EXHIBIT 10.9
INVESTMENT AGREEMENT
BETWEEN
XXXXXXXXXXXXXXXX.XXX, INC.
AND
XXXXXX EQUITY PARTNERS, LLC
XXXXXXXXXXXXXXXX.XXX
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT
OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 15th day of August, 2000, by and between
xxxxxxxxxxxxxxxx.xxx, a corporation duly organized and existing under the laws
of the State of Delaware (the "Company"), and the undersigned Investor executing
this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as EXHIBIT F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as EXHIBIT K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock,
then such dispute shall be resolved by an investment banking firm mutually
acceptable to the Company and the Investor in this offering and any fees and
costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as EXHIBIT U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean xxxxxxxxxxxxxxxx.xxx, a corporation duly organized
and existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have
the meaning set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (each as
defined in the Registration Rights Agreement) becomes ineffective or unavailable
for use for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason (or
in the event the prospectus under either of the above is not current and
deliverable) during any time period required under the Registration Rights
Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as EXHIBIT B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in EXHIBIT N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $500,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as EXHIBIT D.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as EXHIBIT Q.
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as EXHIBIT S.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as EXHIBIT G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as EXHIBIT H.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as EXHIBIT I, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as EXHIBIT R.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as EXHIBIT A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Right of First Refusal" shall have the meaning set forth in Section
6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as EXHIBIT J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as EXHIBIT T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as EXHIBIT L.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. PURCHASE AND SALE OF COMMON STOCK.
2.1 OFFER TO SUBSCRIBE.
Subject to the terms and conditions herein and the satisfaction
of the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying Warrants
as the Company may, in its sole and absolute discretion, from time to time elect
to issue and sell to Investor according to one or more Puts pursuant to Section
2.3 below.
2.2 INVESTMENT COMMITMENT.
2.2.1 INVESTMENT COMMITMENT CLOSING. The closing of
this Agreement (the "Investment Commitment Closing") shall be deemed to occur
when this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Transfer Agent, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTOR'S OBLIGATIONS. As a
prerequisite to the Investment Commitment Closing and the Investor's obligations
hereunder, all of the following (the "Conditions to Investor's Obligations")
shall have been satisfied prior to or concurrently with the Company's execution
and delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement
(executed by the Company and Investor), (ii) the
Investment Commitment Opinion of Counsel (signed by the
Company's counsel), (iii) the Transfer Agent
Instructions (executed by the Company and the Transfer
Agent), and (iv) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's
Certificate of Incorporation, and (C) the Company's
Bylaws;
(b) this Investment Agreement, accepted by the Company, shall
have been received by the Investor;
(c) [Intentionally Left Blank].
(d) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in
Section 3.2.4), as of the Closing there have been no
material adverse changes in the Company's business
prospects or financial condition since the date of the
last balance sheet included in the Disclosure Documents,
including but not limited to incurring material
liabilities; and
(e) the representations and warranties of the Company in this
Agreement shall be true and correct in all material
respects and the conditions to Investor's obligations set
forth in this Section 2.2.2 shall have been satisfied as
of such Closing; and the Company shall deliver an
Officer's Certificate, signed by an officer of the
Company, to such effect to the Investor.
2.3 PUTS OF COMMON SHARES TO THE INVESTOR.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
(a) DELIVERY OF ADVANCE PUT NOTICE. At least ten
(10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the form
of which is attached hereto as EXHIBIT E, the date of such Advance Put Notice
being the "Advance Put Notice Date") to Investor stating the Put Date for which
the Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the Company
intends to sell to the Investor for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase shares of Common Stock pursuant to such Put Notice (a
"Company Designated Minimum Put Share Price"). The Company Designated Minimum
Put Share Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date, or (ii) the Closing Bid Price
of the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date minus $0.125. The Company may decrease (but not
increase) the Company Designated Minimum Put Share Price for a Put at any time
by giving the Investor written notice of such decrease not later than 12:00
Noon, New York City time, on the Business Day immediately preceding the Business
Day that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the determination of
Trigger Prices and Excluded Days for days preceding the Business Day that such
decrease takes effect.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as EXHIBIT F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) PUT SHARE AMOUNT. The "Put Share Amount" is the
number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the Intended Put
Share Amount, and (ii) the Individual Put Limit. The "Individual Put Limit"
shall equal the lesser of (i) 1,500,000 shares, (ii) 15% of the sum of the
aggregate daily reported Trading Volumes in the outstanding Common Stock on the
Company's Principal Market, excluding any block trades of 20,000 or more shares
of Common Stock, for all Evaluation Days (as defined below) in the Pricing
Period, (iii) the number of Put Shares which, when multiplied by their
respective Put Share Prices, equals the Maximum Put Dollar Amount, and (iv) the
9.9% Limitation, but in no event shall the Individual Put Limit exceed 15% of
the sum of the aggregate daily reported Trading Volumes in the outstanding
Common Stock on the Company's Principal Market, excluding any block trades of
20,000 or more shares of Common Stock, for the twenty (20) Business Days
immediately preceding the Put Date (this limitation, together with the
limitation in (i) immediately above, are collectively referred to herein
as the "Volume Limitations"). Company agrees not to trade Common Stock or
arrange for Common Stock to be traded for the purpose of artificially
increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of
(i) the Company Designated Minimum Put Share Price, plus $0.075, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is less than
the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) PUT SHARE PRICE. The purchase price for the
Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market
Price for such Put, minus $0.075, or (ii) 91% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable.
(d) DELIVERY OF PUT NOTICE. After delivery of an
Advance Put Notice, on the Put Date specified in the Advance Put Notice the
Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as EXHIBIT G) to Investor stating (i) the Put Date, (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the
Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Put Notice Confirmation," the form of which is
attached hereto as EXHIBIT H) of the Put Notice to Company specifying that the
Put Notice has been received and affirming the Put Date and the Intended Put
Share Amount.
(e) DELIVERY OF REQUIRED PUT DOCUMENTS. On or
before the Put Date for such Put, the Company shall deliver the Required Put
Documents (as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the Investor,
the Put Shares of Common Stock shall be transmitted electronically pursuant to
such electronic delivery system as the Investor shall request; otherwise
delivery shall be by physical certificates. If the Company has not delivered all
of the Required Put Documents to the Investor on or before the Put Date, the Put
shall be automatically cancelled, unless the Investor agrees to delay the Put
Date by up to three (3) Business Days, in which case the Pricing Period begins
on the Business Day following such new Put Date. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the Put
Date (or new Put Date, if applicable), and the Investor has not agreed in
writing to delay the Put Date, the Put is automatically canceled (an
"Impermissible Put Cancellation") and, unless the Put was otherwise canceled in
accordance with the terms of Section 2.3.11, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
canceled Put and the Company may deliver an Advance Put Notice for the
subsequent Put no sooner than ten (10) Business Days after the date that such
Put was canceled, unless otherwise agreed by the Investor.
(f) LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE
SHARES. Notwithstanding anything to the contrary in this Agreement, in no event
shall the Investor be required to purchase, and an Intended Put Share Amount may
not include, an amount of Put Shares, which when added to the number of Put
Shares acquired by the Investor pursuant to this Agreement during the 31 days
preceding the Put Date with respect to which this determination of the permitted
Intended Put Share Amount is being made, would exceed 9.99% of the number of
shares of Common Stock outstanding (on a fully diluted basis, to the extent that
inclusion of unissued shares is mandated by Section 13(d) of the Exchange Act)
on the Put Date for such Pricing Period, as determined in accordance with
Section 13(d) of the Exchange Act (the "Section 13(d) Outstanding Share
Amount"). Each Put
Notice shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the
Section 13(d) Outstanding Share Amount is different on any date during a
Pricing Period than on the Put Date associated with such Pricing Period, then
the number of shares of Common Stock outstanding on such date during such
Pricing Period shall govern for purposes of determining whether the Investor,
when aggregating all purchases of Shares made pursuant to this Agreement in
the 31 calendar days preceding such date, would have acquired more than 9.99%
of the Section 13(d) Outstanding Share Amount. The limitation set forth in
this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's right
to require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination") upon the occurrence of any of the
following:
(a) the Company shall not exercise a Put or any Put
thereafter if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put
thereafter, on any date after a cumulative time period or series of time
periods, including both Ineffective Periods and Delisting Events, that lasts for
an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put
thereafter if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
(d) the Company shall not exercise a Put after the
sooner of (i) the date that is three (3) years after the Effective Date, or (ii)
the Put Closing Date on which the aggregate of the Put Dollar Amounts for all
Puts equal the Maximum Offering Amount; and
(e) the Company shall not exercise a Put after the
Company has breached any covenant in Section 2.6, Section 6, or Section 9
hereof.
(f) if no Registration Statement has been declared
effective by the date that is one (1) year after the date of this Agreement, the
Automatic Termination shall occur on the date that is one (1) year after the
date of this Agreement.
2.3.3 PUT LIMITATIONS. The Company's right to exercise
a Put shall be limited as follows:
(a) notwithstanding the amount of any Put, the
Investor shall not be obligated to purchase any additional Put Shares once the
aggregate Put Dollar Amount paid by Investor equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to acquire
and pay for the Put Shares with respect to any Put for which the Company has
announced a subdivision or combination, including a reverse split, of its Common
Stock or has subdivided or combined its Common Stock during the Extended Put
Period;
(c) the Investor shall not be obligated to acquire
and pay for the Put Shares with respect to any Put for which the Company has
paid a dividend of its Common Stock or has made any other distribution of its
Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire
and pay for the Put Shares with respect to any Put for which the Company has
made, during the Extended Put Period, a distribution of all or any portion of
its assets or evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to acquire
and pay for the Put Shares with respect to any Put for which a Major Transaction
has occurred during the Extended Put Period.
2.3.4 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY
TO DELIVER AN ADVANCE PUT NOTICE OR A PUT NOTICE AND THE OBLIGATION OF THE
INVESTOR TO PURCHASE PUT SHARES. The right of the Company to deliver an Advance
Put Notice or a Put Notice and the obligation of the Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the date of delivery of such Advance Put Notice or Put
Notice and (ii) the applicable Put Closing Date, of each of the following
conditions:
(a) the Company's Common Stock shall be listed for
and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market,
the Nasdaq National Market or the New York Stock Exchange and the Put Shares
shall be so listed, and to the Company's knowledge there is no notice of any
suspension or delisting with respect to the trading of the shares of Common
Stock on such market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights Agreement, including, but not
limited to, the filing of the Registration Statement with the SEC with respect
to the resale of all Registrable Securities and the requirement that the
Registration Statement shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company shall have satisfied and
shall be in compliance with any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the
Company are true and correct in all material respects as if made on such date
and the conditions to Investor's obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall deliver a certificate,
signed by an officer of the Company, to such effect to the Investor;
(d) the Company shall have reserved for issuance a
sufficient number of Common Shares for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and to the Company's
knowledge there is no notice of any investigation or inquiry concerning any stop
order with respect to the Registration Statement; and
(f) if the Aggregate Issued Shares after the
Closing of the Put would exceed the Cap Amount, the Company shall have obtained
the Stockholder 20% Approval as specified in Section 6.11, if the Company's
Common Stock is listed on the NASDAQ Small Cap Market or NMS, and such approval
is required by the rules of the NASDAQ.
2.3.5 DOCUMENTS REQUIRED TO BE DELIVERED ON THE PUT
DATE AS CONDITIONS TO CLOSING OF ANY PUT. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
(a) a number of Unlegended Share Certificates
(or freely tradeable electronically delivered shares, as appropriate) equal
to the Intended Put Share Amount, in denominations of not more than 50,000
shares per certificate;
(b) the following documents: Put Opinion of
Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any report
or disclosure required under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other writings
required to be delivered on or before the Put Date pursuant to any provision of
this Agreement in order to implement and effect the transactions contemplated
herein.
2.3.6 ACCOUNTANT'S LETTER AND REGISTRATION OPINION.
(a) The Company shall have caused to be delivered
to the Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.5.3,
and (ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of EXHIBIT R (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any Supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Cancellation Notice to the Investor pursuant to Section 2.3.11 by
facsimile and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its
independent auditors to perform the procedures in accordance with the provisions
of Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall
have requested delivery of an Agreed Upon Procedures Report pursuant to Section
2.5.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this Section
2.3.6(b) cannot be delivered by the Company's independent auditors, the Company
shall, if necessary, promptly revise the Registration Statement and the Company
shall not deliver a Put Notice until such report is delivered.
2.3.7 INVESTOR'S OBLIGATION AND RIGHT TO PURCHASE SHARES.
Subject to the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required to
purchase (each a "Purchase") from the Company a number of Put Shares equal to
the Put Share Amount, in the manner described below.
2.3.8 MECHANICS OF PUT CLOSING. Each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is five
(5) Business Days following the applicable Pricing Period End Date (the "Payment
Due Date") at the offices of Investor. On each or before each Payment Due Date,
the Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid. The closing (each a "Put Closing") for each Put shall occur on the
date that both (i) the Company has
delivered to the Investor all Required Put Documents, and (ii) the Investor
has delivered to the Company such Put Dollar Amount and any Late Payment
Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for such
Put Closing on or before the Payment Due Date, then the Investor shall pay to
the Company, in addition to the Put Dollar Amount, an amount (the "Late Payment
Amount") at a rate of X% per month, accruing daily, multiplied by such Put
Dollar Amount, where "X" equals one percent (1%) for the first month following
the date in question, and increases by an additional one percent (1%) for each
month that passes after the date in question, up to a maximum of five percent
(5%) per month; provided, however, that in no event shall the amount of interest
that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law In addition to any other remedies the Company
may have, in the event that the Investor fails to make payment for any shares
Put to it by the Company under this Agreement within 30 days of the date that
the Company has notified the Investor, in writing, that such payment is past
due, and the Company has complied with this Agreement in all material respects,
the Company may terminate the unexercised portion of the Commitment Warrant.
2.3.9 LIMITATION ON SHORT SALES. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or any
short sale or other hedging or similar arrangement it deems appropriate with
respect to Put Shares after it receives a Put Notice with respect to such Put
Shares so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.10 CAP AMOUNT. If the Company becomes listed on the
Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the Company
has obtained Stockholder 20% Approval as set forth in Section 6.11 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares
exceed the maximum number of shares of Common Stock (the "Cap Amount") that the
Company can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.11 PUT CANCELLATION.
(a) MECHANICS OF PUT CANCELLATION. If at any
time during a Pricing Period the Company discovers the existence of Material
Facts or any Ineffective Period or Delisting Event occurs, the Company shall
cancel the Put (a "Put Cancellation"), by delivering written notice to the
Investor (the "Put Cancellation Notice"), attached as EXHIBIT Q, by facsimile
and overnight courier. The "Put Cancellation Date" shall be the date that the
Put Cancellation Notice is first received by the Investor, if such notice is
received by the Investor by 6:00 p.m., New York, NY time, and shall be the
following date, if such notice is received by the Investor after 6:00 p.m., New
York, NY time.
(b) EFFECT OF PUT CANCELLATION. Anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put, shall
remain effective with respect to a number of Put Shares (the "Truncated Put
Share Amount") equal to the Individual Put Limit for the Truncated Pricing
Period.
(c) PUT CANCELLATION NOTICE CONFIRMATION. Upon
receipt by the Investor of a facsimile copy of the Put Cancellation Notice, the
Investor shall promptly send, via facsimile, a confirmation of receipt (the "Put
Cancellation Notice Confirmation," a form of which is attached as EXHIBIT S) of
the Put Cancellation Notice to the Company specifying that the Put Cancellation
Notice has been received and affirming the Put Cancellation Date.
(d) TRUNCATED PRICING PERIOD. If a Put
Cancellation Notice has been delivered to the Investor after the Put Date, the
Pricing Period for such Put shall end at on the close of trading on the last
full trading day on the Principal Market that ends prior to the moment of
initial delivery of the Put Cancellation Notice (a "Truncated Pricing Period")
to the Investor.
2.3.12 INVESTMENT AGREEMENT CANCELLATION. The Company
may terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such
termination shall have no effect on the parties' other rights
and obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the event that
the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 WARRANTS.
2.4.1 COMMITMENT WARRANTS. In partial consideration
hereof, following the execution of the Letter of Agreement dated on or about
June 19, 2000 between the Company and the Investor, the Company issued and
delivered to Investor or its designated assignees, warrants (the "Commitment
Warrants") in the form attached hereto as EXHIBIT U, or such other form as
agreed upon by the parties, to purchase 3,450,000 shares of Common Stock. Each
Commitment Warrant shall be immediately exercisable in accordance with its
terms, and shall have a term beginning on the date of issuance and ending on
date that is five (5) years thereafter. The Warrant Shares shall be registered
for resale pursuant to the Registration Rights Agreement. The Investment
Commitment Opinion of Counsel shall cover the issuance of the Commitment Warrant
and the issuance of the common stock upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is not
filed, and regardless of whether or not the Registration Statement is approved
or denied by the SEC, the Investor shall retain full ownership of the Commitment
Warrant as partial consideration for its commitment hereunder.
2.4.2 PURCHASE WARRANTS. Within five (5) Business Days
of the end of each Pricing Period, the Company shall issue and deliver to the
Investor a warrant ("Purchase Warrant"), in the form attached hereto as EXHIBIT
D, or such other form as agreed upon by the parties, to purchase a number of
shares of Common Stock equal to 10% of the Put Share Amount for that Put. Each
Purchase Warrant shall be exerciseable at a price (the "Purchase Warrant
Exercise Price") which shall initially equal 110% of the Market Price for the
applicable Put, and shall have semi-annual reset provisions. Each Purchase
Warrant shall be immediately exercisable at the Purchase Warrant Exercise Price,
and shall have a term beginning on the date of issuance and ending on the date
that is five (5) years thereafter. The Warrant Shares shall be registered for
resale pursuant to the Registration Rights Agreement.
2.5 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor 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 Investor 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.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives unless prior to disclosure of such information the
Company identifies such information as being nonpublic information and provides
the Investor and such advisors and representatives with the opportunity to
accept or refuse to accept such nonpublic information for review. The Company
may, as a condition to disclosing any nonpublic information hereunder, require
the Investor and its advisors and representatives to enter into a
confidentiality agreement (including an agreement with such
advisors and representatives prohibiting them from trading in Common Stock
during such period of time as they are in possession of nonpublic
information) in form reasonably satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor 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
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and 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. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the opinion
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 the light of the
circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's independent
counsel in order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED
TO BE UNTRUE OR ARE OMITTED. In the event after such consultation the Investor
or the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement or 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,
(a) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of
any such material misstatement or omission, (i) the Company's independent
counsel shall provide the Investor's counsel with a Registration Opinion and
(ii) in the event the dispute relates to the adequacy of financial disclosure
and the Investor shall reasonably request, the Company's independent auditors
shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
2.6 COMMITMENT PAYMENTS.
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during
that Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-
Usage Fee") equal to the difference of (i) $100,000, minus (ii) 10% of the
aggregate Put Dollar Amount of the Put Shares put to Investor during that
Commitment Evaluation Period. In the event that the Company delivers a
Termination Notice to the Investor or an Automatic Termination occurs, the
Company shall pay to the Investor (the "Termination Fee") the greater of (i)
the Semi-Annual Non-Usage Fee for the applicable Commitment Evaluation
Period, or (ii) the difference of (x) $200,000, minus (y) 10% of the
aggregate Put Dollar Amount of the Put Shares put to Investor during all Puts
to date, and the Company shall not be required to pay the Semi-Annual
Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 ACCREDITED INVESTOR. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
3.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
3.2.1 ACCESS TO INFORMATION. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional information
which Investor or Investor's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
3.2.2 RELIANCE ON OWN ADVISORS. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not
limit or modify Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 CAPABILITY TO EVALUATE. Investor has such
knowledge and experience in financial and business matters so as to enable such
Investor to utilize the information made available to it in connection with the
Offering in order to evaluate the merits and risks of the prospective
investment, which are substantial, including without limitation those set forth
in the Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 DISCLOSURE DOCUMENTS. Investor, in making
Investor's investment decision to subscribe for the Investment Agreement
hereunder, represents that (a) Investor has received and had an opportunity to
review (i) the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, (ii) the Company's quarterly report on Form 10-QSB for the
quarters ended Xxxxx 00, 0000, (xxx) the Risk Factors, attached as EXHIBIT J,
(the "Risk Factors") (iv) the Capitalization Schedule, attached as EXHIBIT K,
(the "Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached
as EXHIBIT L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
The foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in
Sections 5 and 6 of this Agreement. Investor acknowledges and agrees that the
Company has no responsibility for, does not ratify, and is under no
responsibility whatsoever to comment upon or correct any reports, analyses or
other comments made about the Company by any third parties, including, but
not limited to, analysts' research reports or comments (collectively, "Third
Party Reports"), and Investor has not relied upon any Third Party Reports in
making the decision to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Investor
has substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor
acknowledges that Investor is able to fend for Investor's self in the
transaction contemplated by this Agreement, that Investor has the ability to
bear the economic risk of Investor's investment pursuant to this Agreement
and that Investor is an "Accredited Investor" by virtue of the fact that
Investor meets the investor qualification standards set forth in Section 3.1
above. Investor has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with
Investor's purposes.
3.3 EXEMPT OFFERING UNDER REGULATION D.
3.3.1 NO GENERAL SOLICITATION. The Investment Agreement
was not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 RESTRICTED SECURITIES. Investor understands that
the Investment Agreement is, the Common Stock and Warrants issued at each Put
Closing will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold without
registration under the Act or pursuant to an exemption therefrom. In this
connection, Investor represents that Investor is familiar with Rule 144 under
the Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration
statement under the Act and any applicable state securities laws covering such
proposed disposition and such disposition is made in accordance with such
registration statement and in compliance with applicable prospectus delivery
requirements; or
(b) (i) Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition to the
extent relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of the
Securities under the Act or state securities laws. It is agreed that the Company
will not require the Investor to provide opinions of counsel for transactions
made pursuant to Rule 144 provided that Investor and Investor's broker, if
necessary, provide the Company with the necessary representations for counsel to
the Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account
and the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the
Common Stock for any minimum or other specific term and reserves the right to
dispose of the Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition.
3.4 DUE AUTHORIZATION.
3.4.1 AUTHORITY. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing this
Agreement. Investor has reached the age of majority (if an individual) according
to the laws of the state in which he or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and validly
organized, validly existing and in good standing as a limited liability company
under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 PARTNERSHIPS. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is itself
a partnership, all persons holding an interest in such partnership, directly or
indirectly, including through one or more partnerships), and the person
executing this Agreement has made due inquiry to determine the truthfulness of
the representations and warranties made hereby.
3.4.4 REPRESENTATIVES. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom Investor
is so purchasing.
4. ACKNOWLEDGMENTS. Investor is aware that:
4.1 RISKS OF INVESTMENT. Investor recognizes that an investment
in the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain all
the information, which would be contained in a registration statement under the
Act;
4.2 NO GOVERNMENT APPROVAL. No federal or state agency has
passed upon the Securities, recommended or endorsed the Offering, or made any
finding or determination as to the fairness of this transaction;
4.3 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the date of
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 NO ASSURANCES OF REGISTRATION. There can be no assurance that
any registration statement will become effective at the scheduled time, or ever,
or remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 EXEMPT TRANSACTION. Investor understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
4.7 LEGENDS. The certificates representing the Put Shares shall
not bear a legend restricting the sale of transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold
or transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. Except as otherwise set forth in the Schedule of
Exceptions, the Company is not the subject of any pending, threatened or, to its
knowledge, contemplated investigation or administrative or legal proceeding (a
"Proceeding") by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission, The
National Association of Securities Dealer, Inc., The Nasdaq Stock Market, Inc.
or any state securities commission, or any other governmental entity, which have
not been disclosed in the Disclosure Documents. None of the disclosed
Proceedings, if any, will have a material adverse effect upon the Company or the
market for the Common Stock. The Company has the following subsidiaries:
5.2 CORPORATE CONDITION. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects since the dates of such Disclosure
Documents. The financial statements as contained in the 10-KSB and 10-QSB have
been prepared in accordance with generally accepted accounting principles,
consistently applied (except as otherwise permitted by Regulation S-X of the
Exchange Act), subject, in the case of unaudited interim financial statements,
to customary year end adjustments and the absence of certain footnotes, and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended,. Without limiting the foregoing,
there are no material liabilities, contingent or actual, that are not disclosed
in the Disclosure Documents (other than liabilities incurred by the Company in
the ordinary course of its business, consistent with its past practice, after
the period covered by the Disclosure Documents). The Company has paid all
material taxes that are due, except for taxes that it reasonably disputes. There
is no material claim, litigation, or administrative proceeding pending or, to
the best of the Company's knowledge, threatened against the Company, except as
disclosed in the Disclosure Documents. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not omit
to state any material fact required to be stated therein or herein necessary to
make the statements contained therein or herein not misleading in the light of
the circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, but does not have a class of securities
registered under Section 12 of the Exchange Act, and has filed all reports
required by the Exchange Act since the date the Company first became subject to
such reporting obligations. The Company undertakes to furnish Investor with
copies of such reports as may be reasonably requested by Investor prior to
consummation of this Offering and thereafter, to make such reports available,
for the full term of this Agreement, including any extensions thereof, and for
as long as Investor holds the Securities. The Company shall use its reasonable
best efforts to cause its Common Stock to become duly listed or approved for
quotation on the O.T.C. Bulletin Board as soon as practicable after the date
hereof, and in any event prior to initiating any Put. The Company has filed all
reports required under the Exchange Act. The Company has not furnished to the
Investor any material nonpublic information concerning the Company.
5.7 CAPITALIZATION. The capitalization of the Company as of the
date hereof, is, and the capitalization as of the Closing, subject to exercise
of any outstanding warrants and/or exercise of any outstanding stock options,
after taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in EXHIBIT K. There
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities. Except as disclosed in
the Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated
to register the sale of any of its or their securities under the Act (except
the Registration Rights Agreement).
5.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted
and exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. EXHIBIT M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in EXHIBIT M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in EXHIBIT M. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company expects
to use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as EXHIBIT L hereto. These purposes and amounts are estimates and are
subject to change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity, including,
but not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has made
no representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The Company
is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The Company
is currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form under
the Act.
5.15 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of
the SEC. The Company has not engaged in any form of general solicitation or
advertising in connection with the offering of the Common Stock or the
Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 KEY EMPLOYEES. Each "Key Employee" (as defined in EXHIBIT N)
is currently serving the Company in the capacity disclosed in EXHIBIT N. No Key
Employee, to the best knowledge of the Company and its subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company and
its subsidiaries, any intention to terminate his employment with, or services
to, the Company or any of its subsidiaries.
5.18 REPRESENTATIONS CORRECT. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 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 Delaware law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.22 OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 MAJOR TRANSACTIONS. There are no other Major Transactions
currently pending or contemplated by the Company.
5.24 FINANCINGS. There are no other financings currently pending
or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small Cap
Market or the Nasdaq National Market, or at a special meeting to be held as soon
as practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 50,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval and
the Share Authorization Increase Approval, the Company agrees to use its best
efforts to reserve 50,000,000 shares of Common Stock for issuance under this
Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
6. COVENANTS OF THE COMPANY
6.1 INDEPENDENT AUDITORS. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 CORPORATE EXISTENCE AND TAXES. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and, once it becomes a "Reporting Issuer" (defined as a Company which files
periodic reports under the Exchange Act), remain a Reporting Issuer (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's obligations with
respect to the Common Stock and has Common Stock listed for trading on a stock
exchange or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes
when due except for taxes which the Company disputes.
6.3 REGISTRATION RIGHTS. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as EXHIBIT A.
6.4 ASSET TRANSFERS. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 RIGHTS OF FIRST REFUSAL.
6.5.1 CAPITAL RAISING LIMITATIONS. During the period
from the date of this Agreement until the date that is one year after the
earlier of (a) the Put Closing Date on which the sum of the aggregate Put Share
Price for all Put Shares equal the Maximum Offering Amount, (b) the date that
the Company has delivered a Termination Notice to the Investor, or (c) the date
of an Automatic Termination, the Company shall not issue or sell, or agree to
issue or sell Equity Securities (as defined below), for cash in private capital
raising transactions without
obtaining the prior written approval of the Investor of the Offering (the
limitations referred to in this subsection 6.5.1 are collectively referred to
as the "Capital Raising Limitations"). For purposes hereof, the following
shall be collectively referred to herein as, the "Equity Securities": (i)
Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or
carry the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering.
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL. For any private
capital raising transactions of Equity Securities which close after the date
hereof and on or prior to the date that is one (1) year after the earlier of (a)
the Put Closing Date on which the sum of the aggregate Put Share Price for all
Put Shares equal the Maximum Offering Amount, (b) the date that the Company has
delivered a Termination Notice to the Investor, or (c) the date of an Automatic
Termination, not including any warrants issued in conjunction with this
Investment Agreement, the Company agrees to deliver to Investor, at least ten
(10) days prior to the closing of such transaction, written notice describing
the proposed transaction, including the terms and conditions thereof, and
providing the Investor and its affiliates an option (the "Right of First
Refusal") during the ten (10) day period following delivery of such notice to
purchase the securities being offered in such transaction on the same terms as
contemplated by such transaction.
6.5.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND
RIGHTS OF FIRST REFUSAL. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to any transaction
involving issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company or exercise of options by employees, consultants or
directors, or a primary underwritten offering of the Company's Common Stock, or
the transactions set forth on Schedule 6.5.1. The Capital Raising Limitations
and Rights of First Refusal also shall not apply to (a) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (b) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan for the benefit of the
Company's employees, directors or consultants, or (c) the issuance of debt
securities, with no equity feature, incurred solely for working capital
purposes. If the Investor, at any time, is more than five (5) business days late
in paying any Put Dollar Amounts that are then due, the Investor shall not be
entitled to the benefits of Sections 6.5.1 and 6.5.2 above until the date that
the Investor has paid all Put Dollar Amounts that are then due.
6.6 FINANCIAL 00-XXX XXXXXXXXXX, ETC. AND CURRENT REPORTS ON FORM
8-K. The Company shall deliver to the Investor copies of its annual reports on
Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as EXHIBIT B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as EXHIBIT I or in
such form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 LISTING. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company
will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering instructions in the form of EXHIBIT T hereto, to issue certificates,
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by the
holder thereof. Such certificates shall not bear a Legend unless issuance with a
Legend is permitted by the terms of this Agreement and Legend removal is not
permitted by Section 6.8 hereof and the Company shall cause the Transfer Agent
to issue such certificates without a Legend. Nothing in this Section shall
affect in any way Investor's obligations and agreement set forth in Sections
3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor transfers
Securities, pursuant to Rule 144, to a transferee which is an accredited
investor, the Company shall permit the transfer, and, in the case of Put Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor 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
Section 6.10 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.10, that an
Investor 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.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize (i)
the issuance of the full number of shares of Common Stock which would be
issuable pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.12 PRESS RELEASE. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be unreasonably
withheld by Investor.
6.13 CHANGE IN LAW OR POLICY. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as consideration for its commitment
hereunder.
7. INVESTOR COVENANT/MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING;
SEVERABILITY. Investor's and the Company's representations and warranties shall
survive the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, or is altered by a term
required by the Securities Exchange Commission to be included in the
Registration Statement, this Agreement shall continue in full force and
effect without said provision; provided that if the removal of such provision
materially changes the economic benefit of this Agreement to the Investor,
this Agreement shall terminate.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable without the Company's written consent. If assigned, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Investor may assign Investor's rights
hereunder, in connection with any private sale of the Common Stock of such
Investor, so long as, as a condition precedent to such transfer, the transferee
executes an acknowledgment agreeing to be bound by the applicable provisions of
this Agreement in a form acceptable to the Company and provides an original copy
of such acknowledgment to the Company.
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request required
or permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 ACTIONS AT LAW OR EQUITY; JURISDICTION AND VENUE. The parties
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Atlanta, Georgia.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In any
litigation between the parties hereto, the prevailing party, as found by the
court, shall be entitled to an award of all attorney's fees and costs of court.
Should the court refuse to find a prevailing party, each party shall bear its
own legal fees and costs.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor shall
deliver Put Dollar Amounts (as payment towards any Put
Share Price) by wire transfer, to the Company pursuant to
a wire instruction letter to be provided by the Company,
and signed by the Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby acknowledges
and agrees, subject to the provisions of any applicable
laws providing for the refund of subscription amounts
submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel,
terminate or revoke this Agreement or any other
agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other
agreements shall survive the death or disability of such
Investor and shall be binding upon and inure to the
benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and
assigns. If the Securities subscribed for are to be
owned by more than one person, the obligations of all
such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties
and acknowledgments herein contained shall be deemed to
be made by and be binding upon each such person and his
heirs, executors, administrators, successors, legal
representatives and assigns.
9. INDEMNIFICATION.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless Investor and all of
its stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against any of
the Indemnitees based on a violation of Section 5 of the Securities Act caused
by the integration of the private sale of common stock to the Investor and the
public offering pursuant to the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 9,
deliver to the Indemnitor a written notice of the commencement thereof and
the Indemnitor shall have the right to participate in and to assume the
defense thereof with counsel reasonably selected by the Indemnitor, provided,
however, that an Indemnified Party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of such counsel to be
paid by the Indemnitor, if representation of such Indemnified Party by the
counsel retained by the Indemnitor would be inappropriate due to actual or
potential conflicts of interest between such Indemnified Party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the Indemnitor within a reasonable time of the commencement
of any such action, if prejudicial to the Indemnitor's ability to defend such
action, shall relieve the Indemnitor of any liability to the Indemnified
Party under this Section 9, but the omission to so deliver written notice to
the Indemnitor will not relieve it of any liability that it may have to any
Indemnified Party other than under this Section 9 to the extent it is
prejudicial.
[INTENTIONALLY LEFT BLANK]
10. ACCREDITED INVESTOR. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3)
of the Internal Revenue Code, or a corporation, limited
duration company, limited liability company, business
trust, or partnership not formed for the specific purpose
of acquiring the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and experience
in financial and business matters that he is capable of
evaluating the merits and risks of the prospective
investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a
director, executive officer or general partner of a
general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the
same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could
check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify]
-----------------------------------------.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 15th day of August, 2000.
XXXXXX PRIVATE EQUITY, LLC
By: /s/ Xxxx X. Xxxxxx, Manager
-----------------------------
Xxxx X. Xxxxxx, Manager
SECURITY DELIVERY INSTRUCTIONS:
Xxxxxx Private Equity, LLC
X/x Xxxx X. Xxxxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
0000 Xxxxxxx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 15TH DAY OF AUGUST, 2000.
XXXXXXXXXXXXXXXX.XXX
By: /Xxxxxx Xxxx
--------------------------------
Xxxxxx Xxxx, CEO
Address: Attn: Xxxxxx Xxxx, CEO
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
ADVANCE PUT NOTICE
XXXXXXXXXXXXXXXX.XXX (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Xxxxxx Private Equity, LLC dated on
or about August 15, 2000.
Date of Advance Put Notice: ___________________
Intended Put Date: ____________________________
Intended Put Share Amount: ____________________
Company Designation Maximum Put Dollar Amount (Optional):
_______________________________________________
Company Designation Minimum Put Share Price (Optional):
_______________________________________________
XXXXXXXXXXXXXXXX.XXX
By:
-------------------------------
Xxxxxx Xxxx, CEO
Address: Attn: Xxxxxx Xxxx, CEO
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT E
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
XXXXXXXXXXXXXXXX.XXX's (the "Company") Advance Put Notice on the Advance Put
Date written below, and its intention to elect to exercise a Put to sell shares
of common stock ("Intended Put Share Amount") of the Company to the Investor, as
of the intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Xxxxxx
Private Equity, LLC dated on or about August 15, 2000.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
_______________________________________________
Company Designation Minimum Put Share Price (Optional):
_______________________________________________
INVESTOR(S)
____________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT F
PUT NOTICE
XXXXXXXXXXXXXXXX.XXX (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Xxxxxx Private Equity, LLC dated on or about August 15, 2000.
Put Date:_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
____________________________________
Company Designation Minimum Put Share Price (Optional):
____________________________________
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
XXXXXXXXXXXXXXXX.XXX
By:
______________________________
Xxxxxx Xxxx, CEO
Address: Attn: Xxxxxx Xxxx, CEO
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT G
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
xxxxxxxxxxxxxxxx.xxx (the "Company") Put Notice and election to exercise a Put
to sell ___________________________ shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company and
Xxxxxx Private Equity, LLC dated on or about August 15, 2000.
Date of this Confirmation: ________________
Put Date:________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ___________________________________
___________________________________
___________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT H
PUT CANCELLATION NOTICE
XXXXXXXXXXXXXXXX.XXX (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Xxxxxx Private Equity, LLC dated on or about August
15, 2000, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice is
delivered to the Investor), provided that such cancellation shall not apply to
the number of shares of Common Stock equal to the Truncated Put Share Amount (as
defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective
Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
XXXXXXXXXXXXXXXX.XXX
By:
________________________________
Xxxxxx Xxxx, CEO
Address: Attn: Xxxxxx Xxxx, CEO
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the xxxxxxxxxxxxxxxx.xxx's, and Xxxxxx Private
Equity, LLC dated on or about August 15, 2000, hereby confirms receipt of
xxxxxxxxxxxxxxxx.xxx's (the "Company") Put Cancellation Notice, and confirms the
following:
Date of this Confirmation: ________________
Put Cancellation Date: ___________________
INVESTOR(S)
____________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
90
EXHIBIT C
XXXXXXXXXXXXXXXX.XXX, INC.
EXHIBIT C: SCHEDULE OF EXCEPTION
91
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This SCHEDULE OF EXCEPTIONS is issued pursuant to Section 5:
Representations and Warranties of the Company, of that certain INVESTMENT
AGREEMENT (the "Agreement") entered into as of August 15, 2000 by and between
XXXXXX PRIVATE EQUITY, LLC and xxxxxxxxxxxxxxxx.xxx, Inc. (the "Company"), with
headquarters located at 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000 Xxxxxxx Xxxxx,
Xxxxxxxxxx 00000 and the investor (the "Investor") set forth on the execution
page of said Agreement.
SECTION 5.2 CORPORATE CONDITION
The Company has been named as a cross-defendant in a cross-complaint
filed by Xxxxxxx Xxxxxxx in an action pending in the Superior Court State of
California for the County of Xxx Xxxxxxxxx, Xxxx Xx. 000000. This action was
initiated by Biologix International, Ltd. against Xxxxxxx Xxxxxxx on October 22,
1999 alleging causes of action against Xxxxxxx Xxxxxxx for: (1) temporary
restraining order and preliminary and permanent injunction; (2) breach of
fiduciary duty; (3) fraud by intentional misrepresentation; (4) conversion; (5)
possession of personal property; (6) declaratory relief; and (7) accounting. The
claims alleged by Biologix International, Ltd. relate to the actions and conduct
of Xx. Xxxxxxx while an officer and director of Biologix International, Ltd.
xxxxxxxxxxxxxxxx.xxx is named as a cross-defendant in the cross-complaint of
Xxxxxxx Xxxxxxx in a cause of action for breach of contract based upon an
alleged employment agreement between Xxxxxxx Xxxxxxx and Biologix International
Ltd. Xx. Xxxxxxx claims that this alleged employment agreement is the
responsibility of xxxxxxxxxxxxxxxx.xxx based upon xxxxxxxxxxxxxxxx.xxx's
purchase of the internet related assets of Biologix International Ltd.
xxxxxxxxxxxxxxxx.xxx was served with the cross-complaint on December 14, 1999.
Xx. Xxxxxxx seeks $400,000 in damages and options to purchase one million shares
of Biologix stock
The Company has received correspondence from the SEC alleging that
certain actions taken by BioLogix, Inc. (the owner of xxxxxxxxxxxxxxxx.xxx
website prior to its acquisition in July, 1999), Innovative Tracking Solutions,
Inc. ("IVTX") (the previous name of xxxxxxxxxxxxxxxx.xxx) and
xxxxxxxxxxxxxxxx.xxx, Inc. may have been in violation of applicable federal and
state securities laws. These allegations include the unavailability of an
exemption from registration for the exchange of shares by the BioLogix
shareholders. While the Company has provided correspondence to the SEC denying
these allegations and providing an explanation regarding why the Company
believes its actions were in compliance with applicable securities laws, the SEC
has indicated that it continues to disagree with the Company's position.
SECTION 5.2.1 TRANSACTIONS WITH AFFILIATES
The Company has a Consulting Agreement with Xxxxxxx Xxxx, a director of
the Company, whereby, for a one time payment of 22,000 shares of common stock of
the Company, Xx. Xxxx assists the Company in locating, negotiating, and managing
its financing.
SECTION 5.5 COMPLIANCE WITH OTHER INSTRUMENTS
92
EXHIBIT C
The Bylaws of the Company require the Company to hold an annual meeting
within five months after each fiscal year end. The annual meeting that
should have been held by May 31, 2000 has been tentatively scheduled for
October 12, 2000.
SECTION 5.7 CAPITALIZATION
The Company is obligated to register, along with the registration of the shares
contemplated by the Agreement, the following shares:
Investors in 506 Offering 5,072,040 shares
(approximately 105 investors)
Laguna Pacific Partners, L.P. 2,500,000 shares
And the following shares issuable upon the exercise of a common stock warrant:
Institute for Medical Studies 1,200,000 shares
Investors in 506 Offering 5,093,469 shares
(approximately 105 investors)
Xxx Xxxx and Xxxxx Xxxx 1,579,000 shares
93
EXHIBIT C
XXXXXXXXXXXXXXXX.XXX, INC.
EXHIBIT J: RISK FACTORS
94
EXHIBIT J
RISK FACTORS
THE SECURITIES TO BE SOLD PURSUANT TO THIS INVESTMENT AGREEMENT ARE VERY
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. THESE SECURITIES SHOULD BE
PURCHASED ONLY BY PEOPLE WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
BEFORE PURCHASING THESE SECURITIES, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS AND THE OTHER INFORMATION CONCERNING XXXXXXXXXXXXXXXX.XXX AND ITS
BUSINESS CONTAINED IN THIS PROSPECTUS.
XXXXXXXXXXXXXXXX.XXX HAS Xxxxxxxxxxxxxxxx.xxx commenced implementation of
ONLY A LIMITED OPERATING its current business plan during the fourth
HISTORY AND IS INCURRING quarter of 1999. Prior to July 1999 the assets
LOSSES FROM ITS OPERATIONS. currently comprising the internet site had been
owned and operated by BioLogix, Inc. In April
1999, BioLogix launched the website deploying a
business plan relying upon the
advertising-based revenue model as many other
healthcare websites such as Healtheon and
XxXxxx.xxx were doing. During the third quarter
of 1999, our management began to conclude that
an advertising-based revenue model could not
sustain profitable operations as the marketing
budgets necessary to attract advertisers
exceeded the revenues produced by these
advertisers. xxxxxxxxxxxxxxxx.xxx management
believes this failure was because the marketing
budgets needed to attract advertisers exceeded
the revenues produced by these advertisers. As
a result, in July of 1999 xxxxxxxxxxxxxxxx.xxx
commenced deployment of the new business plan
described in this prospectus. This new business
plan has virtually no operating history and its
financial success will be subject to all the
risks inherent in the establishment of a new
business enterprise. Additionally,
xxxxxxxxxxxxxxxx.xxx has operated at a loss for
all of the periods for which financial
statements are presented in this prospectus.
The likelihood of success of
xxxxxxxxxxxxxxxx.xxx must be considered in the
light of the problems, expenses, difficulties,
complications, and delays frequently
encountered in connection with the startup and
growth of a new business, and the competitive
environment in which xxxxxxxxxxxxxxxx.xxx
operates. Unanticipated problems, expenses, and
delays are frequently encountered in
establishing a new business and marketing and
developing internet based products and
services. These include competition, the need
to develop customer support capabilities and
market expertise, setbacks in technology
development, market acceptance, sales, and
marketing. An additional risk factor associated
with this new business plan is that some of the
proposed strategies have never been implemented
and thus it would be speculative to predict
whether such strategies will ever be
successful. The failure of xxxxxxxxxxxxxxxx.xxx
to meet any of these conditions will have a
materially adverse effect upon our business and
may force us to reduce or curtail operations.
We cannot assure you that the company will ever
operate profitably. See "Management's
Discussion and Analysis of Financial Condition
and Results of Operations," and "Our
Business-Competition."
FEDERAL INCOME TAX RISKS. The transfer of Shares may have adverse federal
income tax consequences to the transferor. Each
prospective investor must obtain the advice of
the investor's own tax advisor concerning the
matters discussed in this Memorandum and the
effect of an investment in the Company on the
investor's personal tax situation.
THERE IS INTENSE The online commerce industry is new, rapidly
COMPETITION IN THE ON-LINE evolving and intensely competitive, which we
HEALTHCARE BUSINESS. expect to intensify in the future. Barriers to
entry are minimal, allowing current and new
competitors to launch new Web sites at a
relatively low cost. We compete with other
companies which have health care websites. These
competitors include WebMD, XxXxxx.xxx,
InteliHealth, OnHealth, and XxxxXxxxxx.xxx. These
competitors have longer operating histories,
larger customer bases, greater brand name
recognition and significantly greater financial,
marketing and other resources than we do. In
addition, other companies may be acquired by,
receive investments from or enter into other
commercial relationships with larger, well-
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EXHIBIT J
established and well-financed companies as
use of the Internet and other online services
increases. Our competitors may be able to devote
greater resources to marketing and promotional
campaigns, and devote substantially more resources
to Web site and systems development than we can.
We cannot assure you that we will be able to
compete successfully against current and future
competitors, and competitive pressures may have a
material adverse effect on our business,
prospects, financial condition and results of
operations. Further as a strategic response to
changes in the competitive environment, our
management may, from time to time, make certain
service or marketing decisions or acquisitions
that could have a material adverse effect on its
business, prospects, financial condition and
results of operations. New technologies and the
expansion of existing technologies may increase
the competitive pressures on xxxxxxxxxxxxxxxx.xxx.
In addition, companies that control access to
transactions through network access or Web
browsers could promote our competitors or charge
us a substantial fee for inclusion. See "Business
of the Company-Competition."
ELECTRONIC COMMERCE The secure transmission of confidential
SECURITY RISKS information over public networks is critical to
electronic commerce. The Company's systems and
operations are vulnerable to damage or
interruption from fire, flood, other natural
disasters, power loss, telecommunications
failure, break-ins and similar events. If a
person circumvents the Company's security
measures, he or she could jeopardize the
security of confidential information stored on
the Company's systems, misappropriate
proprietary information or cause interruptions
in the Company's operations, which could damage
the Company's reputation and expose the Company
to a risk of loss or liability.
THERE IS A RISK OF SYSTEM The ability to provide timely information and
FAILURE FOR OUR WEBSITE. continuous updates depends on the efficient and
uninterrupted operation of our computer and
communications hardware and software systems.
Similarly, the ability to track, measure, and
report the delivery of advertisements, data and
other information on our website depends on the
efficient and uninterrupted operation of our
system. These systems and operations are
vulnerable to damage or interruption from human
error, natural disasters, telecommunication
failures, break-ins, sabotage, computer
viruses, intentional acts of vandalism and
similar events. We have a disaster recovery
plan that generates a two week tape rotation
and full backup for all tape devices.
Historical data requiring long term storage
will be backed up by CD-Rom. Two copies will be
made for each archive created. Data on the
local area network is backed up to a tape drive
on a nightly basis. Additionally, we have a
state of the art network that is designed to
run 24 hours a day, seven days a week. Drives
in the servers can be switched without shutting
down the system. Backup generators are in place
that will enable the network to shut down
properly in the event of total power loss. The
network can run independently for up to ten
minutes of a xxxxx out. Despite these
precautions, there is always the danger that
human error or sabotage could substantially
disrupt our web site which could cause a loss
of visitors to our site, damage to our systems,
and bad publicity.
WE MAY ACQUIRE BUSINESSES We may acquire companies with operations that
THAT ARE SUBJECT TO are subject to regulation by federal agencies and
GOVERNMENTAL REGULATIONS various state, local and private consumer
protection and other regulatory authorities.
There can be no assurance that any such regulatory
requirements will not have a material adverse
effect on our business, financial condition or
results of operations.
TECHNOLOGICAL CHANGE Although the Company is aware of no pending or
prospective technological change that would
adversely affect its business, new developments
in technology could have a material adverse
affect on the sale of some or all of the
Company's services or products or render its
services noncompetitive or obsolete, and there
can be no
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EXHIBIT J
assurance that the Company will be able to
develop or acquire new or improved services or
systems which may be required to remain
competitive. The occurrence of such technogical
change could have a material adverse affect on
the Company.
OUR BUSINESS IS DEPENDENT The Internet based information market is new and
ON THE CONTINUED GROWTH AND rapidly evolving. Our business would be
USE OF THE INTERNET, AS materially adversely affected if Internet usage
WELL AS THE EFFICIENT does not continue to grow or grows slower than
OPERATION OF THE INTERNET. currently projected. Internet usage may be
inhibited for a number of reasons, such as:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- unavailability of cost-effective, high-
speed access to the Internet.
Our website viewers depend on Internet service
providers, online service providers and other web
site operators for access to our website. Many of
these services have experienced significant
service outages in the past and could experience
service outages, delays, and other difficulties
due to system failures unrelated to our systems.
These occurrences could cause our viewers to
perceive the Internet in general or our web site
in particular as an unreliable medium and,
therefore, cause them to use other media or other
websites to obtain information. We also depend on
certain information providers to deliver
information and data feeds on a timely basis. Our
web site could experience disruptions or
interruptions in service due to the failure or
delay in the transmission or receipt of this
information, which could have a material adverse
effect on our business, results of operations, and
financial condition.
THERE ARE CURRENTLY LEGAL Certain existing laws or regulations specifically
UNCERTAINTIES RELATING TO regulate communications or commerce on the
THE INTERNET Internet. Further, laws and regulations that
address issues such as user privacy, pricing,
online content regulation, taxation and the
characteristics and quality of online products
and services are under consideration by
federal, state, local, and foreign governments
and agencies. Several telecommunications
companies have petitioned the Federal
Communications Commissioner to regulate
Internet service providers and online services
providers in a manner similar to the regulation
of long distance telephone carriers and to
impose access fees on such companies. Such
regulation, if imposed, could increase the cost
of transmitting data over the Internet.
Moreover, it may take years to determine the
extent to which existing laws relating to
issues such as intellectual property ownership
and infringement, libel, and personal privacy
are applicable to the Internet. The Federal
Trade Commission and government agencies in
certain states have been investigating certain
Internet companies regarding their use of
personal information. We could incur additional
expenses if any new regulations regarding the
use of personal information are introduced or
these agencies chose to investigate our privacy
practices. Any new laws or regulations relating
to the Internet, or certain application or
interpretation of existing laws, could decrease
the growth in the use of the Internet, decrease
the demand for the our web site or otherwise
materially adversely affect our business.
INTERNET SECURITY CONCERNS Concern about the transmission of confidential
COULD HINDER INTERNET USE. information over the Internet has been a
significant barrier to electronic commerce and
communications over the Internet. Any
well-publicized compromise of security could
deter more people from using the Internet or
from using it to conduct transactions that
involve the transmission of confidential
information, such as personal health related
information, signing up for a paid
subscription, or purchasing goods or services.
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EXHIBIT J
Because many of our advertisers will seek to
advertise on our web site to encourage people
to use the Internet to purchase goods or
services, our business, results of operations,
and financial condition could be materially
adversely affected if Internet users
significantly reduce their use of the Internet
because of security concerns. We may also incur
significant costs to protect our website
against the threat of security breaches or to
alleviate problems caused by such breaches.
XXXXXXXXXXXXXXXX.XXX Our success depends, to a significant extent,
DEPENDS ON KEY PERSONNEL upon a number of key employees, including our
FOR CRITICAL MANAGEMENT President, Xxxxxx Xxxx, and our Vice President,
DECISIONS. Chief Operations Officer, Secretary, and Chief
Financial Officer, Xxxxxx Xxxxxxxx. The loss
of services of one or more of these employees
could have a material adverse effect on our
business. We believe that our future success
will also depend in part upon our ability to
attract, retain, and motivate qualified
personnel. Competition for such personnel is
intense. There can be no assurance that we can
attract and retain such personnel. We do not
have "key person" life insurance on any of our
employees. See "Management."
XXXXXXXXXXXXXXXX.XXX MAY Our business is capital intensive. Our future
REQUIRE ADDITIONAL capital requirements will depend on many factors,
FINANCING FOR ITS BUSINESS. including cash flow from operations,competing
market developments, and our ability to market
our website successfully. Although we currently
expect to meet our capital needs by selling
stock to Xxxxxx Private Equity, LLC, it may be
necessary to raise additional funds through
equity or debt financings. Any equity
financings could result in dilution to our
shareholders. Debt financing may result in
higher interest expense. Any financing, if
available, may be on unfavorable terms. If we
cannot raise adequate funds, we may have to
reduce or curtail our operations.
XXXXXXXXXXXXXXXX.XXX'S xxxxxxxxxxxxxxxx.xxx's common stock is quoted
COMMON STOCK IS CURRENTLY and traded on the Over-the-Counter Pink Sheets
CLASSIFIED AS A "XXXXX ("Bulletin Board"). As a result, aninvestor
STOCK" WHICH COULD CAUSE could find it more difficult to dispose of, or
INVESTORS TO EXPERIENCE to obtain accurate quotations as to the market
DELAYS AND OTHER value of, the stock ascompared to securities
DIFFICULTIES IN TRADING which are traded on the NASDAQ trading market or
SHARES IN THE STOCK MARKET on an exchange. In addition, trading in the
common stockis covered by what is known as the
"Xxxxx Stock Rules." The Xxxxx Stock Rules
require brokers to provide additional
disclosure in connection with any trades
involving a stock defined as a "xxxxx stock,"
including the delivery, prior to any xxxxx
stock transaction, of a disclosure schedule
explaining the xxxxx stock market and the risks
associated therewith. The regulations governing
xxxxx stocks could limit the ability of brokers
to sell the shares offered in this prospectus
and thus the ability of the purchasers of this
Offering to sell these shares in the secondary
market. Our stock will be covered by the Xxxxx
Stock Rules until it has a market price of
$5.00 per share or more, subject to certain
exceptions The trading price of our stock could
be subject to wide fluctuations in response to
quarterly variations in operating results,
announcement of technological innovations or
new products by us or our competitors, and
other events or factors. In addition, in recent
years the stock market has experienced extreme
price and volume fluctuations that have had a
substantial effect on the market prices for
many internet companies, which may be unrelated
to the operating performance of the specific
companies.
WE HAVE NEVER PAID xxxxxxxxxxxxxxxx.xxx has never paid dividends on
DIVIDENDS ON OUR COMMON its common stock and does not plan on paying cash
STOCK AND DON'T PLAN TO PAY dividends in the foreseeable future.
DIVIDENDS IN THE FUTURE.
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EXHIBIT J
INVESTORS WILL EXPERIENCE In many cases, our officers, directors, and
IMMEDIATE AND SUBSTANTIAL present shareholders have acquired their
DILUTION. securities at a cost substantially less than
that which investors will pay for the common
stock offered by this prospectus. As a result,
investors acquiring shares registered in this
prospectus will likely incur immediate,
substantial dilution in the net tangible book
value per share of the common stock. The net
tangible book value of a share represents the
amount of xxxxxxxxxxxxxxxx.xxx's tangible
assets less the amount of its liabilities,
divided by the number of shares outstanding.
THE PRICE OF THE SHARES The securities being offered in this prospectus
OFFERED HEREBY IS DEPENDENT are offered at the market price prevailing at
UPON THE PRICE IN THE the time of the offer. The market price of
PUBLIC MARKET WHICH WILL these securities may vary and may have a limited
FLUCTUATE. relationship, or no relationship, to our assets,
book value, results of operations, or other
established criteria of value. The offering
price also may not be indicative of the prices
that will prevail in the subsequent trading
market for our securities.
MOST OF OUR SHARES OF Adjusted for the anticipated one for three
COMMON STOCK OF WILL BECOME reverse stock split, as of July 28, 2000,
ELIGIBLE FOR PUBLIC SALE xxxxxxxxxxxxxxxx.xxx had outstanding 14,303,948
OVER THE NEXT YEAR WHICH shares that are classified as "restricted
COULD HAVE A DEPRESSIVE securities" as that term is defined under Rule
EFFECT ON THE STOCK. 144 of the Securities Act of 1933, as amended.
Most of these shares have been held by
shareholders for at least one year and may be
entitled to be sold under Rule 144. In
addition, we are registering (i) 31,250,000
shares and 4,275,000 shares underlying warrants
for Xxxxxx, (ii) 1,690,680 shares and 2,097,823
shares underlying warrants for other Selling
Shareholders, (ii) 526,333 shares for Xxx Xxxx
and Xxxxx Xxxx, and (iv) 833,333 shares
underlying warrants for Laguna Pacific
Partners, L.P.. If a significant number of
shares are offered for sale through the public
securities markets simultaneously, it would
have a depressive effect on the trading price
of common stock. See "Description of
Securities."
SPECIAL NOTE REGARDING Statements made in this prospectus regarding our
FORWARD LOOKING STATEMENTS. funding requirements and the timing of and
potential for our business constitute forward
looking statements under federal securities
laws. Such statements are subject to certain
risks and uncertainties that could cause the
rate at which we incur expenses and conducts
our business to differ materially from those
projected. Our ability to proceed with the
marketing and development of our business in
accordance with the dates anticipated is
subject to all of the risks discussed in this
prospectus and our ability to estimate the time
period for which revenues will fund our
operations is subject to substantial
uncertainty. Undue reliance should not be
placed on the dates and time periods discussed
in this prospects. These estimates are based on
the current expectations of our management
which may change in the future due to a large
number of unanticipated future developments.
WE MAY HAVE CONTINGENT We have engaged in a private placement of
LIABILITIES RESULTING FROM securities from September 1999 up to the date
OUR RECENT PRIVATE of this prospectus. During this period of time,
PLACEMENT. we sold securities to investors based on our most
recent closing price on the OTC Bulletin Board
or the Pink Sheets. The prices at which these
securities were sold fluctuated widely, based
on fluctuations in our closing prices. We
cannot preclude the possibility that an
investor or investors who purchased securities
in the private placement will claim that the
Company failed to fully disclose the fact that
fluctuation in the market for our stock would
cause adjustment in the price of the private
placement. We believe we fully disclosed this
risk. In the event any shareholder were to
successfully prosecute an action against us on
this issue, it may have severe and adverse
effects on the Company, including but not
limited to impacting our ability to continue as
a going concern.
WE MAY NEED ADDITIONAL We believe that the funds to be raised in this
CAPITAL. offering (assuming the successful completion of
a maximum offering), together with our revenues
will be sufficient to
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EXHIBIT J
provide us with capital sufficient to fund our
short-term needs. It is likely that we will be
required to raise additional capital. We cannot
assure you that the proceeds we receive from
Xxxxxx will, in fact, be available or if
available will be sufficient in the near term
or that conditions and circumstances may not
result in subsequent cash requirements by us,
or that future funds will be sufficient to
sustain operations and to meet growth. In the
event of such developments, attaining financing
under such conditions may not be possible, or
even if additional capital may be otherwise
available, the terms on which such capital may
be available may not be commercially feasible
or advantageous to us.
WE HAVE BEEN ADVISED BY THE We recently received correspondence from the
SECURITIES AND EXCHANGE Securities Exchange Commission alleging that the
COMMISSION (THE "SEC") exchange of BioLogix shares for shares of
THAT CERTAIN TRANSACTIONS xxxxxxxxxxxxxxxx.xxx may have constituted an
INVOLVING unregistered public offering in violation of
XXXXXXXXXXXXXXXX.XXX MAY applicable state and federal securities laws.
HAVE BEEN IN VIOLATION OF While we have provided correspondence to the SEC
THE SECURITIES LAWS. denying these allegations, the SEC has indicated
that it continues to disagree with our position.
If we have engaged in an unregistered public
offering, this would constitute a violation of
the Securities Act of 1933 and applicable state
laws and would make us potentially liable to
legal action by both the SEC and state security
regulators and our shareholders. In the event
any of these parties were to successfully
prosecute an action based on these allegations,
it would have a severe and adverse effect on
the Company. The Company may be required to pay
monetary damages and penalties and may be
subject to a court-imposed injunction, or may
be forced to enter into a consent decree with
the SEC. In the event, any of these events were
to occur it would likely immediately and
severely impact the Company, possibly impairing
our ability to continue as a going concern.
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EXHIBIT J
LITIGATION We have been named as a cross-defendant in a
cross-complaint filed by Xxxxxxx Xxxxxxx in an
action pending in the Superior Court State of
California for the County of Xxx Xxxxxxxxx,
Xxxx Xx. 000000. This action was initiated by
BioLogix International, Ltd. against Xxxxxxx
Xxxxxxx on October 22, 1999. The complaint of
BioLogix International, Ltd. alleges causes of
action against Xxxxxxx Xxxxxxx for: (1)
temporary restraining order and preliminary and
permanent injunction; (2) breach of fiduciary
duty; (3) fraud by intentional
misrepresentation; (4) conversion; (5)
possession of personal property; (6)
declaratory relief; and (7) accounting. The
claims alleged by BioLogix International, Ltd.
relate to the actions and conduct of Xx.
Xxxxxxx while an officer and director of
BioLogix International, Ltd. We are named as a
cross-defendant in the cross-complaint of
Xxxxxxx Xxxxxxx in a cause of action for breach
of contract based upon an alleged employment
agreement between Xxxxxxx Xxxxxxx and BioLogix
International Ltd. Xx. Xxxxxxx claims that
this alleged employment agreement is our
responsibility based upon our purchase of the
internet related assets of BioLogix
International Ltd. We were served with the
cross-complaint on December 14, 1999. Xx.
Xxxxxxx seeks $400,000 in damages and options
to purchase one million shares of BioLogix
stock. We have answered the cross-complaint
denying the allegations of Xx. Xxxxxxx. We
will aggressively defend against the claims
asserted by Xx. Xxxxxxx.
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EXHIBIT J
XXXXXXXXXXXXXXXX.XXX, INC.
EXHIBIT K: CAPITALIZATION SCHEDULE
EXHIBIT L: USE OF PROCEEDS
EXHIBIT M: INTELLECTUAL PROPERTY
EXHIBIT N: KEY EMPLOYEES
102
EXHIBIT K
XXXXXXXXXXXXXXXX.XXX, INC.
Capitalization Schedule
As of August 15 2000
Common Stock Outstanding on August 15, 2000 79,724,043
Warrants outstanding(1) 11,043,469
Shares reserved for issuance as a result of this Agreement 103,125,000
Shares reserved to be issued 1,579,000
Shares reserved for Stock Option Plan 5,000,000
Total Shares Outstanding and Reserved 198,687,775
Shares of Common Stock Authorized(2) 110,000,000
Shares of Preferred Stock Authorized None
(1) Includes 3,450,000 warrants already issued to Xxxxxx Private Equity, LLC
(2) At the next shareholder meeting in October 2000, the Company is asking its
shareholders to approve a three for one reverse stock split in October 2000 and
increase the authorized stock to 175,000,000.
103
EXHIBIT K
XXXXXXXXXXXXXXXX.XXX, INC.
Use of Proceeds
Repayments of Bridge Loans made by $500,000
Laguna Pacific Partners, L.P. and
Xxx Xxxx and Xxxxx Xxxx
Research and Development $9,500,000
Marketing $10,000,000
Other Working Capital $9,825,000
Expenses of Transaction and $175,000
Registration
TOTAL PROCEEDS $30,000,000.00
XXXXXXXXXXXXXXXX.XXX, INC.
Intellectual Property Schedule
TRADEMARKS
U.S. Trademark Application for xxxxxxxxxxxxxxxx.xxx Serial Number 75772466
U.S. Trademark Application for xxxxxxxxxxxxxxxx.xxx Serial Number 75772326
EXHIBIT M
XXXXXXXXXXXXXXXX.XXX, INC.
Key Employees
XXXXXX X. XXXX, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN. From 1995
through 1997, Xx. Xxxx was Marketing Consultant to Marketing Insights, Inc., a
new product development Company in Princeton, New Jersey. Prior to that he was
President of Avonwood Capital Corporation, Philadelphia, Pennsylvania, a Venture
Capital/Management Consulting firm; and President of Brilliant Enterprises,
Inc., Philadelphia, Pennsylvania, a dental products manufacturer. Xx. Xxxx was
also the former President and CEO of Clairol, Inc., a Division of Xxxxxxx-Xxxxx
Squibb, former Vice-President of Xxxxxxx-Xxxxx Squibb. Xx. Xxxx brings over 35
years of consumer products marketing and general management experience to the
Company.
XXXXXX X. XXXXXXXX, MA, CHIEF OPERATING OFFICER, VICE PRESIDENT, SECRETARY,
CHIEF FINANCIAL OFFICER, AND DIRECTOR. Xx. Xxxxxxxx was the co-founder and Vice
Chairman The IQ NOW Corporation, a deliverer of healthcare information on the
Internet from 1992 through 1999. Previously, he was a Regional Director of
Cardiology for Xxxxx Medical Group, former Director of Clinical Services at
Downey Community Hospital, and has been a hospital administrator for 20 years.
He was responsible for $70 million budget and manages over 200 employees. For 11
years he has been an instructor and director of medical technology at Coast
College. Xx. Xxxxxxxx is co-founder of the American College of Cardiovascular
Administrators. He has an Associate of Arts (Pre-Medicine) from Cerritos Junior
College (1971), a Bachelor of Science (Pre-Medicine) from the University of
California, Irvine (1973), and an Executive Masters Degree of Business
Administration from Pepperdine University (1990).
BALAZS XXXX XXXXX, M.D., DIRECTOR. From 1985 and continuing through the present,
Xx. Xxxxx is the Chief of Surgery at Xxxxxx Permanente Medical Center,
Sacramento, California. He is also President of B and B Medical Research
Technology, Inc., Sacramento, California; an Associate Clinical Professor of
Surgery at the University of California at Davis; a Consultant to COAT, Xxxxxxx
& Xxxxxxx, Newark, New Jersey; and a Senior Consultant to Sontek Medical, Inc.,
Higham, Massachusetts. "Xxxxx" holds a Bachelor of Science and Master of Science
Degrees from the School of Medicine at the University of California at Los
Angeles, and a Doctor of Medicine Degree from the University of California at
Davis. He is author and co-author of over 120 scientific and clinical
publications in various of the leading medical journals, author of a surgery
text book, and is well-recognized within the field of emergency and critical
care medicine.
XXXXXXX X. XXXX, PH.D., DIRECTOR. Xx. Xxxx holds an MBA and Ph.D. in Chemistry
from New York University. From September 1995 through the present, he is a
senior research analyst for X.X. Xxxxxxxx & Co., Inc. From 1991 through the
present, he is the President of Health Care Insights. Xx. Xxxx was Chicago
Corporation's senior medical advisor from 1991 to 1992. Xx. Xxxx was security
analyst for Xxxxxxx X. Xxxxxxxx & Co. from 1990 to 1991 and Vice-President of
Research for X.X. Xxxxxxxx & Co. from 1987 to 1990. From 1981 to 1987 he was
Vice-President of the Health Care Division of PA Consulting Services, Inc. of
London,
England, specializing in international technology and new product
surveillance, venture capital investment, acquisition studies, and
state-of-the-art for diverse areas of health care. During the 1970s, Xx. Xxxx
developed products and conducted research for General Foods, the Patient Care
Division of Xxxxxxx & Xxxxxxx Products, Inc., the Consumer Products Division
of Ortho Pharmaceutical Corporation; and staffed and supervised scientists
and engineers at the R&D laboratories for development of varied medical and
health care products within the Xxxxxxx & Xxxxxxx family of companies. Xx.
Xxxx holds several patents in the area of biosensor and disposable electrode
technology. He has published a number of articles on topics such as
biosensors, cancer therapy, biopharmaceuticals, drug infusion devices and
industrial biotechnology. Xx. Xxxx serves as a liaison with the investment
banking and scientific communities.
XXXXXX SONG, M.D., F.A.C.C., DIRECTOR. From 1994 through the present, Dr. Song
has his own practice in Interventional Cardiology. From 1991 through 1994, he
was an Interventional Cardiologist with Internal Medicine Specialists Medical
Group, Inc. He is a Lecturer and Moderator at Xxxxxx Foundation Hospitals. Dr.
Song is Clinical Assistant Professor of Medicine/Cardiology at the College of
Osteopathic Medicine of the Pacific in California and a member of the Teaching
Staff of the Family Practice Internship/Residency Program at Rio Hondo/Downey
Community Hospital, California. He is certified by the American Board of
Internal Medicine and the American Board of Cardiovascular Diseases. Dr. Song
received an A.B. in Physics from Washington University in St. Louis Missouri in
1982 and his M.D. from University of Missouri-Columbia School of Medicine in
1986.
EXHIBIT M
