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.
m. There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
n. If applicable, the shareholders of the Company shall have approved
the issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 1(j).
o. The conditions to such Closing set forth in Section 1(f) shall have
been satisfied on or before such Closing Date.
p. The Company shall have certified to the Investor the number of
shares of Common Stock outstanding as of a date within five (5) Trading Days
prior to such Closing Date.
q. The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request upon reasonable advance notice.
r. The Company's transfer agent agrees to accept one blanket
representation letter from the Investor or its broker (as the transfer agent may
designate) after the Effective Date, which representation letter shall state
that all sales of the Registrable Securities will be made in compliance with the
prospectus delivery requirements of the Registration Statement, so that any
Shares being purchased after a Put Notice Date will bear no legend and not be
subject to stop transfer instructions. A copy of an acceptable form of the
representation letter is attached hereto as Exhibit G.
8. TERMINATION.
a. OPTIONAL TERMINATION. This Agreement may be terminated at any time
by the mutual written consent of the Company and the Investor. The
representations, warranties and covenants contained in or incorporated into this
Agreement, insofar as applicable to the transactions consummated hereunder prior
to such termination, shall survive its termination for the period of any
applicable statute of limitations.
28
b. AUTOMATIC TERMINATION. This Agreement shall automatically terminate
without any further action of either party hereto upon the earliest of:
(i) when the Investor has purchased an aggregate of
$20,000,000 in the Common Stock of the Company pursuant to
this Agreement; provided that the representations, warranties
and covenants contained in this Agreement insofar as
applicable to the transactions consummated hereunder prior to
such termination, shall survive the termination of this
Agreement for the period of any applicable statute of
limitations,
(ii) on the date which is 24 months after the Effective Date;
(iii) if the Company shall file or consent by answer or
otherwise to the entry of an order for relief or approving a
petition for relief, reorganization or arrangement or any
other petition in bankruptcy for liquidation or to take
advantage of any bankruptcy or insolvency law of any
jurisdiction, or shall make an assignment for the benefit of
its creditors, or shall consent to the appointment of a
custodian, receiver, trustee or other officer with similar
powers of itself or of any substantial part of its property,
or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or
if a court or governmental authority of competent jurisdiction
shall enter an order appointing a custodian, receiver, trustee
or other officer with similar powers with respect to the
Company or any substantial part of its property or an order
for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or
liquidation of the Company, or if any such petition shall be
filed against the Company;
(iv) the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the
initial Registration Rights Agreement within sixty (60)
calendar days of the date hereof or the Registration Statement
has not been declared effective within one hundred eighty
(180) calendar days of the date hereof; or
(v) The occurrence of a Material Adverse Effect;
(vi) The Commission or the NASD shall have suspended trading
in the Common Stock for a period of five (5) consecutive
Trading Days during Open Period.
(vii) The Securities cease to be registered under the 1933 Act
or listed or traded on the Nasdaq National Market, American
Stock Exchanged or Nasdaq Small Cap Market (or the OTC
Bulletin Board, if mutually agreed upon by the Company and the
Investor); or
29
(viii) The Company requires shareholder approval under Nasdaq
rules to issue additional shares and such approval is not
obtained within 60 days from the date when the Company has
issued its 19.9% maximum allowable shares.
(ix) If the registration statement is suspended for more than
thirty (30) Trading Days.
9. INDEMNIFICATION. In consideration of the Investor's execution and
delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of their shareholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES'), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (v) the status of the Investor or holder of the Shares as an
investor in the Company, except insofar as any such untrue statement, alleged
untrue statement, omission or alleged omission is made in reliance upon and in
conformity with written information furnished to the Company by the Investor
which is specifically intended by the Investor for use in the preparation of any
such Registration Statement, preliminary prospectus or prospectus. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The indemnity provisions contained herein shall be in addition
to any cause of action or similar rights the Investor may have, and any
liabilities the Investor may be subject to.
10. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
30
non-exclusive jurisdiction of the state and federal courts sitting in the City
of Los Angeles, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. FEES AND EXPENSES.
(i) The Company shall pay to The Geneva Group, Inc. in its
capacity as a finder, an amount equal to 2% of the amount paid
to purchase the Shares ("PURCHASE AMOUNT") being purchased on
such Closing Date, which amount shall be deducted by the
escrow agent from the Purchase Price received in escrow for
each Closing.
(ii) The Company shall pay Xxxxxx X. XxXxxxx, Esq. the sum of
$5,000 on the Execution Date for the legal expenses of
Investor and a balance of $15,000 upon the first Closing Date.
On each Closing Date, the Company shall pay the escrow agent
the sum of $2,000 for escrow services which amount the escrow
agent may deduct from the proceeds received in escrow from the
Investor.
(iii) Except as otherwise set forth herein, each party shall
pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement. Any attorneys' fees and expenses incurred by either
the Company or by the Investor in connection with the
preparation, negotiation, execution and delivery of any
amendments to this Agreement or relating to the enforcement of
the rights of any party, after the occurrence of any breach of
the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated
hereunder, shall be paid on demand by the party which breached
the Agreement and/or defaulted, as the case may be. The
Company
31
shall pay all stamp and other taxes and duties levied in
connection with the issuance of any Shares issued pursuant
hereto.
c. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
d. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
e. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
f. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.
g. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
32
If to the Company:
Senior Care Industries, Inc.
000 Xxxxxxxx, 0xx Xxxxx
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, CEO
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Xxxxx X. Xxxxx, Esq.
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000,
Xxx Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
Bayview LLC
c/o Beacon Capital Management Limited
Harbour House, 0xx Xxxxx
Xxxxxxxxxx Xxxxx
Xxxx Xxxx, Xxxxxxx, BVI
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
h. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns, including any purchasers of the Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Investor, including by merger or consolidation. The
Investor may assign some or all of its rights hereunder; provided, however, that
33
any such assignment shall not release the Investor from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investor shall be entitled
to pledge the Shares in connection with a bona fide margin account.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
j. SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4, 5 and 10, and the indemnification provisions set forth in Section
9, shall survive each of the Closings. The Investor shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
k. PUBLICITY. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Investor without
the prior written consent of such Investor, except to the extent required by
law. Investor acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the Securities 1933 Act or the 1934 Act. Investor further
agrees that the status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation with its counsel.
l. FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. PLACEMENT AGENT. The Company acknowledges and warrants that it has
not engaged a placement agent or broker in connection with the sale of the
Shares. Except for a finder's fee payable to The Geneva Group, Inc. by the
Company, no fees or commissions will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment banker,
bank or other person or entity, with respect to the transactions contemplated by
the Transaction Documents. The Investor shall have no obligation with respect to
any fees or with respect to any claims made by or on behalf of other persons or
34
entities for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents. The
Company shall indemnify and hold harmless the Investor, their employees,
officers, directors, agents, and partners, and their respective affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses incurred in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
n. NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. REMEDIES. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement, including the recovery of reasonable attorneys
fees and costs, and to exercise all other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
35
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
COMPANY: SENIOR CARE INDUSTRIES, INC.
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
INVESTOR: BAYVIEW LLC
By: /s/ Xxxxxx xx Xxxxxx
------------------------------------
Name: Xxxxxx xx Xxxxxx
Title: Assistant Secretary
Navigator Management
Managing Partner
By: /s/ Xxxxxx Xxxxx
-----------------------------------
Name: Xxxxxx Xxxxx
Title: Secretary
Navigator Management
Managing Partner
36
LIST OF SCHEDULES
-----------------
Schedule 3(a) Subsidiaries
Schedule 3(c) Capitalization
Schedule 3(e) Conflicts
Schedule 3(g) Material Changes
Schedule 3(h) Litigation
Schedule 3(n) Intellectual Property
Schedule 3(p) Liens
Schedule 3(v) Certain Transactions
37
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Form of Warrant
EXHIBIT C Officers' Certificate
EXHIBIT D Opinion of Company's Counsel
EXHIBIT E Secretary's Certificate
EXHIBIT F Escrow Agreement
EXHIBIT G Representation Letter Acceptable to Transfer Agent
38
EXHIBIT G
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
======================
----------------------
Re: Senior Care Industries, Inc.
Dear __________________:
It is our understanding that the Form______ Registration Statement bearing SEC
File Number ( ___-______) filed by Senior Care Industries, Inc. on Form _____ on
__________, 200__was declared effective on _________, 200__.
This letter shall confirm that ______________ shares of the common stock of
Senior Care Industries, Inc. are being sold on behalf of __________________ and
that we shall comply with the prospectus delivery requirements set forth in that
Registration Statement by filing the same with the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
----------------------
cc: Xxxxxx X. XxXxxxx, Esq.
39
