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EXHIBIT 10.22
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SECURITIES PURCHASE AGREEMENT
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INTERACTIVE TELESIS INC.
JUNE 12, 2000
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is entered into as of the 12th day of
June 2000 (the "Agreement") by and among the Investors signatory hereto (each an
"Investor" and together the "Investors") and Interactive Telesis Inc., a
Delaware corporation (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase from the Company up to $4,500,000 of the
Company's Common Stock and to receive in connection therewith certain Repricing
Rights (as defined below) and warrants to purchase shares of the Company's
Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions
of Regulation S ("REGULATION S") and/or Section 4(2) ("SECTION 4(2)") and/or
Section 4(6) ("SECTION 4(6)") of the United States Securities Act of 1933, as
amended, and/or Regulation D ("REGULATION D") and the other rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
In addition to the definitions set forth in the text of this Agreement, the
following capitalized terms shall have the meanings ascribed to them below:
"AVERAGE MARKET PRICE" for any Exercise Date means the average of the Market
Price on each of the four trading days having the lowest Market Prices, whether
or not consecutive, during the period of 30 consecutive trading days ending on
the trading day prior to such date. Average Market Price shall be reduced by 5%
if the Company receives notice of delisting from its Principal Market.
"CAPITAL SHARES" shall mean the Common Stock and any shares of any other class
of common stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
"CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or obligations
that are convertible into or exchangeable for or give any right to subscribe for
any Capital Shares of the Company or any warrants, options or other rights to
subscribe for purchase or otherwise acquire Capital Shares or any such
convertible or exchangeable securities.
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"CLOSING" shall mean each closing of the purchase and sale of the Securities
pursuant to Section 2.1.
"CLOSING DATE" shall mean the Initial Closing Date, the Second Closing Date or
the Third Closing Date, as applicable.
"CLOSING PRICE" means the closing sale price of the Common Stock on the
Principal Market.
"CODE" shall mean the United States Internal Revenue Code of 1986, as amended,
including the Treasury Regulations promulgated thereunder, as applicable.
"COMMON STOCK" shall mean the Company's common stock, $0.001 par value per
share.
"COMMON SHARES" shall mean the Initial Shares, the Second Tranche Shares and the
Third Tranche Shares.
"COMPANY REPURCHASE NOTICE" means a notice given by the Company to an Investor
pursuant to Section 2.2(j) which states (1) that the Company is exercising its
right to repurchase all of the Investor's Repricing Rights which are exercised
during the Repurchase Period, (2) the Company Repurchase Price or the formula
for determining the same, determined in accordance herewith and (3) the
applicable Repurchase Period.
"COMPANY REPURCHASE PRICE" means, for each Exercise Notice given during a
Repurchase Period, the number of Repricing Shares required to be issued
multiplied by the Closing Price on the Exercise Date of such Exercise Notice.
"DAMAGES" shall mean any loss, claim, damage, judgment, penalty, deficiency,
liability, costs or expenses (including, without limitation, reasonable
attorneys' fees and disbursements and reasonable costs and expenses of expert
witnesses and investigation).
"DISCLOSURE SCHEDULE" shall mean the written disclosure schedule delivered on or
prior to the date hereof by the Company to the Investors that is arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Agreement.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares effective a
Registration Statement registering the resale of the Registrable Securities as
set forth in the Registration Rights Agreement.
"ENVIRONMENTAL LAWS" shall mean 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.
"ESCROW AGREEMENT" shall mean the Escrow Agreement in substantially the form of
Exhibit A hereto executed and delivered contemporaneously with this Agreement.
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"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXERCISE DATE" means the date on which an Exercise Notice is delivered by an
Investor to the Company in accordance with the provisions of Article XII hereof.
"EXERCISE NOTICE" means the Exercise Notice in the form attached hereto as
Exhibit B.
"GAAP" shall mean United States generally accepted accounting principles as
shall be in effect from time to time.
"INITIAL CLOSING DATE" shall mean the date of issuance of the Initial Shares,
the Initial Repricing Rights and the Initial Warrants.
"INITIAL REPRICING RIGHTS" shall mean the Repricing Rights issuable at the
Initial Closing.
"INITIAL SHARES" shall mean the number of shares of Common Stock purchased by
the Investors on the Initial Closing Date equal to the quotient obtained by
dividing $2,500,000 by the Purchase Price applicable to the Initial Closing.
"INITIAL WARRANTS" shall mean the Warrants issued at the Initial Closing.
"INTELLECTUAL PROPERTY" shall mean all trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and other
similar proprietary rights, information and knowledge.
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS" shall mean the Irrevocable Transfer
Agent Instructions, in the form of Exhibit C attached hereto, from the Company
to the Company's transfer agent.
"IRS" means the United States Internal Revenue Service.
"MARKET PRICE" of the Common Stock on any date means the closing bid price for
one share of Common Stock on such date on the Principal Market.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business, operations,
properties, prospects, stock price or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under this Agreement, the Registration Rights Agreement,
the Escrow Agreement or the Warrants in any material respect.
"OUTSTANDING" when used with reference to any Capital Shares, shall mean, at any
date as of which the number of such Capital Shares is to be determined, all
issued and outstanding Capital
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Shares, and shall include all such Capital Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Capital Shares; provided, however, that "OUTSTANDING" shall not mean any such
Capital Shares then directly or indirectly owned or held by or for the account
of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, the New York Stock
Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market, whichever
is at the time the principal trading exchange or market for the Common Stock,
based upon share volume, or if the Common Stock is not traded on an exchange or
market, the OTC Bulletin Board.
"PURCHASE PRICE" with respect to the issuance and sale of Common Stock hereunder
on any given date shall mean the average of the closing bid prices of the Common
Stock on the Principal Market for the period of five (5) consecutive trading
days ending on the trading day immediately prior to the date for which the
Purchase Price is to be determined; provided, however, that the Purchase Price
for shares of Common Stock at the Initial Closing shall not exceed $2.94 per
share.
"REGISTRABLE SECURITIES" shall mean the Securities (as defined below) until (i)
the Registration Statement has been declared effective by the SEC, and all the
Securities have been disposed of pursuant to the Registration Statement, (ii)
all the Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all the Securities have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company (which opinion
and counsel shall be reasonably satisfactory to the holders of the Securities),
all the shares of Common Stock constituting or underlying the Securities may be
sold without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the agreement regarding the filing of
the Registration Statement for the resale of the Registrable Securities, entered
into between the Company and the Investors as of the Initial Closing Date in the
form annexed hereto as Exhibit D.
"REGISTRATION STATEMENT" shall mean a registration statement on Form S-3 (if use
of such form is then available to the Company pursuant to the rules of the SEC
and, if not, on such other form promulgated by the SEC for which the Company
then qualifies and which counsel for the Company shall deem appropriate, and
which form shall be available for the resale by the Investors of the Registrable
Securities to be registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement and in accordance with the
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intended method of distribution of such securities), for the registration of the
resale by the Investors of the Registrable Securities under the Securities Act.
"REPRICING RATE" means the number of Repricing Shares issuable upon exercise of
each Repricing Right pursuant to Section 2.2(c) determined according to the
following formula:
(Purchase Price - Average Market Price)
Average Market Price
Provided, however; that the Purchase Price used to determine the
Repricing Rate shall be reduced from time to time to give effect to any
anti-dilution adjustments made to the Purchase Price pursuant to Section 2.5
hereof.
"REPRICING RIGHT" means a right of the holder thereof to receive Repricing
Shares upon the exercise thereof in accordance with Section 2.2. Repricing
Rights shall be deemed incorporated and part of each Common Share issued.
"REPRICING SHARES" means shares of Common Stock issued or issuable to a holder
of Repricing Rights upon the exercise thereof.
"REPURCHASE DATE" means the date of repurchase of Common Shares, Warrant Shares
and Repricing Rights pursuant to Section 2.4.
"REPURCHASE EVENT" means any one of the following events:
(1) For any period of five consecutive trading days commencing on
or after the Closing Date there shall be no closing bid price of the
Common Stock on the Principal Market;
(2) The Common Stock ceases to be listed for trading on any of
the NYSE, the AMEX, the Nasdaq, the Nasdaq SmallCap or the OTC;
(3) The Company fails to file the Registration Statement within
60 days after the Closing Date;
(4) The Registration Statement is not effective within 180 days
after the Closing Date;
(5) After the Effective Date, the inability for 30 or more days
(whether or not consecutive) of any holder of Securities to sell such
Securities pursuant to the Registration Statement for any reason (unless
such inability to sell arises solely for reasons within the control of
the holder or because of the death or incapacity of the holder);
(6) The Company shall fail or default in the timely performance
of any obligation (A) to issue Repricing Shares as and when required by
Section 2.2, (B) to comply with Section 9.3 regarding the removal of
restrictive legends and stop transfer restrictions with
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respect to the Securities or (C) under the Transaction Documents;
(7) Any consolidation or merger of the Company with or into
another entity (other than a merger or consolidation of a subsidiary of
the Company into the Company or a wholly-owned subsidiary of the
Company) where the common stock of such surviving company is not listed
for trading on the NYSE, the AMEX, the Nasdaq, the Nasdaq SmallCap or
the OTC, or any sale or other transfer of all or substantially all of
the assets of the Company;
(8) The Company amends its Certificate of Incorporation or
Bylaws, without the consent of the Investors, which amendment materially
and adversely affects the rights of any holder of the Securities; or
(9) Termination of Xxx Xxxxxxx as Chief Executive Officer of the
Company (including a change or diminution of his duties as such),
whether by resignation, termination, death, disability or otherwise.
"REPURCHASE NOTICE" means a notice from the Investor to the Company which states
(1) that the Investor is thereby requiring the Company to repurchase Common
Shares, Warrant Shares and Repricing Rights pursuant to Section 2.4, (2) in
general terms the Repurchase Event giving rise to such repurchase, and (3) the
number of Common Shares, Warrant Shares and Repricing Rights which are to be
repurchased.
"REPURCHASE PERIOD" means the period commencing seven trading days after the
Company gives a Company Repurchase Notice to the Investors and ending on the
earlier of (x) 30 days thereafter or (y) two trading days after the Company
gives notice to the Investors canceling such Company Repurchase Notice.
"REPURCHASE PRICE" means the average of the Closing Price for the five
consecutive trading days ending on the trading day prior to a Repurchase Date.
"SALE DATE" shall mean each date on which an Investor sells, exchanges,
transfers or otherwise disposes of some or all of the Common Shares for value,
except a Sale Date shall not arise by reason of a transfer of Common Shares as
provided in Article XI.
"SECOND CLOSING" shall mean the closing of the issuance and sale of the Second
Tranche Shares and the Second Tranche Warrants and the other transactions
contemplated hereby in connection with such sales on the Second Closing Date.
"SECOND CLOSING DATE" shall mean the date, if any, that is five days after the
Effective Date or, if such date is not a trading day, the first trading day
thereafter; provided, however, if the conditions to the Second Closing are not
satisfied or waived on or before 120 days after the Initial Closing Date, the
Investors shall have no obligation to purchase and the Company shall have no
obligation to sell the Securities on such date.
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"SECOND TRANCHE REPRICING RIGHTS" shall mean the Repricing Rights issuable at
the Second Closing.
"SECOND TRANCHE SHARES" shall mean the number of shares of Common Stock
purchased by the Investors on the Second Closing Date equal to the quotient
obtained by dividing $1,000,000 by the Purchase Price applicable to the Second
Closing.
"SECOND TRANCHE WARRANTS" shall mean the Warrants issued at the Second Closing.
"SECURITIES" shall mean all of the Common Stock (including any shares of Common
Stock issued or issuable pursuant to the anti-dilution provisions of Section
2.5), the Repricing Rights, the Repricing Shares, the Warrants and the Warrant
Shares, individually and collectively, issued or issuable to the Investors
hereunder.
"SEC DOCUMENTS" shall mean each report, proxy statement and registration
statement filed by the Company with the SEC pursuant to the Exchange Act or the
Securities Act from the initial filing with the SEC through the date hereof.
"SUBSIDIARY" shall mean any entity in which the Company, directly or indirectly,
owns more than 10% of the capital stock or holds an equity or similar interest
constituting more than 10% of the total equity of such entity.
"TAX" OR "TAXES" means federal, state, county, local, foreign, or other income,
gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
"THIRD CLOSING" shall mean the closing of the issuance and sale of the Third
Tranche Shares and the Third Tranche Warrants and the other transactions
contemplated hereby in connection with such sales on the Third Closing Date
"THIRD CLOSING DATE" shall mean the date, if any, that is three months after the
Effective Date or, if such date is not a trading day, the first trading day
thereafter; provided, however, if the conditions to the Third Closing are not
satisfied or waived on or before 150 days after the Initial Closing Date, the
Investors shall have no obligation to purchase and the Company shall have no
obligation to sell the Securities on such date.
"THIRD TRANCHE REPRICING RIGHTS" shall mean the Repricing Rights issuable to the
Investors at the Third Closing.
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"THIRD TRANCHE SHARES" shall mean the number of shares of Common Stock purchased
by the Investors on the Third Closing Date equal to the quotient obtained by
dividing $1,000,000 by the applicable Purchase Price on such date..
"THIRD TRANCHE WARRANTS" shall mean the Warrants issued at the Third Closing.
"15% WARRANT SHARES" shall mean as of any Closing Date that number of shares of
Common Stock underlying the applicable Warrant determined by dividing (x) 15% of
the Purchase Price paid for Common Stock sold by the Company to the Investors on
such Closing Date by (y) the 5-day average of the closing bid price of the
Common Stock on such Closing Date.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and
each of the other agreements, documents and instruments entered into and
delivered by the parties hereto in connection with the transactions contemplated
by this Agreement.
"WARRANTS" shall mean collectively the Initial Warrants, the Second Tranche
Warrants and the Third Tranche Warrants substantially in the form of Exhibit E
to be issued to the Investors hereunder.
"WARRANT SHARES" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF THE SECURITIES
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Investors agree to purchase, the Securities
for the Purchase Price as follows:
(i) On the Initial Closing Date, the Company shall sell, and
the Investors shall purchase, $2,500,000 of Common Stock
at the applicable Purchase Price and Warrants to purchase
15% Warrant Shares having an initial exercise price equal
to 110% of the applicable Purchase Price on the Initial
Closing Date. In connection with the purchase and sale of
these Initial Shares, the
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Company shall issue to the Investors at the Initial
Closing an equal number of Repricing Rights.
(ii) On the Second Closing Date, if any, the Company shall
sell, and the Investors shall purchase, $1,000,000 of
Common Stock at the applicable Purchase Price and Warrants
to purchase 15% Warrant Shares having an initial exercise
price equal to 110% of the applicable Purchase Price on
the Second Closing Date. In connection with the purchase
and sale of these Second Tranche Shares, the Company shall
issue to the Investors an equal number of Second Tranche
Repricing Rights.
(iii) On the Third Closing Date, if any, the Company shall sell,
and the Investors shall purchase, $1,000,000 of Common
Stock at the applicable Purchase Price and Warrants to
purchase 15% Warrant Shares having an initial exercise
price equal to 110% of the Applicable Purchase Price on
the Third Closing Date. In connection with the purchase
and sale of these Third Tranche Shares, the Company shall
issue to the Investors an equal number of Third Tranche
Repricing Rights.
(b) Each Closing shall occur on the applicable Closing Date at the
Escrow Agent's offices, at which time the Escrow Agent (x) shall release to the
Investors the certificates representing the Securities to be issued on such
Closing Date (and/or provide evidence satisfactory to the Investors of delivery
of the Irrevocable Transfer Agent Instructions with respect to the Common Stock)
and (y) shall release to the Company the Purchase Price in immediately available
funds (after all fees have been paid as set forth in the Escrow Agreement to be
paid on such Closing Date), pursuant to the terms of the Escrow Agreement.
(c) Each Closing shall be subject to the parties' satisfaction of the
conditions to Closing set forth below:
(i) The obligation of the Company hereunder to issue and sell
the Securities to each Investor at such Closing is subject to the
satisfaction, at or before such Closing Date, of each of the
following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any
time in its sole discretion by providing each Investor with prior
written notice thereof:
(A) The Investors shall have executed each of the
Transaction Documents to be executed by them and delivered
the same to the Company.
(B) The Escrow Agent shall have delivered to the Company
the Purchase Price for the Securities being purchased by the
Investors at the Closing by wire transfer of immediately
available funds pursuant to the written wire instructions
provided by the Company.
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(C) The representations and warranties of the Investors
shall be true and correct as of the date when made and as of
such Closing Date as though made at that time (except for
representations and warranties that speak as of a specific
date), and the Investors 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 them at or prior to the
Closing Date.
(ii) The obligation of each Investor hereunder to purchase the
Securities at each Closing is subject to the satisfaction, at or
before the Closing Date thereof, of each of the following
conditions, provided that these conditions are for each
Investor's sole benefit and may be waived by such Investor at any
time in its sole discretion by providing the Company with prior
written notice thereof:
(A) The Company and each other Investor shall have executed
each of the Transaction Documents to be executed by it and
delivered the same to such Investor.
(B) The Common Stock shall be authorized for quotation on
the Principal Market, 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 such Closing Date, and the Company shall not have
been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock.
(C) The representations and warranties of the Company shall
be true and correct as of the date when made and as of such
Closing Date as though made at that time (except for
representations and warranties that speak as of a specific
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 at or prior to
such Closing Date. Such Investor shall have received a
certificate, executed by the Company's Chief Executive
Officer, dated as of such Closing Date, to the foregoing
effect and as to such other matters as may be reasonably
requested by such Investor, including, without limitation,
an update as of the Closing Date regarding the
representation contained in Section 4.3 below.
(D) Such Investor shall have received the opinion of the
Company's counsel dated as of such Closing Date, in form,
scope and substance reasonably satisfactory to such Investor
and in substantially the form of Exhibit F attached hereto.
(E) The Company shall have executed and delivered (or shall
have caused the Escrow Agent to deliver or shall have
provided to the Transfer Agent the Irrevocable Transfer
Agent Instructions, in form satisfactory to
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the Investors, to deliver) to such Investor the stock
certificates (in such denominations as such Investor shall
request) representing the Common Stock being purchased by
such Investor at such Closing.
(F) The Company shall have executed and delivered (or shall
have caused the Escrow Agent to deliver) to such Investor
the Warrants (in such denominations as such Investor shall
request) being purchased by such Investor at such Closing.
(G) The Board of Directors of the Company shall have
adopted resolutions consistent with Section 4.2 below and in
a form reasonably acceptable to such Investor (the
"RESOLUTIONS").
(H) As of such Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the issuance of the
shares of Common Stock issuable in connection with this
Agreement, a number of shares of Common Stock equal to at
least 200% of the number of (x) Common Shares issuable at
such Closing Date and (y) Warrant Shares issuable upon
exercise of the Warrants to be outstanding on such Closing
Date (assuming all such Warrants were fully exercisable on
such date regardless of any limitation on the timing or
amount of such exercises).
(I) The Company shall have delivered the Irrevocable
Transfer Agent Instructions to its transfer agent, and such
Transfer Agent shall have acknowledged receipt thereof in
writing.
(J) The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing
of the Company and each Subsidiary in such corporation's
state of incorporation issued by the Secretary of State of
such state of incorporation as of a date within ten (10)
days of the Closing Date.
(K) The Company shall have delivered to such Investor a
certified copy of its Certificate of Incorporation as
certified by the Secretary of State of the State of Delaware
within ten (10) days of the Closing Date.
(L) The Company shall have delivered to such Investor a
certificate, executed by the Company's Secretary dated the
Closing Date, as to (i) the Resolutions described in Section
4.2, (ii) the Certificate of Incorporation and (iii) the
Bylaws, each as in effect on the Closing Date.
(M) 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.
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(N) In the event approval by the Company's shareholders is
or becomes required with respect to the transactions
contemplated hereby (as determined in the sole discretion of
the Investors), upon request of the Investors, the Company
shall have delivered to such Investors the written
agreements of each officer and director of the Company
addressed to the Investors, to vote all shares of Common
Stock over which they have voting control in favor of a
shareholder proposal permitting the consummation of all of
the transactions contemplated by this Agreement.
(O) Each other Investor shall have purchased its pro rata
share of the Securities to be purchased by it at such
Closing.
(P) Such Investor shall have received a certificate,
executed by the Company's Chief Executive Officer, dated as
of the Second Closing Date or the Third Closing Date, as the
case may be, to the effect that since the Initial Closing
Date, (i) no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in any SEC
Documents filed at least five (5) days prior to the Second
Closing Date or the Third Closing Date, as the case may be,
and available on XXXXX, and (ii) the Company has not taken
any steps, and does not currently expect to take any steps,
to seek protection pursuant to 11 U.S.C. Sections 101 et
seq. (the "BANKRUPTCY CODE" or any similar state bankruptcy
law nor does the Company have any knowledge or reason to
believe that its creditors intend to an initiate involuntary
proceeding under the Bankruptcy Code or any such state law.
(d) On the Second Closing Date and the Third Closing Date, each
Investor shall deliver to the Escrow Agent immediately available funds in its
proportionate amount of the Purchase Price to be paid on such Closing Date as
set forth on the signature pages hereto, and the Company shall deliver to the
Escrow Agent certificates representing the Securities to be delivered on such
Closing Date.
(e) In addition to the conditions to Closing set forth in Section
2.1(c) above, each Investor's obligation hereunder to purchase the Securities to
be purchased by it on the Second Closing Date and on the Third Closing Date
shall be subject to the satisfaction, on or before such Closing Date, of each of
the following additional conditions, provided that these conditions are for the
Investor's sole benefit and may be waived by it at any time in its sole
discretion by providing the Company with prior written notice thereof:
(i) the Registration Statement shall be effective on such
Closing Date;
(ii) if requested by the Investors, the Company shall have
received stockholder approval of the Company's issuance of all of
the Securities in excess of any limitation or cap imposed by the
Principal Market, if and to the extent required, as contemplated
by Section 6.15;
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(iii) each of the Transaction Documents shall be and remain
in full force and effect on and as of such Closing Date;
(iv) average of the Closing bid prices of the Common Stock
on the Principal Market for the period of ten (10) consecutive
trading days ending on the trading day immediately preceding such
Closing Date shall be not less than its Purchase Price on the
Initial Closing Date; and
(v) the average daily trading volume of the Company's
Common Stock on the Principal Market for the forty (40) trading
days immediately preceding such Closing Date shall be not less
than the average daily trading volume for the forty (40) trading
days immediately preceding the Initial Closing Date.
(vi) anything to the contrary notwithstanding, in the event
the Initial Closing does not occur by June 30, 2000, the
Investors shall have no further obligation to purchase and the
Company shall have no further obligation to sell the Securities
and this Agreement shall be terminated (provided, however, the
Company shall remain responsible for the payment of all expenses
including legal fees).
Section 2.2 Repricing Rights.
(a) Repricing Rights. Subject to the provisions of Sections 2.2(g) and
2.2(h) below, at any time or times after the sooner of the Effective Date or the
date 120 days following the Initial Closing Date, the Investor shall be entitled
to exercise any whole number of Repricing Rights for fully paid and
nonassessable Repricing Shares in accordance with Section 2.2(c), at the
Repricing Rate. The Company shall not issue any fraction of a share of Common
Stock upon any exercise of Repricing Rights. All Repricing Shares (including
fractions thereof) issuable upon exercise of more than one Repricing Right by a
holder thereof shall be aggregated for purposes of determining whether the
exercise would result in the issuance of a fraction of a share of Common Stock.
If, after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, such fraction of a share of
Common Stock shall be rounded up or down to the nearest whole share.
(b) Escrow. [deleted]
(c) Mechanics of Exercise of Repricing Rights. The Investor may exercise
such Repricing Rights at any time on or after the sooner of the Effective Date
or the date 120 days following the Initial Closing Date (and before the
termination date set forth in Section 2.2(h) hereof) in accordance with the
following terms:
(1) To exercise Repricing Rights for full shares of Common Stock
representing Repricing Shares on any Exercise Date, the Investor shall transmit
by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m.
Eastern Time, on such date, a copy of a fully executed Exercise Notice in the
form attached hereto as Exhibit B to the Company. The Exercise
15
Notice must include a representation from the Investor that within the past ten
(10) trading days the Investor has sold or otherwise disposed of for value the
corresponding number of Common Shares to which the Repricing Rights being
exercised relate (provided; however, that no such representation shall be
required as a condition to exercise if the Investor is prevented from effecting
any resales of the Common Shares because of a suspension or blackout period with
respect to the Registration Statement or otherwise as a result of a default by
the Company).
The Investor shall, within five (5) business days of being given
written request therefor by the Company, provide the Company with a copy of each
trading ticket, certified as true and correct by the executing broker-dealer (or
other satisfactory written verification) substantiating any Sale Date referenced
in an Exercise Notice; provided, however, such written request from the Company
must be made within 30 calendar days of the Exercise Date.
(2) Upon receipt by the Company of an executed Exercise Notice,
the Company shall, within three trading days following the Exercise Date, (A)
issue and deliver to the address specified in the Exercise Notice, a
certificate, registered in the name of the Investor or its designee, for the
number of Repricing Shares to which the holder shall be entitled, or (B) credit
such aggregate number of Repricing Shares to the Investor's or its designee's
account with the Depository Trust Company as specified in the Exercise Notice.
The certificates for any Repricing Shares issued to the Investor prior to the
Effective Date shall bear the restrictive legend specified in Section 9.1. On
and after the Effective Date all Repricing Shares issued to or upon the order of
the Investor shall not bear any restrictive legends or be subject to any
stop-transfer restrictions.
(d) Record Holder. The Person or Persons entitled to receive the
Repricing Shares issuable upon an exercise of Repricing Rights shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Exercise Date.
(e) Duty to Deliver Repricing Shares; Dispute Resolution. If the
Investor shall have given an Exercise Notice as provided herein, the Company's
obligation to issue and deliver the certificates for Common Stock representing
the Repricing Shares shall be absolute and unconditional, irrespective of any
action or inaction by the Investor to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Investor, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Investor or any other Person of any obligation to the
Company or any violation or alleged violation of law by the Investor or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Investor in connection with the
issuance and delivery of Repricing Shares. The number of Repricing Shares to be
issued in connection with a particular Exercise Date is, absent manifest error,
conclusively the number of Repricing Shares stated in the applicable Exercise
Notice. If in connection with a particular Exercise Date the Company determines
that manifest error has been made by virtue of the computation of Repricing
Shares or other information set forth in the applicable Exercise Notice, the
Company shall have the right within one trading day after the Investor gives
such Exercise Notice to notify the Investor of such error, which notice shall
state the number of Repricing Shares in dispute, and, notwithstanding such
notice from the Company, the Company shall issue to the Investor the number of
Repricing Shares not in dispute
16
as and when required by this Agreement. If the Company shall have notified the
Investor of any such manifest error, and the Company and the Investor do not
agree as to a resolution of such manifest error on or before the date of such
notice by the Company of an error in such Exercise Notice, the Company shall on
the date such notice is given submit the dispute to the Company's auditors for
determination and shall instruct the auditors to resolve such dispute and to
notify the Company and the Investor of their determination, which shall be
binding on all parties, within two trading days after such dispute is submitted
to the auditors. Immediately after receipt of timely notice of the auditors'
determination (but in any event within three trading days after the applicable
Exercise Notice is given to the Company), the Company shall issue to the
Investor any additional Repricing Shares to which the Investor is entitled based
on the determination of the auditors. If the auditors shall fail to notify the
Company of their determination within four trading days after the applicable
Exercise Notice is given to the Company, then the Company shall within four
trading days after receipt of the applicable Exercise Notice, issue to the
Investor any additional Repricing Shares to which the Investor is entitled based
on the applicable Exercise Notice. Such immediate and prompt action shall be
taken by all the parties in order to assure that there shall be full compliance
with the Company's unqualified obligation that all Repricing Shares issuable
upon each Exercise Date be issued and delivered by the due dates therefor as
provided herein.
(f) Company's Failure to Timely Deliver Repricing Shares. If within five
trading days after the Company's receipt of the Exercise Notice (or such longer
period specified in Section 2.2(e)) the Company shall for any reason fail to
issue a certificate (which shall be free of all restrictive legends other than
those required by Section 9.1) for the number of Repricing Shares to which the
Investor is entitled or to credit the Investors or its designee's account with
the Depository Trust Company for such number of Repricing Shares to which the
Investor is entitled upon the Investor's exercise of the Repricing Rights, then
in addition to all other available remedies which the Investor may pursue
hereunder and under applicable law, the Company shall, on a weekly basis, pay as
additional damages (and not as a penalty) to such Investor for each day after
such third trading day that such shares are not timely delivered an amount equal
to 0.2% of the product of (1) the sum of the number of Repricing Shares not
issued to the Investor on a timely basis pursuant to Section 2.2(c)(2) and to
which the Investor is entitled and (2) the Closing Price of the Common Stock on
such third trading day. In addition, if in connection with such late delivery of
Repricing Shares the Closing Price on the date of delivery is less than the
Closing Price on such third trading day when such shares were due, then the
Company shall be required to pay the Investor, within two trading days after
such late delivery, an amount equal to the product of (A) the number of such
Repricing Shares and (B) the difference between such respective Closing Prices.
(g) Exercise Restrictions. In addition to the termination provisions set
forth in Section 2.2(h), the right of the Investor to exercise such Repricing
Rights pursuant to this Section 2.2 shall be limited as set forth below.
Notwithstanding, anything to the contrary in this Agreement, in no event shall
any Investor be entitled to exercise any Repricing Rights for shares of Common
Stock that would cause (x) the number of shares of Common Stock beneficially
owned by the Investor (other than shares of Common Stock deemed beneficially
owned through the ownership of unexercised Repricing Rights and Warrants and the
unexercised or unconverted portion of any instrument which contains limitations
similar to those set forth in this sentence) plus (y) the
17
number of shares of Common Stock issuable or deliverable upon the exercise of
the number of Repricing Rights with respect to which the determination in this
sentence is being made, would result in beneficial ownership by the Investor of
more than 9.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the 1934 Act and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of the immediately preceding
sentence. The provisions of this Section 2.2(g) may be waived by the holder of
the Repricing Rights upon not less than 75 days' prior notice to the Company.
(h) Termination of Repricing Rights. So long as:
(A) the Company is in compliance with its obligations to the
Investors under this Agreement, the Registration Rights Agreement
and the other Transaction Documents (including following the cure
of any prior breach or noncompliance);
(B) no Repurchase Event shall have occurred; and
(C) the Registration Statement is effective and available for use by
the selling stockholders named therein,
then
(A) 20% of the Total Repricing Rights (or such lesser remaining
amount if more than 80% of the Total Repricing Rights have been
exercised) shall terminate on the first trading day of each
calendar month if for the immediately preceding calendar month
(1) the Average Market Price on each trading day during such
preceding month is greater than 125% of the Purchase Price at the
Initial Closing and (2) the average daily trading volume for the
Common Stock in such preceding month is greater than the average
daily trading volume for the 30-day period prior to the Initial
Closing Date;
(B) any Repricing Rights left unexercised for a period of ten (10)
trading days after the Sale Date of the Common Shares to which
the Repricing Rights relate shall expire; and
(C) any remaining Repricing Rights then unexercised shall expire
eighteen (18) months after the Effective Date; provided, however,
this expiration date shall be extended for a period of time equal
to any delay in the Registration Statement going effective after
the Scheduled Effective Date (except for delays caused primarily
by the Investors) and for the length of any suspensions after the
Effective Date.
(i) Taxes. The Company shall pay any and all transfer taxes, which may be
imposed with respect to the issuance and delivery of Repricing Shares upon the
exercise of the Repricing Rights.
18
(j) Company's Right to Repurchase in Lieu of Issuing Repricing Shares.
(1) Commencing seven trading days after giving a Company
Repurchase Notice to the Investors, the Company may elect to repurchase any or
all Repricing Rights exercised during the Repurchase Period in lieu of issuing
shares of Common Stock upon each such exercise. The Company shall repurchase
each Repricing Right exercised by paying the Company Repurchase Price to the
Investors for each such Repricing Right within three business days after the
applicable Exercise Notice is given. The Company may cancel any Company
Repurchase Notice effective upon at least two trading days' prior notice to the
Investor. Any Exercise Notices submitted after the cancellation of a Company
Repurchase Notice shall require the issuance of Repricing Shares in accordance
with this Section 2.2.
(2) If the Company fails to pay the Company Repurchase Price
within 15 business days after it becomes due, the Investor may elect by giving
notice thereof to the Company (A) to require the Company to issue Repricing
Shares in lieu of such payment, (B) to cancel the applicable Exercise Notice
and/or (C) to prohibit the Company from giving any Company Repurchase Notice in
the future without the Investors' prior consent.
(k) Investor's Assignment of Repricing Rights. An Investor can assign
Repricing Rights only in connection with the simultaneous assignment to the same
assignee of the corresponding shares of Common Stock to which the Repricing
Rights relate. If an Investor intends to assign all or any portion of its
Repricing Rights, then the Investor shall so notify the Company not less than
ten trading days before any Exercise Date for such Repricing Rights. Each such
notice of assignment by a Investor shall specify the name(s) of the assignee(s)
and the number of Repricing Rights to be assigned thereto. Each such notice
shall be executed by the assignee(s). From and after the giving of such notice
by such Investor, the Investor shall be deemed for all purposes to have assigned
to such assignee(s) the rights under this Agreement with respect to the
acquisition of the number of Repricing Rights covered by such notice, and such
assignee(s) shall be deemed a party to this Agreement with respect to the
acquisition of such number of Repricing Rights upon the terms and subject to the
conditions of this Agreement, and all applicable references herein to the
"Investor" shall include such assignee(s),
Section 2.3. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to this Agreement and the Registration Rights
Agreement shall constitute liquidated damages and not penalties. The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (ii) the amounts specified
in such sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investors in
connection with the failure by the Company to timely effect the registration of
the Registrable Securities or otherwise perform hereunder and (iii) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
Section 2.4 Repurchase at Option of the Investors.
19
(a) Repurchase Right. If a Repurchase Event occurs, then, in addition to
any other right or remedy of the Investors, the Investors shall have the right,
at the Investors' option, to require the Company to repurchase all of the
Investors' Common Shares, Warrant Shares and Repricing Rights owned by the
Investor (which for purposes of this Section 2.5 include any Repricing Shares
due to the Investor which have not been delivered to the Investor), or any
portion thereof, on the date that is three business days after the date the
Investor gives the Company a Repurchase Notice with respect to such Repurchase
Event at any time while any of the Investors' Common Shares, Warrant Shares or
Repricing Rights are outstanding, at a price equal to the greater of (a) 125% of
the applicable Purchase Price or (b) the Repurchase Price for (i) each Common
Share or Warrant Share being repurchased and (ii) each Repricing Share which
would otherwise be issuable upon exercise on the Repurchase Date of the
Repricing Rights being repurchased.
(b) Notices; Method of Exercising Optional Repurchase Rights, Etc. (1) On
or before the fifth business day after the occurrence of a Repurchase Event, the
Company shall give to the Investors a notice of the occurrence of such
Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such notice from the Company shall set forth:
(i) the date by which the optional repurchase right must be
exercised, and
(ii) a description of the procedure (set forth below) which the
Investors must follow to exercise the Investors' optional repurchase right.
No failure of the Company to give such notice or defect therein shall limit the
right of the Investors to exercise the optional repurchase right or affect the
validity of the proceedings for the repurchase of the Investor's Common Shares,
Warrant Shares and Repricing Rights.
(2) To exercise its optional repurchase right, the Investor shall
deliver to the Company on or before the 30th day after the notice required by
Section 2.5(b)(1) is given to the Investor (or if no such notice has been given
by the Company to the Investors, within 40 days after the Investors first learn
of such Repurchase Event) a Repurchase Notice to the Company. A Repurchase
Notice may be revoked by the Investors giving such Repurchase Notice by giving
notice of such revocation to the Company at any time prior to the time the
Company pays the Repurchase Price to the Investors.
(3) If the Investors shall have given a Repurchase Notice, on the date
which is three business days after the date such Repurchase Notice is given (or
such later date as the Investors surrender the Investors' certificates for the
Securities repurchased) the Company shall make payment in immediately available
funds of the applicable Repurchase Price for each share being repurchased and
each Repricing Share which would otherwise be issuable upon exercise of each
Repricing Right being repurchased to such account as specified by the Investors
in writing to the Company at least one business day prior to the applicable
Repurchase Date.
(c) Other. (1) In connection with a repurchase pursuant to this Section 2.5
of less than all of the shares evidenced by a particular certificate, promptly,
but in no event later than three business days after surrender of such
certificate to the Company, the Company shall issue and
20
deliver to the Investor a replacement certificate for the Shares evidenced by
such certificate which have not been repurchased.
(2) A Repurchase Notice given by the Investors shall be deemed for all
purposes to be in proper form unless the Company notifies the Investor in
writing within three business days after such Repurchase Notice has been given
(which notice shall specify all defects in such Repurchase Notice), and any
Repurchase Notice containing any such defect shall nonetheless be effective on
the date given if the Investors promptly undertake to correct all such defects.
No such claim of error shall limit or delay performance of the Company's
obligation to repurchase all Common Shares, Warrant Shares and Repricing Rights
not in dispute whether or not the Investors make such undertaking.
Section 2.5 Rights of Investors Upon Dilutive Issuances.
(a) Required Adjustments. Subject to the exclusions contained in Section
2.5(f) below, if during the period ending on the later of (i) twenty-one (21)
months following the Closing Date and (ii) eighteen (18) months following the
Effective Date (the "MFN PERIOD"), the Company sells any shares of its Common
Stock in a capital raising transaction at a Per Share Selling Price lower than
the applicable Purchase Price per share set forth in Section 2.1 hereof, then
both (A) the Purchase Price per share of the Common Shares sold to the Investors
hereunder and then owned by them or their assignees who acquired such Common
Shares in compliance with Article XI and (B) the Exercise Price of the Warrants
then unexercised shall be adjusted downward to equal such lower Per Share
Selling Price and Investors shall be entitled to receive the additional shares
as provided by Section 2.5(c) and additional Warrants equal to 15% of the
additional shares. The Company shall give to the Investors written notice of any
such sale within 24 hours of the closing of any such sale. The Investors shall
be entitled to additional shares only with respect to the number of Common
Shares and Warrant Shares originally acquired and still then owned by such
Investor on the date of adjustment as provided in Section 2.5(c).
(b) Definitions.
(i) For the purposes of this Section 2.5, the term "PER SHARE SELLING
PRICE" shall include the amount actually paid by third parties for each
share of Common Stock. In the event a fee in excess of 6% is paid by the
Company in connection with such transaction, any such excess amount shall
be deducted from the selling price pro rata to all shares sold in the
transaction to arrive at the Per Share Selling Price. A sale in a capital
raising transaction of shares of Common Stock shall include the sale or
issuance of rights, options, warrants or convertible securities under which
the Company is or may become obligated to issue shares of Common Stock, and
in such circumstances the Per Share Selling Price of the Common Stock
covered thereby shall also include the exercise or conversion price thereof
(in addition to the consideration received by the Company upon such sale or
issuance less the excess fee amount, if any, as provided above). In case of
any such security issued within the MFN Period in a "Variable Rate
Transaction" or "MFN Transaction" (each as defined below), the Per Share
Selling Price shall be deemed to be the lowest conversion or exercise price
at which such securities are converted or exercised or might have been
converted or exercised in the case of a Variable Rate
21
Transaction, or the lowest adjustment price in the case of an MFN
Transaction, each over the life of such securities. If shares are issued
for a consideration other than cash, the Per Share Selling Price shall be
the fair market value of such consideration as determined in good faith by
independent certified public accountants mutually acceptable to the Company
and the Investors.
(ii) "VARIABLE RATE TRANSACTION" means a transaction in which the
Company issues or sells (a) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (x) at a conversion,
exercise or exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such security or upon the
occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock, or (b)
any securities of the Company issued or issuable pursuant to an "equity
line" structure which provides for the sale, from time to time, of
securities of the Company which are registered for resale pursuant to the
Securities Act.
(iii) "MFN TRANSACTION" means a transaction in which the Company
issues or sells any equity securities in a capital raising transaction or
series of related transactions (the "NEW OFFERING") which grants to an
investor (the "NEW INVESTOR") the right to receive additional shares based
upon future equity raising transactions of the Company on terms more
favorable than those granted to the New Investor in the New Offering.
(c) Adjustment Mechanism. If an adjustment of the Purchase Price is
required pursuant to Section 2.5(a), the Company shall deliver to the Investors
within three (3) business days of the closing of the transaction giving rise to
the adjustment (the "DELIVERY DATE") each Investor's pro rata share of such
number of additional shares of Common Stock equal to (i) to the aggregate
Purchase Price paid by such Investor divided by the adjusted per share purchase
price as required under Section 2.5(a), minus (ii) the total number of shares of
Common Stock previously delivered to that Investor hereunder which are being
used as the basis for this adjustment; provided, however, that the Company shall
effect such adjustment in cash, in whole or in part, to the extent required by
Section 2.5(d). In the event the Company fails to deliver the additional shares
(or cash, as the case may be) within five (5) days of the Delivery Date, the
Company shall be liable to the Investors for a penalty equal to 2% of the
aggregate Purchase Price adjustment per month (in each instance to such Investor
pro rata in accordance with its participation in this offering), payable in
Common Stock or cash, at each Investor's election.
(d) Limitation on Number of Shares. No Investor shall be required to
accept, by way of any such adjustment a number of shares of the Company such
that the total number of such shares held by an Investor as of the date of such
adjustment would exceed 9.9% of the total outstanding Common Stock of the
Company. The Company shall effect the adjustment required by this Section 2.5 by
cash refund (in an amount equal to the aggregate Market Price of the excess
shares) to the extent necessary to avoid causing the aforesaid limitation to be
exceeded.
22
(e) Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of Section 2.5 shall be applied in a fair,
equitable and reasonable manner so as to give effect to the purposes hereof.
(f) Exclusions. Section 2.5 and Section 6.17 shall not apply to (i)
sales of shares of Common Stock by the Company upon conversion or exercise of
any convertible securities, options or warrants outstanding prior to the date
hereof pursuant to the terms of such securities, options or warrants on the date
hereof; (ii) sales of shares of Common Stock by the Company pursuant to the
provisions of any option plan in existence on the date hereof or a subsequently
adopted and shareholder-approved employee option or similar plan; or (iii) up to
a maximum of 300,000 shares of Common Stock that the Company may issue in
settlement of the existing litigation matters as described in the Disclosure
Schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. Such Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Securities. Such Investor has no present arrangement (whether or not
legally binding) at any time to sell the Securities to or through any person or
entity; provided, however, that by making the representations herein, such
Investor does not agree to hold such Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. Such Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and such Investor has such experience
in business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Securities. Such Investor acknowledges
that an investment in the Securities is speculative and involves a high degree
of risk. The Investor has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the sale of the
Securities.
Section 3.3. Due Execution, Power and Authority. This Agreement and each of
the Transaction Documents that is required to be executed by such Investor has
been duly authorized and validly executed and delivered by such Investor and is
a valid and binding agreement of such Investor enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Investor has the
23
requisite power and authority to enter into the Agreement, to purchase the
Securities and perform its obligations under the terms of the Agreement.
Section 3.4. Not an Affiliate. Such Investor is not an officer, director or
"AFFILIATE" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Disclosure; Access to Information. Such Investor has received all
documents, records, books and other publicly available information pertaining to
such Investor's investment in the Company as such Investor has requested. Such
Investor acknowledges that the Company is subject to the periodic reporting
requirements of the Exchange Act, and such Investor has reviewed copies of all
SEC Documents deemed relevant by such Investor.
Section 3.6. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as now being
conducted and as presently proposed to be conducted. The Company's Subsidiaries
are corporations duly organized, validly existing and in good standing under the
laws of the jurisdictions in which they are incorporated and have the requisite
corporate power and authority to own and operate their properties and assets and
to carry on their business as now being conducted. The Company does not have any
Subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company and
each of its Subsidiaries is duly qualified and is in good standing as a foreign
corporation to do business in every jurisdiction in which the nature of the
business conducted or property owned or leased by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under the
Transaction Documents and to issue the Securities pursuant to their respective
terms; (ii) the execution, issuance and delivery of the Transaction Documents,
the Common Stock certificates, the Repricing Shares and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) the Transaction Documents, when executed and delivered by
the Company and the parties hereto, shall constitute
24
valid and legally binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the issuance of Common Shares and for the exercise of the
Repricing Rights and the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Securities. The Company further acknowledges that its obligation to issue Common
Stock under this Agreement is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under the Bankruptcy Code.
Section 4.3. Capitalization. The authorized capital stock of the Company
immediately prior to the Initial Closing will consist of 50,000,000 shares of
Common Stock, $0.001 par value per share, of which 30,811,938 shares were issued
and outstanding as of June 1, 2000. The Company has no authorized or outstanding
shares of preferred stock or other equity securities except as disclosed herein.
Except for (i) outstanding options and warrants as set forth in the SEC
Documents, (ii) 60,000 stock options awarded under the Company's 1996 ITI Stock
Option Plan after April 30, 2000 and (iii) as set forth in the Disclosure
Schedule, there are no outstanding Capital Shares Equivalents nor any agreements
or understandings pursuant to which any Capital Shares Equivalents may become
outstanding. The Company is not a party to any agreement granting preemptive,
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable and were issued in compliance with all applicable federal and
state securities laws.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the OTC Bulletin Board,
and except as set forth in the SEC Documents, the Company has not received any
notice regarding, and to its knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such posting or
listing.
Section 4.5. SEC Documents. The Company has delivered to the Investors true and
complete copies of the SEC Documents. The Company has not provided the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder, and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents complied
25
in all material respects with applicable accounting requirements and the rules
and regulations of the SEC or other applicable rules and regulations with
respect thereto at the time of such inclusion. Such financial statements have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its Subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which were not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or were not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements. No other information provided by or on behalf of the
Company to the Investors that is not included in the SEC Documents, including,
without limitation, information referred to in Section 3.5 of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they are or were made, not misleading.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the Company's sale of
the Common Shares, the Repricing Shares and its issuance of the Warrants under
this Agreement does not, and the Company's issuance of the Common Stock, the
Repricing Shares and the Warrant Shares on the exercise of the Warrants will
not, require registration under the Securities Act and/or any applicable state
securities law. When issued and paid for in accordance with this Agreement and
the Warrants, the Common Shares, the Repricing Shares and the Warrant Shares
will be duly and validly issued, fully paid, and non-assessable. Neither the
sales of the Securities pursuant to, nor the Company's performance of its
obligations under, the Transaction Documents will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon any of the Securities or, except as contemplated herein, any of the assets
of the Company, or (ii) be subject to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. None of
the Securities will subject the Investors to personal liability to the Company
or its creditors by reason of an Investor's possession thereof.
Section 4.7. No Directed Selling, General Solicitation or Advertising in Regard
to this Transaction. Neither the Company nor any of its affiliates nor any
person acting on its or their behalf (i) has engaged in or will engage in any
directed selling efforts in violation of the requirements of Regulation S, (ii)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale of
the Securities, or (iii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act.
26
Section 4.8. No Conflicts. The Company's execution, delivery and performance of
the Transaction Documents, and the Company's consummation of the transactions
contemplated hereby and thereby do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or Bylaws or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the Principal
Market) applicable to the Company or by which any property or asset of the
Company is bound or affected. The Company is not otherwise in violation of any
term of or in default under its Certificate of Incorporation, or its By-laws, or
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company, 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 Company's business is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not result in a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required by the Securities Act, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory organization, 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, orders, filings and registrations that the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. Except as described in Section 4.8 of the
Disclosure Schedule, the Company is not in violation of the listing or posting
requirements of the Principal Market as in effect on the date hereof 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.
Section 4.9. No Material Adverse Change. Since January 31, 2000, there has not
been:
(a) any Material Adverse Effect has occurred or exists with respect to
the Company, except as disclosed in any SEC Documents filed at least five (5)
days prior to the date hereof and available on XXXXX;
(b) any steps taken by the Company, and the Company does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy;
(c) any damage, destruction or loss, whether or not covered by
insurance, adversely affecting the assets, properties, financial condition,
operating results, prospects or business of the Company (as such business is
presently conducted and as it is currently proposed to be conducted);
27
(d) any amendments or changes in the Certificate of Incorporation or
Bylaws of the Company;
(e) any waiver or compromise by the Company of a valuable right or of a
material debt owed to the Company;
(f) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is currently proposed to be conducted);
(g) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(h) any declaration or payment of any dividend or other distribution of
the assets of the Company;
(i) any increase in or modification of the compensation or benefits
payable by the Company to any of its directors or employees, except in the
ordinary course of business consistent with past practice;
(j) any increase in or modification of any bonus, pension, insurance or
other employee benefit plan, payment or arrangement (including, but not limited
to, the granting of stock options, restricted stock awards or stock appreciation
rights) made to, for or with any employee of the Company;
(k) any incurrence, assumption or guarantee by the Company of any debt
for borrowed money; issuance or sale of any securities convertible into or
exchangeable for debt securities of the Company; or issuance or sale of options
or other rights to acquire from the Company, directly or indirectly, debt
securities of the Company, or any securities convertible into or exchangeable
for any such debt securities;
(l) any making of any loan, advance or capital contribution to any
person other than travel loans or advances made in the ordinary course of
business and not in excess of $20,000; or
(m) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company;
Section 4.10. No Undisclosed Events, Liabilities, Developments, or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, 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.
28
Section 4.11. No Integrated Offering. The Company has not, 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 of any of
the Securities under the Securities Act or cause this offering of Securities to
be integrated with prior offerings of securities by the Company for purposes of
the Securities Act or any applicable stockholder 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 of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any Subsidiary or any of their
officers or directors in their capacities as such, nor has the Company received
any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect. There is no action, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
Section 4.13. No Misleading or Untrue Communication. Neither Company nor any
person representing the Company, or any other person selling or offering to sell
the Securities in connection with the transaction contemplated by this
Agreement, has made, at any time, any oral communication in connection with the
offer or sale of the same which contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof, but which has not
been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. Neither the Company nor any 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 materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole.
29
Section 4.16. Tax Matters. The Company has accurately prepared and timely filed
all United States income tax returns and all state and municipal tax returns
that are required to be filed by it, if any, and has paid or made provision for
the payment of all taxes, if any, that have become due pursuant to such returns.
No deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending and there is no liability as
of the date hereof for any tax for which there is not an adequate reserve
reflected in the Company's publicly filed financial statements. All federal,
state, local and foreign franchise, sales, use, occupancy, excise, withholding
and other taxes and assessments (including interest and penalties) payable by,
or due from, the Company have been fully paid or adequately disclosed and fully
provided for in the books and financial statements of the Company, except where
the failure to provide for or pay such taxes and assessments would not have a
Material Adverse Effect on the Company. No examination of any tax return of the
Company is currently in progress, except where such examinations would not have
a Material Adverse Effect on the Company. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of the Company.
Section 4.17. Property. Neither the Company nor any of its Subsidiaries owns any
real property. Each of the Company and its Subsidiaries has good and marketable
title to all personal property that it owns, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge, any
real property, mineral or water rights, and buildings that the Company holds
under lease as a tenant are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property, mineral or water rights, and
buildings by the Company and its Subsidiaries.
Section 4.18. Intellectual Property Rights. The Company has sufficient title and
ownership of or is licensed under all patents, patent applications, trademarks,
service marks, trade names, copyrights, and all registrations and applications
for registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs owned or licensed by the Company, documentation,
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business as now conducted and as currently proposed to be
conducted without any conflict with and without infringement of the rights of
others. There are no outstanding options, licenses or agreements relating to the
foregoing nor is the Company bound by or a party to any options, licenses or
agreements with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights or
processes of any other person or entity. The Company has not received any
communications alleging that it has violated or, by conducting its businesses as
currently proposed, would violate any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of any
other person or entity. Except as disclosed on the Disclosure Schedule, the
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or people it currently intends to hire) made prior to their
employment by the Company (unless made prior to employment as an independent
contractor to the Company).
30
Section 4.19 Proprietary Information; Noncompetition Covenants.
(a) The Company has done nothing to compromise the
secrecy, confidentiality or value of any of its trade secrets, know-how,
inventions, prototypes, designs, processes or technical data required to conduct
its business as now conducted or as proposed to be conducted. The Company has
taken in the past and will take in the future reasonable security measures to
protect the secrecy, confidentiality and value of all its trade secrets,
know-how, inventions, prototypes, designs, processes, and technical data
important to the conduct of its business.
(b) Each current employee of the Company has executed a
nondisclosure and assignment of inventions agreement at least as restrictive as
the form attached hereto as Exhibit G. Each consultant to the Company has
executed a confidentiality and assignment agreement restricting the disclosure
of proprietary information of the Company and assigning to the Company all
inventions made by such consultant in the course of consulting for the Company.
The Company is not aware that any of the employees, officers or consultants of
the Company, past or present, is in violation of such agreements, and the
Company will use its best efforts to prevent any such violation.
4.20. Company Software.
(a) The Disclosure Schedule sets forth a true and
complete list of all software used in connection with the business of the
Company other than off-the-shelf software acquired for less than $10,000 per
application (the "Company Software"). The Company has all technical and
descriptive materials for the Company Software as is necessary to run its
business in accordance with its historical practices, except as would not have a
material adverse effect on the Company.
(b) The use of the Company Software does not breach any
terms of any contract or agreement. The Company either owns or has been granted
under license agreements relating to the Company Software (the "Company License
Agreements") valid and subsisting rights with respect to all software comprising
the Company Software and such rights may be exercised anywhere in the world. The
Company is in compliance with each of the terms and conditions of each of the
Company License Agreements except to the extent failure to so comply,
individually or in the aggregate, would not have a material adverse effect on
the Company. In the case of any commercially available "shrink-wrap" software
programs (such as Lotus 1-2-3 or Microsoft Word), the Company has not made and
is not using any unauthorized copies of any such software programs and, to the
knowledge of the Company, none of the employees, agents or representatives of
the Company have made or are using any such unauthorized copies in the conduct
of the Company's business, except as would not have a material adverse effect on
the Company.
(c) The Company Software and the related computer
hardware used by the Company in its operations (the "Company Hardware") are
adequate in all material respects, when taken together with the other assets,
resources and personnel of the Company, to run the business of the Company in
the same manner as such business has operated since inception. The Disclosure
Schedule contains a summary description of any unusual problems experienced by
the
31
Company in the past twelve months with respect to the Company Software or
Company Hardware that would result in an adverse effect on the Company.
Section 4.21. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls that provide reasonable assurance that
(i) all transactions to which the Company or any Subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any Subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
GAAP.
Section 4.22. Payments and Contributions. Neither the Company, nor any
Subsidiary, nor any of their directors, officers or, to the Company's knowledge,
other employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.23. Acknowledgment Regarding Investors' Purchase of the Securities.
The Company acknowledges and agrees that each of the Investors is acting solely
in the capacity of arm's-length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Investor is 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 thereby and any advice given by any
of the Investors or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to such Investor's purchase of the Securities. The
Company further represents to each 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.
Section 4.24. Employees. To the best of the Company's knowledge, no employee of
the Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict with
such employee's obligation to use his best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed, will,
to the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. To
the best of the Company's knowledge, no employee or consultant of the Company is
in violation of any term of any employment contract, proprietary information and
inventions
32
agreement, noncompetition agreement or any other contract or agreement relating
to the relationship of any such employee or consultant with the Company or any
previous employer. To the best of the Company's knowledge, no officer of the
Company nor any Key Employee (as hereinafter defined) of the Company, the
termination of whose employment, either individually or in the aggregate, would
have a materially adverse effect on the Company, has any intention of
terminating his or her employment with the Company. The Company has no
collective bargaining agreements with any of its employees and to the best of
the Company's knowledge there is no labor-union-organizing activity pending or
threatened with respect to the Company. For purposes of this Agreement, "Key
Employee" means and includes each officer of the Company and each employee who
contributes to the invention, design or authorship of the Company's Intellectual
Property.
Section 4.25. Environmental Matters.
(a) The Company has duly complied with, and, to the
best knowledge of the Company, all the real estate leased by it either currently
or in the past (hereinafter referred to collectively as the "Premises") are in
compliance in all material respects with, the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances and all
rules and regulations promulgated thereunder.
(b) The Company has been issued, and will maintain, all
federal, state and local permits, licenses, certificates and approvals known to
the Company to be required relating to (i) air emissions, (ii) discharges to
surface water or ground water, (iii) noise emissions, (iv) solid or liquid waste
disposal, (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (intended hereby and hereafter to include any
and all such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder, as hazardous or
potentially hazardous), or (vi) other environmental, health and safety matters.
(c) The Company has not received notice of, nor does
the Company know of any facts that might constitute, any violation of any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder, that relate to
the use, ownership or occupancy of any of the Premises, and the Company is not
in violation of any covenants, conditions, easements, rights-of-way or
restrictions affecting any of the Premises or any rights appurtenant thereto.
(d) Except in accordance with a valid governmental
permit, license, certificate or approval, the Company has not caused any
emission, spill, release or discharge into or upon (i) the air, (ii) soils or
any improvements located thereon, (iii) surface water or ground water, or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing any of the Premises, of any toxic or hazardous substances or wastes at
or from any of the Premises.
(e) There has been no complaint, order, directive
(other than directives applicable to the general public), claim, citation or
notice by any governmental authority or any other person or entity with respect
to (i) air emissions, (ii) spills, releases or discharges to soils or
33
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing any of
the Premises, (iii) noise emissions, (iv) solid or liquid waste disposal, (v)
the use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes or (vi) other environmental, health or safety matters
affecting the Company, any of the Premises or any improvements located thereon,
or the businesses thereon conducted.
Section 4.26. Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such items would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
Section 4.27. 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 a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement that
in the reasonable judgment of the Company's officers has or is expected to have
a Material Adverse Effect.
Section 4.28. Certain Transactions. Except as set forth in the SEC Documents
filed at least ten (10) 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 in
the Disclosure Schedule, none of the officers or directors 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 or director or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer or director has a substantial interest or is an officer,
director, trustee or partner.
Section 4.29. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investor's ownership of the
Securities.
Section 4.30. No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Investors relating to the terms or conditions of
the transactions contemplated by the Transaction Documents, except as set forth
in the Transaction Documents.
Section 4.31. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement,
34
instrument or certificate furnished by the Company to the Investors pursuant to
this Agreement, do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 4.32 Registration Rights. Except as provided in the Registration Rights
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities that may hereafter be
issued.
Section 4.33 Finders' Fees. Except as disclosed in the Disclosure Schedule, the
Company (a) represents and warrants that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement. The Company
hereby agrees to indemnify and to hold the Investors harmless of and from any
liability for any commission or compensation in the nature of a finder's fee
(including any fee listed on the Disclosure Schedule) to any broker or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its employees or
representatives is responsible.
Section 4.34 Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change of control of the Company.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants as follows.
Section 5.1 Best Efforts. Each Investor shall use its best efforts to timely
satisfy each of the conditions to be established by it as provided in Article II
of this Agreement.
Section 5.2 Regulation S Compliance. Each Investor agrees that any hedging
transactions with respect to the Common Stock will only be conducted in
compliance with Regulation S. Each investor certifies that it is not a U.S.
Person (as defined for purposes of Regulation S) and is not acquiring the
Securities for the account or benefit of a U.S. Person. The Investors understand
and acknowledge that the Company may refuse to register the transfer of any
Securities unless made in accordance with the registration or exemption
provisions of the Securities Act.
Section 5.3 Restrictions on Short-Selling. Until the date on which the Investor
no longer owns any unexercised Repricing Rights, each Investor, severally and
not jointly, covenants with the Company that it will not, directly or indirectly
through any affiliate, sell short any shares of Common Stock, except during the
period of ten (10) trading days immediately preceding any Exercise Date with
respect the exercise of Repricing Rights.
ARTICLE VI
COVENANTS OF THE COMPANY
35
Section 6.1. Best Efforts. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Article II
of this Agreement.
Section 6.2. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect, and the Company shall
comply with the terms thereof.
Section 6.3. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Common Shares, the Repricing Shares and the
Warrant Shares in an amount not less than 200% of the number of shares of Common
Stock needed to provide for the issuance of the Common Shares, the Repricing
Shares and the Warrant Shares, as may be adjusted from time to time. The Company
further agrees at if at any time 200% of the number of shares of Common Stock
issuable under the Agreement would cause the Company to be obligated to issue a
number of shares of Common Stock in excess of its authorized capital (after
taking into account all other Capital Shares Equivalents then existing), it
shall promptly commence and effect all necessary corporate and shareholder
action necessary to increase its authorized capital so as to eliminate the
aforesaid condition.
Section 6.4. Listing of Common Stock. The Company shall maintain the listing of
the Common Stock on a Principal Market and, as soon as required by the rules of
the Principal Market and any other national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are listed, shall
list the Common Shares, the Repricing Shares and the Warrant Shares on the
Principal Market and each such other exchange or system. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Common Shares, the
Repricing Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the Investors to cause the Common
Shares, the Repricing Shares and Warrant Shares to be listed on such other
Principal Market as promptly as possible. The Company will take all action
necessary to continue the listing and trading of its Common Stock on a Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market and shall
provide Investors with copies of any correspondence to or from such Principal
Market which questions or threatens delisting of the Common Stock, within three
(3) trading days of the Company's receipt thereof, until the Investors have
disposed of all of their Registrable Securities. The Company agrees to apply for
listing on the Nasdaq National Market and/or the Nasdaq SmallCap Market as soon
as practicable following the Company's eligibility for listing thereon.
Section 6.5. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its
36
reporting and filing obligations under the Exchange Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.6. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.7. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue its corporate existence. The
Company shall not enter into any agreement, the terms of which agreement would
restrict or impair the right or ability of the Company to perform any of its
obligations under this Agreement or any of the other Transaction Documents.
Section 6.8. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument or by operation of law the obligation to deliver
to the Investors such shares of stock and/or securities as the Investors are
entitled to receive pursuant to this Agreement.
Section 6.9. Issuance of Common Shares, Repricing Shares and the Warrant Shares.
The sale of the Common Shares, the Repricing Shares and the Warrants and the
issuance of the Warrant Shares pursuant to exercise of the Warrants shall be
made in accordance with the provisions and requirements of Regulation S (or if
that exemption shall fail for any reason, then in accordance with Section 4(2),
Section 4(6) or Regulation D). The Company shall take such actions as necessary
to qualify the sales made hereunder to the Investors under Regulation S. If
requested by the Investors, the Company shall file a Form D with respect to the
Securities as required under Regulation D and provide a copy thereof to each
Investor promptly after such filing.
Section 6.10. Limitation on Future Financing. The Company agrees that it will
not sell or enter into any agreement to sell any of its securities or incur any
indebtedness outside the ordinary course of business until six (6) months after
the last Closing Date, except for any sales (i) pursuant to any presently
existing employee benefit plan which plan has been approved by the Company's
stockholders, (ii) pursuant to any compensatory plan for a full-time employee or
key consultant, (iii) with the prior approval of holders of a majority of the
Common Shares then outstanding, which will not be unreasonably withheld, in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not financing the Company's business operations;
or (iv) of Common Stock resulting in gross proceeds to the Company of not less
than $5 million at a fixed price per share not less than the per share Purchase
Price at the Initial Closing (as adjusted for any stock splits, dividends or
similar events). The limitations of this Section 6.10 shall terminate at such
time as the Investors' obligations to purchase Securities in the Second and
Third Closings are terminated.
Section 6.11. Pro-Rata Redemption. The Company agrees that if it shall
repurchase any of the Common Shares or Repricing Shares, that it shall make such
redemption pro-rata among all Investors in proportion their respective initial
purchases of such shares pursuant to this Agreement.
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Section 6.12. Relief in Bankruptcy. The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the exercise of Repricing Rights and the
Warrants. The Company agrees, without cost or expense to the Investors, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
Section 6.13. Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for substantially the same purposes and in substantially the
same amounts as indicated in the Disclosure Schedule.
Section 6.14. Financial Information. Until all Registrable Securities have
either been sold or may be sold without registration under the Securities Act,
the Company shall send the following to each holder of Registrable Securities:
(i) within five (5) days after the filing thereof with the SEC, a copy of its
Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current
Reports on Form 8-K and any registration statements or amendments (other than on
Form S-8) filed pursuant to the Securities 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; and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
Section 6.15 Proxy Statement. If required either now or later by the rules and
regulations of the Principal Market or otherwise, upon the request of the
Investors, the Company shall provide each stockholder entitled to vote at the
next meeting of stockholders of the Company, which shall be not later than 90
days from the date of such request (the "STOCKHOLDER MEETING DEADLINE"), a proxy
statement, which has been previously reviewed by the Investors and a counsel of
their choice, soliciting each such stockholder's affirmative vote at such
stockholder meeting for approval of the Company's issuance of all of the Common
Shares, the Repricing Shares and Warrant Shares in excess of any limitation or
cap imposed by the Principal Market or otherwise, and the Company shall use its
best efforts to solicit its stockholders' approval of such issuance of the
Securities and cause the Board of Directors of the Company to recommend to the
stockholders that they approve such proposal. If the Company fails to hold a
meeting of its stockholders by the Stockholder Meeting Deadline (unless such
failure is the result solely of the actions of the Investors), then, as partial
relief (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Common Shares an
amount in cash per share equal to 2.5% of the Purchase Price applicable to such
share per month until the stockholder meeting is held (pro rated for partial
months). The Company shall make the payments referred to in the immediately
preceding sentence within five days of the earlier of (I) the holding of the
meeting of the Company's stockholders and (II) the last day of each 30-day
period beginning on the day after the Stockholder Meeting Deadline. In the event
the Company fails to make such payments in a timely manner, such payments shall
bear interest at the rate of 2.5% per month (pro rated for partial months) until
paid in full.
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Section 6.16. Transactions With Affiliates. So long as (i) any Repricing Rights
are exercisable for additional shares or there are Warrants outstanding or (ii)
any Investor owns Common Shares and/or Warrant Shares with a market value equal
to or greater than $500,000, 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, stockholders 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 (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arm's-length basis on terms no less favorable than terms which would have
been obtainable from a person other than such Related Party, or (c) 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 of this Section
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.
Section 6.17. Right of First Refusal. Subject to Section 6.10, The Company shall
not sell any of its securities to Persons other than the Investors during the
period commencing on the date hereof and ending one year after the Initial
Closing Date unless the Company shall first have satisfied its obligations under
this Section 6.17.
(a) If the Company receives a written offer from any Person or group of
Persons other than the Investors to purchase any of the Company's securities,
the Company shall give the Investors a written notice of such offer stating the
type, terms, and purchase price of such securities and the other material terms
and conditions of the sale of such securities and attaching a copy of any offer
signed by the Person or Persons making such offer.
(b) The Investors shall have the right to purchase all or any part of
such securities on the same terms and conditions as are set forth in the
Company's written notice. Each Investor may exercise its right to purchase such
securities by giving a written notice of exercise to the Company within seven
days after such Investor's receipt of the Company's notice. Each Investor shall
have the right to purchase such securities pro rata in accordance with the
number of Common Shares that it has purchased under this Agreement. Each
Investor may also notify the Company that it will purchase its pro rata share of
any such securities not purchased by the other Investors.
(c) If the Investors shall not have exercised their rights to purchase
all of such securities, then the Company shall have the right to sell all
securities not subscribed by the Investors on the
39
same terms and conditions as those set forth in the Company's notice. If the
Company shall not have sold all such securities within 30 days after the
expiration of the 7-day period in paragraph (b) above, then the Company shall
not sell any such securities unless it first offers to sell such securities to
the Investors in accordance with the procedures set forth in this Section 6.17.
Section 6.18 Suspension of Trading. In addition any other remedies which the
Investors have under this Agreement and under applicable law, for each business
day on which trading in the shares of Common Stock is suspended or prohibited on
the Principal Market, the Company shall pay the Investors an amount equal to
0.2% of the product of (1) the number of Common Shares and Repricing Rights then
held by the Investors and (2) the Closing Price of the Common Stock on the
trading day prior to such suspension or prohibition. The cumulative amount of
such amounts which have accrued shall be paid by the Company to the Investors
every seven Business Days after the date of such suspension or prohibition.
Section 6.19 Consolidation, Merger, etc. In case of any consolidation or merger
of the Company with any other corporation (other than a wholly-owned subsidiary
of the Company) in which the Company is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Company, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Company shall make appropriate provision or cause appropriate
provision to be made so that each holder of Repricing Rights then outstanding
shall have the right thereafter to receive Repricing Shares in the form of the
kind of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer, or share exchange by a holder of shares
of Common Stock immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange and on a basis which preserves the
economic benefits of the rights of the holders of Repricing Rights to receive
Repricing Shares on a basis as nearly as practical as such rights exist
hereunder prior thereto. The Company shall not effect any such transaction
unless the provisions of this Section 6.19 have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
Section 6.20 Selection of Auditors. So long as the Investors beneficially hold
at least five percent (5%) of the Company's Common Stock (assuming exercise in
full of the Warrants and exercise of the Repricing Rights), the Investors shall
have the right to approve any change in the Company's auditors, including the
engagement of a "Big-Five" accounting firm.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or
40
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 7.2. Indemnity.
(a) The Company shall indemnify and hold harmless the Investors, their
respective Affiliates and their respective officers, directors, partners and
members (each an "Indemnified Party"), from and against any and all Damages, and
shall reimburse the Indemnified Parties for all reasonable out-of-pocket
expenses (including the reasonable fees and expenses of legal counsel), in each
case promptly as incurred by such Indemnified Party and to the extent arising
out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained
in any of the Transaction Documents, the annexes,
schedules or exhibits thereto or any instrument, agreement
or certificate entered into or delivered by the Company
pursuant hereto or thereto; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in any of the Transaction Documents,
the annexes, schedules or exhibits thereto or any
instrument, agreement or certificate entered into or
delivered by the Company pursuant hereto or thereto; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an
affiliate of an Investor, with respect to any of the
transactions contemplated by the Transaction Documents.
(b) Each Investor, severally but not jointly, shall indemnify and hold
harmless the Company, its Affiliates, directors and officers (each an
"Indemnified Party"), from and against any and all Damages, and shall reimburse
the Indemnified Parties for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by such Indemnified Party and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any
of such Investor's representations or warranties contained
in any of the Transaction Documents, the annexes,
schedules or exhibits thereto or any instrument, agreement
or certificate entered into or delivered by the Investor
pursuant hereto or thereto; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in any of the
41
Transaction Documents, the annexes, schedules or exhibits
thereto or any instrument, agreement or certificate
entered into or delivered by the Investor pursuant hereto
or thereto.
Section 7.3. Notice. Promptly after receipt by an Indemnified Party seeking
indemnification pursuant to Section 7.2 of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being
sought (each, a "Claim"), the Indemnified Party promptly shall notify the other
party hereto (the "Indemnifying Party") of the commencement thereof; but the
omission so to notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnified Party and
the Indemnifying Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event an Indemnified Party should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnifying Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
42
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts; provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
43
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information as set forth in Section
8.2(a)) may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legends or
equivalent (the "LEGEND"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
shall issue to any substitute or replacement transfer agent for its Common Stock
upon the Company's appointment of any such substitute or replacement transfer
agent) Irrevocable Transfer Agent Instructions substantially in the form of
Exhibit C hereto. Such Irrevocable Transfer Agent Instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect
44
thereto other than as expressly set forth in this Article IX. After the
Effective Date, upon request of the Investor the Company will substitute
certificates without restrictive legend for certificates for any Common Shares,
Repricing Shares or Warrant Shares issued prior to the Effective Date which bear
restrictive legends and remove any stop-transfer restriction relating thereto
promptly, but in no event later than three trading days after request for
removal.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
Section 9.5. Transfers without Registration. If an Investor provides the Company
with an opinion of counsel, in generally acceptable form, that registration of a
resale by such Investor of any Securities is not required under the Securities
Act, the Company shall permit the transfer and, in the case of the Common
Shares, the Repricing Shares or the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Investor and, if such opinion provides that
such legends can be removed, without any restrictive legends.
Section 9.6. Injunctive Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Investors by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Article IX will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Article
IX, that the Investors shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made in Delaware by persons domiciled in Delaware and without regard to its
principles of conflicts of laws. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders.
Section 10.2. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules. In the event of any conflict between those Rules and this
Agreement, this Agreement will govern.
Arbitration will be conducted by a panel of three (3) arbitrators (the
"Panel"). Within fifteen (15) days after the commencement of arbitration, each
party shall select one person to act as arbitrator and the two selected shall
select a third arbitrator within ten (10) days of their
45
appointment. The members of the Panel shall decide on one member to act as
Chair. If the arbitrators selected by the parties are unable or fail to agree on
a third arbitrator, the third arbitrator shall be selected by the American
Arbitration Association.
The place of arbitration shall be New York, New York. This Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Delaware unless the matter at issue is the corporation law of the company's
state of incorporation, in which event the corporation law of that jurisdiction
shall govern that particular issue. Either party may, without waiving any remedy
under this Agreement, seek from any Court having jurisdiction any interim or
provisional relief that is necessary to protect the rights or property of that
party, pending the Panel's determination of the merits of the controversy. If
any such provisional relief is sought, the non-prevailing party shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with that proceeding.
Consistent with the expedited nature of arbitration, each party will,
upon the written request of the other party, promptly provide the other with
copies of documents relevant to the issues raised by any claim or counterclaim.
Any dispute regarding discovery, or the relevance or scope thereof, shall be
determined by the Chair of the Panel, which determination shall be conclusive.
Document exchange shall be completed within forty-five (45) days following
selection of the last member of the Panel. At the request of a party, the Panel,
through its Chair, shall have the discretion to order examination by deposition
of witnesses to the extent the Panel deems such discovery relevant and
appropriate. Depositions shall be limited to a maximum of three per party and
shall be held within thirty (30) days of authorization by the Panel. Additional
depositions may be scheduled only with the permission of the Chair of the Panel
for good cause shown. Each deposition shall be limited to one day's duration.
All objections are reserved for the arbitration hearing except for objections
based on privilege.
The award of the arbitrators shall be accompanied by a written reasoned
opinion, which, to the extent practical, shall be rendered no more than thirty
(30) calendar days following the close of the Panel's adjudicatory hearing on
the issues submitted for arbitration. The decision of the Panel will be final,
binding, conclusive and non-appealable. The decision of the Panel will be
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. The Panel (or the sole arbitrator selected,
if there is no timely response by the responding party) is authorized and
directed to enter a default judgment against a party who fails to take action or
to participate in any proceeding hereunder within the time periods prescribed by
this Agreement, and by the AAA Rules and/or the Panel.
The Panel shall award to the prevailing party, as determined by the
Panel, all that party's costs and expenses. "Costs and expenses" means all
reasonable pre-award expenses of arbitration, including discovery and deposition
expenses, witness fees, costs and expenses, and attorneys' fees. If the Panel is
unable to determine which party is the "prevailing party," the Panel shall
apportion the costs and expenses as it deems appropriate.
ARTICLE XI
46
ASSIGNMENT
Neither this Agreement nor any rights of the Investors or the Company hereunder
may be assigned by either party to any other person. Notwithstanding the
foregoing, the provisions of this Agreement shall inure to the benefit of, and
be enforceable by, any permitted transferee of any Securities; provided,
however, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any Affiliate of the Investor, or to not more than a
total of three (3) accredited investors, who agrees to make the representations
and warranties contained in Article III and who agrees to be bound by the terms
of this Agreement.
ARTICLE XII
NOTICES
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: Interactive Telesis Inc.
000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Executive Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to (shall not c with a copy to:
(shall not constitute notice):
Rushall & XxXxxxxx
0000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx Xxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
47
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxx X. Xxxxxx, Esq.
(shall not constitute notice) Xxxxxx Xxxxxxx Xxxxx & Xxxxxx LLP
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Article XII by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Article XII.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by fewer than
all of the parties and shall be deemed to be an original instrument that shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the other Transaction Documents,
which include, but are not limited to, the Warrants, the Registration Rights
Agreement and the Irrevocable Transfer Agent Instructions set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersede all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein. Nothing in this Agreement, express
or implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 13.3. Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any one or more of the provisions of this
Agreement, or any part thereof, shall in no way affect or impair the validity,
legality or enforceability of any other provisions of this Agreement. In case
any provision of this Agreement shall be invalid, illegal or unenforceable, it
shall, to the extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
48
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given trading day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written agreement of the Investors
and the Company shall be required to employ any other reporting entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing any Securities and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of Xxxxxx
Xxxxxxx Xxxxx & Xxxxxx LLP, the Investors' counsel, and [Xxxxxxxx, Isenbaum &
Colomby LLP], the Investors' accountants, pursuant to the terms of the Escrow
Agreement. The Company shall also reimburse the Investors for up to $5,000 of
their due diligence related expenses with respect to the Company. The Company
shall reimburse the Investors for any expenses and legal fees incurred enforcing
its rights under the Agreement or in connection with any modification or waiver
with respect thereto. The Company's obligations under this Section 13.8 shall
arise and remain in force whether or not any closing occurs hereunder, unless
such failure to close is solely the result of default by the Investors.
Section 13.9. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) trading days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
Section 13.10. 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.
Section 13.11. Termination. If the Initial Closing shall not have occurred on or
before fifteen (15) business days from the date hereof (or if the Second or
Third Closings shall not have
49
occurred on or before 120 and 150 days, respectively, from the date hereof ) due
to the Company's or an Investor's failure to satisfy the conditions set forth in
Article II above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, that
if this Agreement is terminated pursuant to this Section 13.11, the Company
shall remain obligated to reimburse the non-breaching Investors for the expenses
described in Section 13.8 above.
Section 13.12. 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.
Section 13.13. Payment Set Aside. To the extent that the Company makes a payment
or payments to the Investors hereunder or the Investors enforce or exercise
their 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 or entity 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.
Section 13.14 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or the Investors or any subsequent
holder of any Securities upon any breach, default or noncompliance of the
Investors, any subsequent holder of any Securities or the Company under this
Agreement, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Investors of
any breach, default or noncompliance under this Agreement or any waiver on the
Company's or the Investors' part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies, either under this
Agreement, by law, or otherwise afforded to the Company and the Investors, shall
be cumulative and not alternative.
Section 13.15 Amendments and Waivers. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and the Investors or
their transferees holding at least sixty percent (60%) of the outstanding Common
Shares, voting together as a single group; provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage of Common Shares
required under this Section 13.15. Any amendment or waiver effected in
accordance with this Section 13.15 shall be binding upon the Investors and each
transferee of the Securities. Upon the effectuation of each such amendment or
50
waiver, the Company shall promptly give written notice thereof to the Investors
(or their transferees) who have not previously consented thereto in writing.
51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
COMPANY:
INTERACTIVE TELESIS INC.
By:
-----------------------------
Name:
---------------------------
INVESTORS:
Address: BH Capital Investments, L.P.
000 Xxxxx Xxxxxx Xxxx, 0xx Xxxxx, Xxxxx Tower By: HB and Co., Inc. its General Partner
Xxxxxxx, Xxxxxxx Xxxxxx X0X 0X0
Fax: 000-000-0000
By:
----------------------------
Total Common Stock to be purchased at: Name: Xxxxx Xxxxxxxxx
Initial Closing: $1,250,000 Authorized Signatory
Second Closing: $ 500,000
Third Closing: $ 500,000
Address: Excalibur Limited Partnership
00 Xxxxxx Xxxxxx Xxxxxx By: Excalibur Capital Management, Inc.
Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0 its General Partner
Fax: 000-000-0000
Total Common Stock to be purchased at: By:
Initial Closing: $ 1,250,000 -----------------------------
Second Closing: $ 500,000 Name: Xxxxxxx Xxxxxxx, President
Third Closing: $ 500,000
