EXHIBIT 10.1
MEDICAL INDUSTRIES OF AMERICA, INC.
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 21ST day of July, 1999, by and between Medical
Industries of America, Inc., a corporation duly organized and existing under the
laws of the State of Florida (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 Twenty Five
Million Dollars ($25,000,000) (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 5.26.
"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 6.5.
"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 2.6.3(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 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.6.1.
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"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 on the Nasdaq Small Cap Market, or the
Nasdaq National Market, whichever is then the principal securities exchange or
trading market for such security, or, if neither the Nasdaq Small Cap Market nor
the Nasdaq National Market is the principal securities exchange or trading
market for such security, the last closing bid price 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 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 2.7.
"Commitment Warrants" shall have the meaning set forth in Section 2.7.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.7.
"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 Medical Industries of America, Inc., a corporation
duly organized and existing under the laws of the State of Florida.
"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
2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.4.
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"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 Nasdaq Small Cap Market, the Nasdaq National Market, the American
Stock Exchange, the O.T.C. Bulletin Board, 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
2.6
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Escrow Agreement" shall have the meaning set forth in Section 2.3.1(f).
"Escrow Agent" shall have the meaning set forth in Section 2.3.1(f).
"Evaluation Day" shall have the meaning set forth in Section 2.3.7(b).
"Equity Securities" shall have the meaning set forth in Section 6.6.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.7(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"First Pricing Date" shall have the meaning set forth in Section 2.3.1(d).
"First Pricing Period" shall have the meaning set forth in Section
2.3.1(d).
"First Put Limit" shall have the meaning set forth in Section 2.3.1(b).
"First Volume Limitation" shall have the meaning set forth in Section
2.3.1(b).
"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)
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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 2.2.3.
"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 5.18, 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,
and/or replacement warrants and options, 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 $100,000 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
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(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. Notwithstanding the
above, the following transaction shall not be deemed to be a Major Transaction:
the effectuation of that certain stock exchange agreement between the Company
and American Enterprise Solutions, Inc. to close prior to December 31, 1999.
"Market Price" shall equal the lowest intra-day trade price for the Common
Stock on the Principal Market during the ten (10) Business Days immediately
preceding the applicable Pricing Date.
"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) $5 million.
"Maximum Offering Amount" shall mean Twenty Five Million Dollars
($25,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"NYSE" shall have the meaning set forth in Section 6.10.
"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.
"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, the Registration Opinion and the
Purchase Warrant Opinion of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Dates" shall have the meaning set forth in Section 2.3.1(d).
"Pricing Period" shall mean the First Pricing Period or the Second Pricing
period, as applicable.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
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"Principal Market" shall mean the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, the O.T.C. Bulletin Board, 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(a).
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from Company's
independent counsel, substantially in the form attached as EXHIBIT O, or such
other form as agreed upon by the parties, as to the issuance of Purchase
Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth in
Section 2.3.13(c), the form of which is attached hereto as EXHIBIT S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13(a), the form of which is attached hereto as EXHIBIT Q.
"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 Put Share Price with respect to such Put Date, 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.
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"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 mean the Individual Put Limit for the applicable
Put.
"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).
"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 mean Regulation D promulgated under the Act.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"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.
"Second Pricing Date" shall have the meaning set forth in Section
2.3.1(d).
"Second Pricing Period" shall have the meaning set forth in Section
2.3.1(d).
"Second Put Limit" shall have the meaning set forth in Section 2.3.1(b).
"Second Volume Limitation" shall have the meaning set forth in Section
2.3.1(b).
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"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
2.7.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.26.
"Six Month Anniversary" shall mean the date that is the same Numeric Day
of the sixth (6th) calendar month after the Investment Date, and the date that
is the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"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 date of this Agreement, 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 2.7.
"Termination Notice" shall have the meaning as set forth in Section
2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"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.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Trigger Price" shall have the meaning set forth in Section 2.3.7(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.7(b).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.13(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the
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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.
"Warrant Shares" shall mean the Common Stock 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 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 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 2.2.4 below have been met.
2.2.4 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 Articles of
Incorporation, and (C) the Company's Bylaws;
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(b) this Investment Agreement, accepted by the Company, shall have
been received by the Investor;
(c) [Intentionally Left Blank];
(d) the Company's Common Stock shall be listed for trading and
actually trading on the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, the O.T.C.
Bulletin Board, or the New York Stock Exchange;
(e) 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 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
(f) 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 2.2.4 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 twenty (20) Business Days following the preceding Put 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 $5,000,000, 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 pursuant to such Put Notice (a "Company Designated
Minimum Put Share Price"). The Company
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Designated Minimum Put Share Price, if applicable, shall be no greater than 85%
of the Closing Bid Price of the Company's Common Stock on the Advance Put Notice
Date. 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 previous Put
Date, 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) INDIVIDUAL PUT LIMIT. The "Individual Put Limit"
is the number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the sum of the First Put Limit and the
Second Put Limit for that Put, but shall not exceed 9.9% of the total amount of
the Company's Common Stock that would be outstanding upon completion of the Put.
The "First Put Limit" shall mean a number of Put Shares equal to the lesser of
(i) 17.5% 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 which exceed "X" shares of Common Stock made by persons other than the
Investor or any affiliates of the Investor, for all Evaluation Days (as defined
in Section 2.3.7(b) below) in the First Pricing Period (this limitation is
referred to herein as the "First Volume Limitation"), where "X" shall equal the
lesser of (x) 100,001 shares or (y) 25% of that day's trading volume, (ii) the
Intended Put Share Amount, and (iii) the number of Put Shares which, when
multiplied by their respective Put Share Prices, equals the Maximum Put Dollar
Amount. The "Second Put Limit" shall mean a number of Put Shares equal to the
lesser of (i) 17.5% 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 which exceed "X" (as defined above) shares of Common Stock made by
persons other than the Investor or any affiliates of the Investor, for all
Evaluation Days (as defined in Section 2.3.7(b) below) in the Second Pricing
Period (this limitation is referred to herein as the "Second Volume Limitation,"
which, together with the First Volume Limitation is referred to as the Volume
Limitations), (ii) the difference of the Intended Put Share Amount minus the
First Put Limit, and (iii) the number of Put Shares which, when multiplied by
their respective Put Share Prices, and added to the First Put Limit, equals the
Maximum Put Dollar Amount. Company agrees not to trade Common Stock or arrange
for Common Stock to be traded for the purpose of artificially increasing the
Volume Limitations. Notwithstanding the above, in no event shall the sum of the
First Put Limit and the Second Put Limit exceed 17.5% of the sum of the
aggregate daily reported trading volumes in the outstanding Common Stock on the
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Company's Principal Market, excluding any block trades which exceed "X" (as
defined above) shares of Common Stock made by persons other than the Investor or
any affiliates of the Investor, for the twenty (20) Trading 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"). In the event of any future change in the Nasdaq's "double
counting" rules, the 17.5% percentage of the aggregate daily trading volumes
used to calculate the Individual Put Limit shall be adjusted, based upon a
formulation mutually agreeable to the Company and the Investor, to account for
such change. In the event that the parties, in good faith, are unable to agree
upon a mutually acceptable formulation to account for such change, the Company,
at its option, may terminate the Investment Agreement without incurring a
Termination Fee.
(c) PUT SHARE PRICE. The purchase price per share
for the Put Shares (the "Put Share Price") shall equal the lesser of (i) the
Market Price on the applicable Pricing Date, minus $.10, or (ii) 91% of the
Market Price on the applicable Pricing Date, but shall in no event be less than
the Company Designated Minimum Put Share Price in effect for such Put, if
applicable.
(d) PRICING DATES/PRICING PERIODS. With respect to
each Put, the Put Share Price for a number of Put Shares equal to the First Put
Limit for that Put shall be determined on the First Pricing Date, and the Put
Share Price for a number of Put Shares equal to the Second Put Limit for that
Put shall be determined on the Second Pricing Date.
For purposes hereof:
The "First Pricing Date" shall mean the tenth (10th)
Business Day after each Put Date.
The "Second Pricing Date" shall mean the twentieth
(20th) Business Day after each Put Date.
The First Pricing Date and the Second Pricing Date shall
be referred to singularly as a "Pricing Date" and collectively as "Pricing
Dates."
The "First Pricing Period" with respect to any Put
shall mean the period of time beginning on the Business Day immediately
following the Put Date for that Put, and ending on the First Pricing Date.
The "Second Pricing Period" with respect to any Put
shall mean the period of time beginning on the Business Day immediately
following the First Pricing Date and ending on the Second Pricing Date.
(e) 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),
13
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.
(f) 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), other than the Put Share Certificates, to
the Investor (or to an agent of Investor, if Investor so directs) and shall
deliver the Put Share Certificates (or electronically delivered shares, as
appropriate) to the escrow agent for the Offering, First Union National Bank,
N.A. (the "Escrow Agent") pursuant to the Escrow Agreement and Instructions (the
"Escrow Agreement") in the form of EXHIBIT V attached hereto or in such other
form as agreed to by the parties, executed by the Escrow Agent, the Company and
the Investor. Unless otherwise agreed by the Company and the Investor, the Put
Shares of Common Stock shall be transmitted electronically pursuant to such
electronic delivery system in accordance with the Escrow Agreement; otherwise
delivery shall be by physical certificates. If the Company has not delivered all
of the Required Put Documents to the Investor and the Put Share Certificates (or
electronically delivered shares, as appropriate) to the Escrow Agent 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 and the Put Share Certificates (or electronically delivered shares, as
appropriate) to the Escrow Agent 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
2.3.13, the Company shall pay the Investor $3,750 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.
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"), unless waived in writing by the
Investor, 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 results 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;
14
(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;
provided that in the event that an involuntary bankruptcy petition is filed
against the Company, the Company shall have sixty (60) days to obtain dismissal
of such petition before such Put prohibition shall initiate, during which period
the Company shall not be entitled to initiate any Puts;
(d) the Company shall not exercise a Put after the
sooner of (i) the date that is three (3) years after the date of this Agreement,
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 2.7, Section 6, or Section 9
hereof; provided that if such breach is curable, no Automatic Termination shall
occur if the Company has cured such breach within thirty (30) days of the first
date the Company becomes aware of such breach, provided that the Company shall
not be entitled to initiate any Puts prior to such cure.
2.3.3 PUT LIMITATIONS. The Company's right to exercise a Put
shall be limited as follows, unless waived in writing by the Investor:
(a) [Intentionally Left Blank].
(b) 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;
(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
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 for that Put;
(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
paid a dividend of its Common Stock or has made any other distribution of its
Common Stock during the Extended Put Period for that Put;
(e) 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;
15
(f) 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, unless
waived in writing by the Investor:
(a) the Company's Common Stock shall be listed for and trading on
the Nasdaq Small Cap Market, the Nasdaq National Market, the
O.T.C. Bulletin Board, the American Stock Exchange 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 material compliance with any and all
obligations pursuant to this Agreement and the Warrants;
(c) [Intentionally Left Blank].
(d) 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;
(e) 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;
(f) 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
16
(g) if the Aggregate Issued Shares after the Closing of the Put,
when added to the number of Warrant Shares issuable upon
exercise of all Warrants then outstanding, would exceed the
Cap Amount, the Company shall have obtained the Stockholder
20% Approval as specified in Section 6.12.
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 (or, in the case of the Put Shares, delivery to the Escrow Agent) of
each of the following (the "Required Put Documents") on or before the applicable
Put Date, unless waived or extended in writing by the Investor:
(a) a number of Unlegended Share Certificates (or
freely tradeable electronically delivered shares, as appropriate) equal to the
Intended Put Share Amount, in denominations (if applicable) of not more than
50,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, any required Registration Opinion, and any
report or disclosure required under Section 2.3.6 or Section 2.6;
(c) current Risk Factors; and
(d) 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 2.6.3, 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, to its knowledge, no facts
("Material Facts") exist that would cause 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 otherwise use its reasonable best
efforts to 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 2.3.13 by facsimile and overnight courier by
the end of that Business Day.
17
(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
2.6.3, 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 MECHANICS OF PURCHASE OF PUT SHARES.
(a) 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.
(b) TRUNCATED PRICING PERIOD. If a Put Cancellation
Notice has been delivered to the Investor during a Pricing Period, that Pricing
Period shall end at 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.
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 $.10, 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 either:
(A) the number of shares of Common Stock, if any, that trade on the
Principal Market on such Business Day at a trade price below the
applicable Trigger Price exceeds the lesser of (i) twenty percent
(20%) of the total trading volume of the Common Stock on the
Principal Market for that day, or (ii) 20,000 shares (the lesser of
which is referred to as the "Trading Trigger Amount"), or
18
(B) the Closing Bid Price on such Business Day is below the Trigger
Price and, on the following Business Day, the number of shares of
Common Stock that trade at a trade price above the applicable
Trigger Price is less than the Trading Trigger Amount for the day
being evaluated as to its status as an Excluded Day.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
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 four
(4) Business Days following the applicable Pricing Period End Date (or such
other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On or before each
Payment Due Date, the Investor shall deliver to the Escrow Agent, in the manner
specified in the Escrow Agreement, 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 all Required Put
Documents (excluding the Put Shares) to the Investor and has delivered the Put
Shares to the Escrow Agent, and (ii) the Investor has delivered to the Escrow
Agent 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.
2.3.9 [Intentionally Left Blank].
2.3.10 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, and so long as such short sale
or other hedging or similar arrangement is not at a price below the Trigger
Price.
2.3.11 CAP AMOUNT. Unless the Company has obtained Stockholder
20% Approval as set forth in Section 6.12 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
19
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.12 [Intentionally Left Blank]
2.3.13 PUT CANCELLATION.
(a) MECHANICS OF PUT CANCELLATION. If at any time
during an Extended Put 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"), which shall equal the lesser of (i) 17.5% of the sum of the
daily reported trading volume in the outstanding Common Stock on the Company's
Principal Market during each Evaluation Day of the Truncated Pricing Period,
(ii) the number of Put Shares which, when multiplied by their respective Put
Share Prices, equals the Maximum Put Dollar Amount, and (iii) 9.9% of the total
amount of the Company's Common Stock that would be outstanding upon completion
of the Put.
(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.
2.3.14 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 2.3.13. Unless otherwise provided
herein, in the event of a Company Termination, the Company shall be required to
pay the Termination Fee.
2.3.15 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 cause the Escrow
Agent to 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.
20
2.4.1 [Intentionally Omitted].
2.4.2 PURCHASE WARRANTS. Within five (5) Business Days of the
end of the Second Pricing Period for each Put, 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 number of Put
Shares issued to Investor in that Put. Each Purchase Warrant shall be
exerciseable at a price (the "Purchase Warrant Exercise Price") which shall
initially equal 115% of the average Closing Bid Price for the five (5) Business
Days immediately preceding the Put Date, and shall have reset provisions as set
forth in the Warrant. 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. Concurrently with the issuance and delivery of the Purchase
Warrant to the Investor, the Company shall deliver to the Investor a Purchase
Warrant Opinion of Counsel (signed by the Company's independent counsel).
2.5 [Intentionally Left Blank].
2.6 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 SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the 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.
2.6.1 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.
21
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, promptly 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 2.6 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.
2.6.2 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.
2.6.3 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
22
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.
2.7 COMMITMENT PAYMENTS.
2.7.1 COMMITMENT WARRANTS. In partial consideration hereof,
following the execution of the Letter of Intent dated on or about May 19, 1999
between the Company and the Investor, the Company issued and delivered to
Investor, warrants (the "Commitment Warrants") in the form attached hereto as
EXHIBIT U, or such other form as agreed upon by the parties, to purchase 425,000
shares of Common Stock. The Commitment Warrants shall be exerciseable at a price
(the "Commitment Warrant Exercise Price") which shall initially equal 115% of
the average Closing Bid Price for the five (5) trading days immediately
preceding May 19, 1999 ("Initial Exercise Price"), and shall have reset
provisions as set forth in the Warrant. Each Commitment Warrant shall be
immediately exercisable at the Commitment Warrant Exercise Price, 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. Concurrently with the issuance and delivery
of the Commitment Warrant to the Investor, the Company shall deliver to the
Investor an Investment Commitment Opinion of Counsel (signed by the Company's
independent counsel).
2.7.2 NON-USAGE FEES AND TERMINATION FEE. 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 either (i) Put
to the Investor Put Shares having an aggregate Put Dollar Amount totaling at
least the Maximum Offering Amount in all Puts, or (ii) Put $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.
No additional Non-Usage Fees shall accrue after (i) a Company Termination, (ii)
an Automatic Termination, or (iii) a termination under the terms of Section
2.7.4 or Section 6.14, provided that any Non-Usage Fees which have accrued prior
to the occurrence of (i), (ii), or (iii) above shall be payable within five (5)
business days of such occurrence.
Each Semi Annual Non-Usage Fee or Termination Fee is payable within five
(5) business days of the date it accrued in accordance with this Agreement, in
cash or in registered, unlegended, freely tradable Common Stock of the Company.
Where such payment is made in shares of Common Stock, each share of Common Stock
shall be valued at the lesser of (i) the average Closing Bid Price for the five
(5) Business Days preceding the date that such Semi-
23
Annual Non-Usage Fee is due, or (ii) the average Closing Bid Price for the five
(5) Business Days preceding the date that such shares are delivered to Investor.
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,
subject to Section 2.7.4 below.
2.7.3 SUSPENSION WITHOUT ACCRUING NON-USAGE FEES. Notwithstanding
the above, the Company shall be entitled to suspend (a "Suspension") the Equity
Line for up to six (6) periods not to exceed an aggregate of nine (9) Calendar
Months for the purpose of effecting one or more secondary underwritten offerings
or for the purpose of Ineffective Periods, by giving written notice to the
Investor stating the beginning date and the duration of the Suspension. During
the term of the Suspension, the Company may not deliver any Advance Put Notices
or effect any Puts.
The Non-Usage Fees for any Commitment Evaluation Period(s) which occur
during a Suspension will be reduced by 1/6 for each full Calendar Month (or pro
rata for each partial Calendar month) of the Suspension.
2.7.4 TERMINATION WITHOUT ACCRUAL OF TERMINATION FEE. In the event
that the Investor has not made full payment for any Put Shares by the applicable
Payment Due Date, and the Investor has failed to make such payment within three
(3) Business Days after receipt of written notification from the Company (which
notification may be given anytime after the applicable Payment Due Date) that it
plans to terminate this Investment Agreement for non-payment, the Company may
terminate this Agreement without being required to pay a Termination Fee. In the
event that the Company terminates this Agreement for non-payment in conjunction
with the terms of this Section 2.7.4, the Warrants shall become null and void,
to the extent that that they have not yet been exercised as of the Payment Due
Date for such late payment, and the Investor shall immediately return the
unexercised portion(s) of the Warrants to the Company.
Furthermore, in the event that (i) the Company has filed the Registration
Statement by the date that is 45 days after the date hereof, (ii) the Company
has used its reasonable best efforts to have the Registration Statement declared
effective and has responded to any comments from the Securities and Exchange
Commission within 30 days of receipt thereof, AND (iii) a Registration Statement
has not been declared effective by the date that is 6 months from the date that
the registration statement was filed, then the Company may terminate this
Agreement without being required to pay the cash Termination Fee.
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.
24
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, 1998,
(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") (v) the Use of Proceeds Schedule, attached as EXHIBIT L, (the "Use of
Proceeds Schedule"), and (vi) the other material transactions described in
Schedule 3.2.4; (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 Securities
Exchange Act of 1934, as amended (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. During the course of
25
its due diligence, nothing has come to the Investor's attention to indicate that
the Disclosure Documents are not true and correct.
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 [Intentionally Left Blank].
3.3.2 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.
3.3.3 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.
3.3.4 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 dealer or depositary, provided that the
Investor may direct the Escrow Agent to deliver any shares that the Investor is
entitled to receive into street name at a brokerage account specified by the
Investor. Investor further agrees not to sell, transfer, assign, or pledge the
Securities, 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
26
(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. If Investor is a corporation,
Investor is duly and validly organized, validly existing and in good tax and
corporate standing as a corporation under the laws of the jurisdiction of its
incorporation 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.
27
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 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 6.9 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."
28
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 Florida, 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. 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 subsidiaries set forth on
Schedule 5.1.
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
or condition 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. 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.
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
29
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, except that the Company has not obtained
the Stockholder 20% Approval.
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 (a "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 ("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 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 Material 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 on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, (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.
5.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has, since January of 1997, 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 Common Stock is
duly listed on the Nasdaq Small Cap Market. The Company is not in violation of
the listing requirements of the Nasdaq Small Cap Market and does not reasonably
anticipate that the Common Stock will be delisted by the Nasdaq Small Cap Market
for the foreseeable future, other than as set forth in Nasdaq response letter
dated May 14, 1999. The Company has filed all reports required under the
Exchange Act since January of 1997. The Company has not, to its knowledge,
furnished to the Investor any material nonpublic information concerning the
Company.
30
5.7 CAPITALIZATION. The capitalization of the Company as of July 21,
1999, 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), other than set forth on Schedule
5.7.
5.8 INTELLECTUAL PROPERTY. The Company has valid 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,
other than as set forth in Schedule 5.8, 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.
31
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 [INTENTIONALLY LEFT BLANK].
5.15 NO INTEGRATED OFFERING. To the Company's knowledge, neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any 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 Nasdaq. 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 [INTENTIONALLY LEFT BLANK].
5.17 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.
5.18 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.
32
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.
5.19 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 for a period not to exceed six (6) months.
5.20 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.
5.21 TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Disclosure Documents, none of the officers or directors of the Company is
presently a party to any transaction with the Company (other than for services
as officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer or director or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer or director
has a substantial interest or is an officer, director, trustee or partner.
5.22 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 Florida 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.
5.23 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.
5.24 MAJOR TRANSACTIONS. There are no other Major Transactions
currently pending or contemplated by the Company.
5.25 FINANCINGS. There are no other financings currently pending or
contemplated by the Company, except as disclosed in writing to the Investor.
33
5.26 SHAREHOLDER AUTHORIZATION. The Company shall, at its next
annual shareholder meeting 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 25,000,000 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 25,000,000 shares of Common Stock for issuance under this
Agreement.
5.27 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,
shall remain a"Reporting Issuer" (defined as a Company which files periodic
reports under the Exchange Act) (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 [Intentionally Omitted].
6.5 ASSET TRANSFERS. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets having a value in
excess of $3 million (on any one occasion) 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,
34
"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.
6.6 CAPITAL RAISING LIMITATIONS AND RIGHTS OF FIRST REFUSAL.
6.6.1 CAPITAL RAISING LIMITATIONS. During the period from the
date of this Agreement until the date that is ninety (90) days after the
Termination Date (or in the event that the Company terminates this Agreement,
then until the date that is thirty (30) days after the Termination Date), 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, other than the
transaction set forth on Schedule 6.6.1, without obtaining the prior written
approval of the Investor of the Offering, which approval shall not be
unreasonably withheld (the limitations referred to in this subsection 6.6.1 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.
6.6.2 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 Termination Date of this Agreement, 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 an option 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.
6.6.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND RIGHTS OF
FIRST REFUSAL. Notwithstanding the above, the Capital Raising Limitations and
Rights of First Refusal shall not 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 6.6.3.
6.7 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.
6.8 OPINION OF COUNSEL. Investor shall 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, as to the Investment Commitment Closing and
shall 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, as to any
Put Closing.
35
6.9 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.
6.10 LISTING. Subject to the remainder of this Section 6.10, the
Company shall use its reasonable best efforts to ensure that its shares of
Common Stock (including all Warrant Shares) are listed and available for trading
on the Nasdaq Small Cap Market. Thereafter, the Company shall (i) use its
reasonable best efforts to continue the listing and trading of its Common Stock
on the Nasdaq Small Cap Market or to become eligible for and listed and
available for trading on the NMS, the American Stock Exchange 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.
6.11 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company will
instruct the Transfer Agent of the Common Stock, by delivering instructions in
the form of EXHIBIT T hereto, to issue certificates, registered in the name of
each Investor or its nominee, or in such other name as the Escrow Agent shall
direct, 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 6.9 hereof. Nothing in
this Section shall affect in any way Investor's obligations and agreement set
forth in Sections 3.3.3 or 3.3.4 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 an affiliate 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 6.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.11,
36
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.
6.12 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put that
would cause the Aggregate Issued Shares to exceed the Cap Amount, 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"). For purposes of Stockholder 20% Approval, any
shares to be issued to the Investor shall not be included in the calculation of
stockholder approval.
6.13 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.
6.14 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 Company or the Investor to be
unable to perform its obligations hereunder, this Agreement shall be
automatically terminated and no further Non-Usage Fees shall accrue and no cash
Termination Fees shall be due.
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
for a period of six (6) months from the date that such representations and
warranties were provided to the Investor, 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, the
Investor, at its option, may terminate this Agreement or, with the Company's
mutual agreement, require that other terms of the Agreement be amended to
compensate for such material economic changes.
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
37
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 Palm Beach County,
Florida. Florida 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.
38
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
8.1 SUBSCRIPTION
(a) TRANSFER OF SUBSCRIPTION FUNDS. Investor shall deliver Put
Dollar Amounts (as payment towards any Put Share Price) to the
Escrow Agent in the manner specified in the Escrow Agreement.
(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.
8.2 ACCEPTANCE OF SUBSCRIPTION. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
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 members, 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, or
(c) any cause of action, suit or claim,
39
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, provided,
however, that the Company shall not be responsible for any Indemnified
Liabilities incurred as a direct result of Indemnitees' fraud or gross
negligence.
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]
40
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]___________________________________________.
41
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 21ST day of JULY, 1999.
____________________________________ ______________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where
your security is to be delivered
____________________________________ ATTN:________________________________
Title/Representative Capacity
(if applicable)
____________________________________ ______________________________________
Name of Company You Represent Street Address
(if applicable)
____________________________________ ______________________________________
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where Copy
is to be delivered is to be delivered
ATTN:_______________________________ ATTN:________________________________
____________________________________ ______________________________________
Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx
____________________________________ ______________________________________
City, State or Province, Country, City, State or Country,
Offshore Postal Code Offshore Postal Code
Telephone:__________________________ Telephone:____________________________
Facsimile:__________________________ Facsimile:____________________________
Facsimile:__________________________ Facsimile:____________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF 100% OF THE MAXIMUM
OFFERING AMOUNT ON THE 21ST DAY OF JULY, 1999.
MEDICAL INDUSTRIES OF AMERICA, INC.
By: /S/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx, President
Address:
Attn: Xxxx X. Xxxxxxx
MEDICAL INDUSTRIES OF AMERICA, INC.
0000 Xxxxx Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
42
ADVANCE PUT NOTICE
MEDICAL INDUSTRIES OF AMERICA, INC. (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 July 21, 1999.
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):
_________________________________________________.
MEDICAL INDUSTRIES OF AMERICA, INC.
By: /S/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx, President
Address:
Attn: Xxxx X. Xxxxxxx
MEDICAL INDUSTRIES OF AMERICA, INC.
0000 Xxxxx Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
43
EXHIBIT E
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
MEDICAL INDUSTRIES OF AMERICA, INC.'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 July 21, 1999.
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.: ___________________________________
44
EXHIBIT F
PUT NOTICE
MEDICAL INDUSTRIES OF AMERICA, INC. (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 July 21, 1999.
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.
MEDICAL INDUSTRIES OF AMERICA, INC.
By: /S/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx, President
Address:
Attn: Xxxx X. Xxxxxxx
MEDICAL INDUSTRIES OF AMERICA, INC.
0000 Xxxxx Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
45
EXHIBIT G
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
MEDICAL INDUSTRIES OF AMERICA, INC. (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 July 21, 1999.
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.: ____________________________________
46
EXHIBIT H
PUT CANCELLATION NOTICE
MEDICAL INDUSTRIES OF AMERICA, INC. (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 July 21, 1999, 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.
MEDICAL INDUSTRIES OF AMERICA, INC.
By: /S/ XXXX X. XXXXXXX
Xxxx X. Xxxxxxx, President
Address:
Attn: Xxxx X. Xxxxxxx
MEDICAL INDUSTRIES OF AMERICA, INC.
0000 Xxxxx Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
47
EXHIBIT Q
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Company, and Xxxxxx Private Equity, LLC dated on
or about July 21, 1999, hereby confirms receipt of Medical Industries of
America, Inc.'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.: ____________________________________
48
EXHIBIT S
49
