EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 18,
1999, by and among The Ashton Technology Group, Inc., a Delaware corporation,
with headquarters located at 0000 Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxxxx, XX
00000 ("Company"), and each of the purchasers set forth on the signature pages
hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under 1933 Act;
B. The Company has authorized a new series of preferred stock, designated
as Series F Convertible Preferred Stock, par value $0.01 per share (the "Series
F Preferred Stock"), having the rights, preferences and privileges set forth in
the Certificate of Designations, Preferences and Rights attached hereto as
Exhibit "A" (the "Certificate of Designation");
C. The Series F Preferred Stock are convertible into shares of common
stock, $.01 par value per share, of the Company (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in the Certificate
of Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as Exhibit "B", to purchase Two Hundred Thousand
(200,000) shares of Common Stock (the "Warrants");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Twenty Thousand (20,000) shares of Series F Preferred Stock (such
shares, together with any Series F Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, being hereinafter collectively referred to as the "Preferred
Shares"), and (ii) Warrants to purchase Two Hundred Thousand (200,000) shares of
Common Stock, for an aggregate purchase price of Twenty Million Dollars
($20,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares and number of Warrants as is set
forth immediately below its name on the signature pages hereto;
G. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES
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AND WARRANTS.
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a. Purchase of Preferred Shares and Warrants. On and subject to
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the terms and conditions set forth in this Agreement, at the Closing (as defined
below), the Company shall issue and sell to the Buyers, and the Buyers severally
agree to purchase from the Company, an aggregate of Twenty Thousand (20,000)
Preferred Shares and an aggregate of Two Hundred Thousand (200,000) Warrants for
an aggregate purchase price of Twenty Million Dollars ($20,000,000) (the
"Purchase Price"). Each Buyer severally agrees to purchase from the Company
such number of Preferred Shares and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i)
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each Buyer shall pay the purchase price for the Preferred Shares and the
Warrants to be issued and sold to it at the Closing (as defined below) by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed
certificates representing such number of Preferred Shares and Warrants which
such Buyer is purchasing and (ii) the Company shall deliver such certificates
and Warrants duly executed on behalf of the Company, to such Buyer, against
delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
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conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares and the Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
August 18, 1999 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Xxxxxx, Xxxxx & Xxxxxxx LLP, 0000 Xxxxxx Xxxxxx,
Xxxxxxxxxxxx, XX 00000-0000 or at such other location as may be agreed to by the
parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
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not jointly) represents and warrants to the Company solely as to such Buyer
that:
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a. Investment Purpose. As of the date hereof, the Buyer is
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purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the terms of the Preferred Shares and the
Certificate of Designation (including, without limitation, such additional
shares of Common Stock as are issuable as a result of the events described in
Articles V, VI.D.(b) or VI.E of the Certificate of Designation and Section 2(c)
of the Registration Rights Agreement) (such shares of Common Stock being
collectively referred to herein as the "Conversion Shares") and the Warrants and
the shares of Common Stock issuable upon exercise of or otherwise pursuant to
the Warrants (the "Warrant Shares" and, collectively with the Preferred Shares,
Warrants and Conversion Shares, the "Securities") for its own account and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales registered or exempted from registration under the 1933 Act;
provided, however, that by making the representations herein, the Buyer does not
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agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor"
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as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities
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are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors or have obtained such
information from the SEC Documents (as defined below). The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and has received what the Buyer believes to be satisfactory answers to
such questions. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer has reviewed the Risk
Factors in the Company's Post-Effective Amendment No. 1 to Form SB-2 on Form S-3
filed with the SEC on June 3, 1999 and understands that its investment in the
Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United States
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federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
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f. Transfer or Re-sale. The Buyer understands that (i) except as
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provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be reasonably satisfactory to the
Company) to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor or (d) the Securities are
sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
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g. Legends. The Buyer understands that the Preferred Shares and the
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Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares and Warrant Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, reasonably satisfactory to the Company, that
registration is not required under said Act or unless sold pursuant to
Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to
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Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, reasonably satisfactory to the Company,
to the effect that a public sale or transfer of such Security may be made
without registration under the 1933 Act and such sale or transfer is effected or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus delivery
requirements, if any, or otherwise in compliance with the requirements for an
exemption from registration under the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
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Rights Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms, subject to the effect
of any applicable bankruptcy, insolvency, reorganization, or moratorium or
similar laws affecting the rights of creditors generally and the application of
general principles of equity.
i. Residency. The Buyer is a resident of the jurisdiction set forth
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immediately below such Buyer's name on the signature pages hereto.
j. No General Solicitation. Neither the Buyers nor any person acting
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on the Buyers' behalf (if any) has conducted any "general solicitation" as such
term is defined in Regulation D, with respect to any of the Securities offered
hereby.
k. No Brokers. The Buyer has taken no action which would give rise
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to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with International Corporate Development, Inc., WS Marketing
& Financial Services, Inc., Concorde Capital Corporation, Ltd. and AB Phoenix,
Inc., whose commissions and fees will be paid for by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
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represents and warrants to each Buyer with respect to itself and each of its
Subsidiaries (provided that, with regard to Xxxxx Advisers, Inc., any such
representations and warranties (other than the representations and warranties
contained in Sections 3(a), 3(c), 3(h), 3(i), 3(j) and 3(o) hereof) are made to
the best of the Company's knowledge) that:
a. Organization and Qualification. The Company and each of its
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Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority
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(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. Except as set forth on Schedule
3(a), the Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
on the transactions contemplated hereby or by the agreements or instruments to
be entered into in connection herewith or (iv) the authority or the ability of
the Company to perform its obligation under this Agreement, the Registration
Rights Agreement, the Certificate of Designation or the Warrants. "Subsidiaries"
means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any equity or
other ownership interest (but excluding X.Xxx International, Inc.).
b. Authorization; Enforcement. (i) The Company has all requisite
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corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into and perform this Agreement, the
Registration Rights Agreement and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company, the filing of the Certificate of Designation and the consummation by it
of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Preferred Shares and the Warrants and the
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares and the Warrant
Shares issuable upon exercise of or otherwise pursuant to the Warrants ) have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement and the Warrants and upon
execution and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization, or
moratorium or similar laws affecting the rights of creditors generally and the
application of general principles of equity.
c. Capitalization. As of the date hereof, the authorized capital
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stock of the Company consists of (i) 60,000,000 shares of Common Stock of which
24,761,233 shares are issued and outstanding, 8,115,750 shares are reserved for
issuance pursuant to the Company's stock option plans, 5,563,086 shares are
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 4,479,000 (2x currently required) shares are reserved
for issuance upon
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conversion of the Preferred Shares and exercise of the Warrants (subject to
adjustment pursuant to the Company's covenant set forth in Section 4(h) below);
and (ii) 3,000,000 shares of preferred stock, 590,000 of which are designated as
Series B Convertible Preferred Stock, of which 152,700 shares are issued and
outstanding, and of which 20,000 are designated as the Preferred Shares. All of
such outstanding shares of capital stock are, or upon issuance against
consideration therefor will be, duly authorized, fully paid, nonassessable and,
except as set forth on Schedule 3(c), validly issued. No shares of capital stock
of the Company are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. The authorized capital stock of each
Subsidiary, the number and type of shares of capital stock issued and
outstanding, and the number and type of shares of capital stock reserved for
issuance pursuant to stock option plans and pursuant to securities exercisable
for, convertible into or exchangeable for such shares of capital stock are set
forth on Schedule 3(c). Except as disclosed in Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into 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, (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 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company or its Subsidiaries
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Preferred Shares, the Warrants, the Conversion
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto and has provided the Buyers
similar information with respect to each Subsidiary. The Company shall provide
the Buyer with a written update of this representation signed by the Company's
President on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares are duly authorized and,
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upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof. The Conversion
Shares and Warrant Shares are duly authorized and reserved for issuance, and,
upon conversion of the Preferred Shares and exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid and non-
assessable, and free from all taxes, liens, claims and encumbrances and will not
be subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof.
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e. Acknowledgment of Dilution. The Company understands and
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acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares and upon issuance of the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. The Company's directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Preferred Shares or
exercise of the Warrants in accordance with this Agreement, the Certificate of
Designation and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Securities hereunder and under the Certificate of Designation
and the Warrants and the consummation of the transactions contemplated hereby
and thereby are in the best interests of the Company and its Stockholders.
f. Series of Preferred Stock. The terms, designations, powers,
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preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Shares) are as stated in the
Certificate of Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Preferred Shares are as stated in the
Certificate of Designation.
g. No Conflicts. The execution, delivery and performance of this
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Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the filing of the Certificate of
Designation and the issuance and reservation for issuance, as applicable, of the
Preferred Shares, Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, By-laws or its
respective other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could
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put the Company or any of its Subsidiaries in default) under, and neither the
Company nor any of its Subsidiaries has taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party or by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries, if any, are not being conducted, and shall not be conducted so
long as a Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity the failure to comply with which would,
individually or in the aggregate, have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or thereof or to
issue and sell the Preferred Shares and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Preferred Shares and the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. Except as disclosed in Schedule 3(g), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the
listing requirements of The Nasdaq SmallCap Market ("Nasdaq") and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq in
the foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
h. SEC Documents; Financial Statements. Since March 31, 1997, the
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Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has made available to
each Buyer true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. As of their respective dates and except as
disclosed on Schedule 3(h) attached hereto, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). As of their respective dates, and except as disclosed on Schedule
3(h) attached hereto, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Except as disclosed on
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Schedule 3(h) attached hereto, such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to March
31, 1999 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company.
i. Absence of Certain Changes. Since March 31, 1999, there has been
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no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim,
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proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(j) contains a complete list and summary description of any pending or, to the
Company's knowledge, threatened proceeding against or affecting the Company or
any of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
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k. Patents, Copyrights, etc.
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(i) The Company and each of its Subsidiaries owns or possesses
the requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(k) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule 3(k)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
(ii) To the best of the Company's knowledge, all of the
Company's computer software and computer hardware, and other similar or related
items of automated, computerized or software systems that are used or relied on
by the Company in the conduct of its business or that were, or currently are
being, sold or licensed by the Company to customers (collectively, "Information
Technology"), are Year 2000 Complaint. For purposes of this Agreement, the term
"Year 2000 Compliant" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be used prior to,
during and after the calendar Year 2000 A.D., and the Information Technology
used during each such time period will accurately receive, provide and process
date and time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap-year calculations, and will not malfunction, cease
to function, or provide invalid or incorrect results that would have a Material
Adverse Effect as a result of the date or time data, to the extent that other
information technology, used in combination with the Information Technology,
properly exchanges date and time data with it.
l. No Materially Adverse Contracts, Etc. Neither the Company nor any
------------------------------------
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is currently expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is currently expected in the future to have a Material Adverse
Effect.
m. Tax Status. Except as set forth on Schedule 3(m), the Company and
----------
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax
-11-
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books provisions
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. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on Schedule 3(m), none of the Company's
tax returns is presently being audited by any taxing authority.
n. Certain Transactions. Except as set forth in the SEC Documents
--------------------
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction, with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case, which would be
required to be disclosed by the Company in its public filings under the 1934
Act.
o. Disclosure. All information relating to or concerning the Company
----------
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but under applicable law, rule or
regulation, requires public disclosure or announcement by the Company (assuming
for this purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
p. Acknowledgment Regarding Buyers' Purchase of Securities. The
-------------------------------------------------------
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company
-12-
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and that any statement made by any Buyer or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Buyers' purchase of the
Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
q. 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 security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. No Brokers. The Company has taken no action which would give rise
----------
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with International Corporate Development, Inc., WS Marketing
& Financial Services, Inc., Concorde Capital Corporation, Ltd. and AB Phoenix,
Inc., whose commissions and fees will be paid for by the Company.
s. Permits; Compliance. The Company and each of its Subsidiaries is
-------------------
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those the failure of which to possess would
not, individually or in the aggregate, have a Material Adverse Effect
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since March 31, 1999, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
t. Environmental Matters. Except as set forth in Schedule 3(t) and
---------------------
except with regard to such violations that would not, individually or in the
aggregate, have a Material Adverse Effect, there are, to the Company's
knowledge, with respect to the Company or any of its
-13-
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
u. Title to Property. Neither the Company nor its Subsidiaries owns
-----------------
any real property. The Company and its Subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(u) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
v. Insurance. The Company and each of its Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
w. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability
-14-
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its
-------------------------
Subsidiaries, nor to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary has,
in the course of his 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; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
y. Solvency. The Company (both before and after giving effect to the
--------
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
----
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. No Investment Company. The Company is not, and upon the issuance
---------------------
and sale of the Securities as contemplated by this Agreement and the Certificate
of Designation will not be an "investment company" required to be registered
under the Investment Company Act of 1940 (an "Investment Company"). The Company
is not controlled by an Investment Company.
aa. No General Solicitation. Neither the Company nor any person
-----------------------
acting on the Company's behalf (if any) has conducted any "general solicitation"
as such term is defined in Regulation D, with respect to any of the Securities
being offered hereby.
4 COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to satisfy
------------
timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
---------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such
-15-
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "blue sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to each Buyer on or prior to the Closing
Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's
---------------------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the sale
---------------
of the Preferred Shares and the Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries) or for the redemption or
repurchase of any of its, or its Subsidiaries', capital stock.
e. Additional Equity Capital; Right of First Refusal. Subject to the
-------------------------------------------------
exceptions described below, the Company will not, without the prior written
consent of a majority-in-interest of the Buyers, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) during the period (the "Lock-up Period") beginning on the
Closing Date and ending one-hundred and eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending one-
hundred and eighty (180) days after the end of the Lock-up Period, unless it
shall have first delivered to each Buyer, at least fifteen (15) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith,
and providing each Buyer an option during the ten (10) day period following
delivery of such notice to purchase its pro rata share (based on the ratio that
the number of Preferred Shares purchased by it hereunder bears to the aggregate
number of Preferred Shares purchased hereunder) of the securities being offered
in the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event
the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and
-16-
conditions of the proposed Future Offering and each Buyer thereafter shall have
an option during the ten (10) day period following delivery of such new notice
to purchase its pro rata share of the securities being offered on the same terms
as contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 0000 Xxx) or (ii) issuances of securities as consideration for a
merger, consolidation or purchase 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. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by a majority of disinterested directors of the Company. The
Capital Raising Limitations also shall not apply to the payment by the Company
for services rendered, in stock or any other stock compensation arrangement
approved by a majority of the disinterested members of the Board of Directors of
the Company.
f. Expenses. The Company shall pay Xxxx Xxxx Capital Management,
--------
L.P. ("Xxxx Xxxx") at the Closing, a non-accountable expense allowance equal to
Forty Thousand Dollars ($40,000) for all expenses incurred by Xxxx Xxxx in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement, the review of the Registration Statement and
other matters contemplated by the Registration Rights Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses and travel expenses.
g. Financial Information. The Company agrees to send the following
---------------------
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB or Form 10-K, its Quarterly Reports on Form 10-
QSB or Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day
after release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
---------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection with the
Preferred Shares (based on the lesser of the Market Price in effect from time
to time and the Fixed Conversion Price in effect from time to time (each as
defined in the Certificate of Designation)) and as otherwise required by the
Certificate of Designation and the full exercise of the Warrants and issuance of
the Warrant Shares in connection therewith (based on the
-17-
Exercise Price (as defined in the Warrants) of the Warrants in effect from time
to time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of or otherwise pursuant to the Preferred
Shares and upon exercise of or otherwise pursuant to the Warrants without the
consent of each Buyer. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance at no
less than two (2) times the number that is then actually issuable upon full
conversion of the Preferred Shares and exercise of the Investment Options
thereunder (based on the lesser of the Market Price in effect from time to time
and the Fixed Conversion Price in effect from time to time (each as defined in
the Certificate of Designation)) and full exercise of the Warrants (based on the
Exercise Price (as defined in the Warrants) of the Warrants in effect from time
to time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the terms of the Preferred
Shares and the Certificate of Designation (based on the lesser of the Market
Price in effect from time to time and the Fixed Conversion Price in effect from
time to time (each as defined in the Certificate of Designation) and the
aggregate number of Warrant Shares issued and issuable upon exercise of the
Warrants (based on the Exercise Price (as defined in the Warrants) of the
Warrants in effect from time to time), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain stockholder approval of an increase in such
authorized number of shares.
i. Listing. The Company shall promptly secure the listing of the
-------
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of or otherwise pursuant to
the terms of the Preferred Shares and the Certificate of Designation or upon
exercise of or otherwise pursuant to the Warrants. The Company will obtain and,
so long as any Buyer owns any of the Securities, maintain the listing and
trading of its Common Stock on Nasdaq, the Nasdaq National Market ("NNM"), the
New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from Nasdaq and any
other exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems; provided, however, that if the disclosure of
-------- -------
such information would make any Buyer an "insider," no such disclosure shall be
made unless such Buyer consents in writing to such disclosure.
-18-
j. Corporate Existence. So long as a Buyer beneficially owns any
-------------------
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the successor or acquiring entity and, if an entity
different from the successor or acquiring entity, the entity whose capital stock
or assets the holders of the Common Stock are entitled to receive as a result of
such transaction, in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith (including the Certificate of Designation) and (ii) is a publicly
traded corporation whose Common Stock is listed for trading on Nasdaq, NNM, NYSE
or AMEX.
k. No Integration. The Company shall not make any offers or sales of
--------------
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of Securities to be integrated with any other offering
of securities by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.
l. Trading in Common Stock. Buyers shall conduct sales of Common
-----------------------
Stock in compliance with all applicable federal and state securities laws and
rules or regulations promulgated thereunder. Buyers will not under any
circumstances create any daily low trading prices in the Common Stock or conduct
sales in a manner intended to manipulate the Common Stock price. Prior to the
Closing Date, the Buyer will not establish any long or short position in the
Common Stock.
5 TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and Warrant Shares under the 1933 Act
or the date on which the Conversion Shares or Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights
-19-
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Buyer provides the Company with (i) an opinion of counsel,
reasonably satisfactory to the Company, to the effect that a public sale or
transfer of such Securities may be made without registration under the 1933 Act
and such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates,
free from any restrictive legend, in such name and in such denominations as
specified by such Buyer.
6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
----------------------------------------------
the Company hereunder to issue and sell the Preferred Shares and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware.
d. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
-20-
7 CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
-------------------------------------------------
each Buyer hereunder to purchase the Preferred Shares and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
-21-
b. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares and Warrants in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
d. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the President of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer including, but
not limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
f. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
g. Trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
h. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
8 GOVERNING LAW; MISCELLANEOUS.
----------------------------
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a. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed in the State of Delaware (without regard to principles
of conflict of laws). Both parties irrevocably consent to the jurisdiction of
the United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law. Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts; Signatures by Facsimile. This Agreement may be
-------------------------------------
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States
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mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
The Ashton Technology Group, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esquire
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx, Esquire
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction (so long as the transferee is not a direct business competitor of
the Company or its Subsidiaries) from a Buyer or to any of its "affiliates," as
that term is defined under the 1934 Act, without the consent of the Company.
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h. Third Party Beneficiaries. This Agreement is intended for the
-------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. All representations and warranties set forth in
--------
Sections 2 and 3 hereof shall survive the Closing until the later of (i) the
expiration of the applicable statute of limitations and (ii) the Automatic
Conversion Date (as defined in the Certificate of Designation) and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the
---------
right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
-------- -------
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to each Buyer by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce
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specifically the terms and provisions of this Agreement, without the necessity
of showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx
President
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 20,000
Number of Warrants: 200,000
Aggregate Purchase Price: $20,000,000
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