10.4 - Investment Agreement.doc
XXXXXX.XXX, 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 I.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 6th day of June, 2001, by and between XxxxXx.xxx,
Inc., a corporation duly organized and existing under the laws of the State of
Nevada (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 Fifteen
Million Dollars ($15,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including
the recitals above), the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit D.
"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 E.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth in Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(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 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit J.
"Change in Control" shall have the meaning set forth within the
definition of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this Offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Period" shall have the meaning set forth in Section
2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section
2.4.1, the form of which is attached hereto as Exhibit P.
"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 XxxxXx.xxx, Inc., a corporation duly organized
and existing under the laws of the State of Nevada.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning as
set forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"DWAC Put Shares" shall mean Put Shares, in electronic form, without
restriction on resale, that are delivered to the Depository Trust Company DWAC
account specified by the Investor for the Put Shares.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section
9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section
2.3.1 (b).
"Ineffective Period" shall have the meaning given to it in the
Registration Rights Agreement.
"Ineffective Period Payment" shall have the meaning given to it in the
Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit M.
"Late Payment Amount" shall have the meaning set forth in Section
2.3.9.
"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");
(ii) the sale or transfer of a portion of the Company's
assets not in the ordinary course of business;
(iii) the purchase of assets by the Company not in the
ordinary course of business; or
(iv) a purchase, tender or exchange offer made to the
holders of outstanding shares of Common Stock.
"Market Price" shall equal the average of the two (2) lowest daily
Volume Weighted Average Prices for the Common Stock on the Principal Market
during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York City Time, on any Business Day, and shall expressly exclude
"after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section
2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit F.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit G.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as Exhibit H, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section
2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by
the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.7(a), the form of which is attached hereto as Exhibit N.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as Exhibit A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.6.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit I.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall have the meaning set forth in Section 6.19.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the earlier of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor and has paid the Termination Fee in full, and (c) the date that both an
Automatic Termination has occurred and the Company has paid the Termination Fee
in full.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit O, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or
certificates (or electronically delivered shares, as appropriate) (in
denominations as instructed by Investor) representing the shares of Common Stock
to which the Investor is then entitled to receive, registered in the name of
Investor or its nominee (as instructed by Investor) and not containing a
restrictive legend or stop transfer order, including but not limited to the Put
Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as Exhibit K.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit Q, or such other form as agreed
upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean the Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
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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 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.
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2.2.1 Investment Commitment Closing. The closing
of this Agreement (the "Investment Commitment Closing") shall be deemed to
occur when this Agreement, the Registration Rights Agreement, the Commitment
Warrant and the Warrant Antidilution Agreement have been duly executed by both
Investor and the Company, and the other Conditions to Investment Commitment
Closing set forth in Section 2.2.2 below have been met.
2.2.2 Conditions to Investment Commitment
Closing. As a prerequisite to the Investment Commitment Closing, all of
the following (the "Conditions to Investment Commitment Closing") 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
Commitment Warrant, (iii) the Investment Commitment
Opinion of Counsel (signed by the Company's counsel),
(iv) the Warrant Antidilution Agreement (executed by
the Company and Investor),, and (v) a Secretary's
Certificate as to (A) the resolutions of the
Company's board of directors authorizing this
transaction, (B) the Company's Certificate of
Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the
Company, shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for
trading and actually trading on the O.T.C.
Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk
Factors set forth in the Disclosure Documents
(provided for in Section 3.2.4), up through the
Investment Commitment Closing there have been no
material adverse changes in the Company's business
prospects or financial condition since the date of
the last balance sheet included in the Disclosure
Documents, including but not limited to incurring
material liabilities; and the representations and
warranties of the Company in this Agreement shall be
true and correct in all material respects;
(e) the Company shall deliver to the Investor an
Officer's Certificate, signed by an officer of the
Company, to the effect that the Conditions to
Investment Commitment Closing set forth in this
Section 2.2.2 shall have been satisfied on the date
of such Investment Commitment Closing.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
(a) Delivery of Advance Put Xxxxxx.Xx least
ten (10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date, the Company shall deliver advance written notice (the
"Advance Put Notice," the form of which is attached hereto as Exhibit D, the
date of such Advance Put Notice being the "Advance Put Notice Date") to Investor
stating the Put Date for which the Company shall, subject to the limitations and
restrictions contained herein, exercise a Put and stating the number of shares
of Common Stock (subject to the Individual Put Limit and the Maximum Put Dollar
Amount) which the Company intends to sell to the Investor for the Put (the
"Intended Put Share Amount").
The Company may, at its option, also designate in any Advance
Put Notice (i) a maximum dollar amount of Common Stock, not to exceed
$2,000,000, which it shall sell to Investor during the Put (the "Company
Designated Maximum Put Dollar Amount") and/or (ii) a minimum purchase price per
Put Share at which the Investor may purchase shares of Common Stock pursuant to
such Put Notice (a "Company Designated Minimum Put Share Price"). The Company
Designated Minimum Put Share Price, if applicable, shall be no greater than the
lesser of (i) 80% of the Closing Bid Price of the Company's common stock on the
Business Day immediately preceding the Advance Put Notice Date, or (ii) the
Closing Bid Price of the Company's common stock on the Business Day immediately
preceding the Advance Put Notice Date minus $0.075. 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, provided that the Put Share Price
for all shares in a Put shall be calculated using the lowest Company Designated
Minimum Put Share Price, as decreased.
Notwithstanding the above, if, at the time of delivery of an
Advance Put Notice, more than two (2) Calendar Months have passed since the date
of the previous Put Closing, such Advance Put Notice shall provide at least
twenty (20) Business Days notice of the intended Put Date, unless waived in
writing by the Investor; provided that in such case the Company may cancel the
Put without penalty if written notice of such cancellation is given to the
Investor more than ten (10) Business Days before the intended Put Date. 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. 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 E) of the Advance Put Notice to the Company specifying that the Advance
Put Notice has been received and affirming the intended Put Date and the
Intended Put Share Amount.
(b) Put Share Amount. The "Put Share
Amount" is the number of shares of Common Stock that the Investor shall be
obligated to purchase in a given Put, and shall equal the lesser of (i) the
Intended Put Share Amount, and (ii) the Individual Put Limit. The "Individual
Put Limit" shall equal the lesser of (A) 1,500,000 shares, (B) 15% of the sum of
the aggregate daily reported Trading Volumes in the outstanding Common Stock on
the Company's Principal Market, excluding any block trades that exceed the
Maximum Block Trade Amount (as defined below), for all Evaluation Days (as
defined below) in the Pricing Period, (C) the number of Put Shares which, when
multiplied by their respective Put Share Prices, equals the Maximum Put Dollar
Amount, and (D) the 9.9% Limitation, but in no event shall the Individual Put
Limit exceed 15% of the sum of the aggregate daily reported Trading Volumes in
the outstanding Common Stock on the Company's Principal Market, excluding any
block trades that exceed the Maximum Block Trade Amount (as defined below), for
the twenty (20) Business Days immediately preceding the Advance Put Notice Date
(this limitation, together with the limitations in (A) and (B) immediately above
are collectively referred to herein as the "Volume Limitations"). Company agrees
not to trade Common Stock or arrange for Common Stock to be traded for the
purpose of artificially increasing the Volume Limitations during any Extended
Put Period.
For purposes of this Agreement:
"Maximum Block Trade Amount" shall mean the greater of (i)
20,000 shares of Common Stock, or (ii) the lesser of (a) 10% of the total
reported Trading Volume for the Business Day in question (excluding any block
trades of 20,000 shares or more), or (b) 50,000 shares of Common Stock, or, if
the Company is listed on the Nasdaq National Market throughout the Pricing
Period for the Put, then "Maximum Block Trade Amount" shall mean the greater of
(i) 30,000 shares of Common Stock, or (ii) the lesser of (a) 10% of the total
reported Trading Volume for the Business Day in question (excluding any block
trades of 30,000 shares or more), or (b) 75,000 shares of Common Stock.
"Trigger Price" for any Pricing Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $0.05, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the Common Stock is
less than the Trigger Price and each Business Day defined in Section 2.3.4 as an
"Excluded Day".
An "Evaluation Day" shall mean each Business Day during a
Pricing Period that is not an Excluded Day.
(c) Put Share Price. The purchase price
for the Put Shares (the "Put Share Price") shall equal the lesser of (i) the
Market Price for such Put, minus $0.05, or (ii) 91% of the Market Price for such
Put, but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable.
(d) Delivery of Put Notice. After
delivery of an Advance Put Notice, on the Put Date specified in the Advance Put
Notice the Company shall deliver written notice (the "Put Notice," the form of
which is attached hereto as Exhibit F) to Investor stating (i) the Put Date,
(ii) the Intended Put Share Amount as specified in the Advance Put Notice (such
exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor.
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 G) of the Put Notice to Company specifying that the Put Notice has been
received and affirming the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents.
On or before the Put Date for such Put, the Company shall deliver the Required
Put Documents (as defined in Section 2.3.6 below) to the Investor (or to an
agent of Investor, if Investor so directs). Unless otherwise specifically
requested by the Investor, the Put Shares shall be transmitted electronically
pursuant to the Depository Trust Company DWAC system or such other electronic
delivery system as the Investor shall request. If the Company has not delivered
all of the Required Put Documents to the Investor on or before the Put Date, the
Put shall be automatically cancelled (an "Impermissible Put Cancellation") and,
for any Impermissible Put Cancellation after the first one, the Company shall
pay the Investor $5,000 for its reasonable due diligence expenses incurred in
preparation for the cancelled 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 cancelled. Also, in the event of a Put Interruption
Notice that occurs prior to the Put Date, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
interrupted Put.
(f) Limitation on Investor's Obligation to
Purchase Shares. Notwithstanding anything to the contrary in this Agreement, in
no event shall the Investor be required to purchase, and an Intended Put Share
Amount may not include, an amount of Put Shares, which when added to the number
of Put Shares acquired by the Investor pursuant to this Agreement during the 61
days preceding the Put Date with respect to which this determination of the
permitted Intended Put Share Amount is being made, would exceed 9.9% of the
number of shares of Common Stock outstanding (on a fully diluted basis, to the
extent that inclusion of unissued shares is mandated by Section 13(d) of the
Exchange Act) on the Put Date for such Pricing Period, as determined in
accordance with Section 13(d) of the Exchange Act (the "Section 13(d)
Outstanding Share Amount"). Each Put Notice shall include a representation of
the Company as to the Section 13(d) Outstanding Share Amount on the related Put
Date. In the event that the Section 13(d) Outstanding Share Amount is different
on any date during a Pricing Period than on the Put Date associated with such
Pricing Period, then the number of shares of Common Stock outstanding on such
date during such Pricing Period shall govern for purposes of determining whether
the Investor, when aggregating all purchases of Shares made pursuant to this
Agreement in the 61 calendar days preceding such date, would have acquired more
than 9.9% of the Section 13(d) Outstanding Share Amount. The limitation set
forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's
right to initiate subsequent Puts to the Investor shall terminate permanently
(each, an "Automatic Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company
or any then director or executive officer of the Company has engaged in a
transaction or conduct related to the Company that has resulted in (i) a
Securities and Exchange Commission enforcement action, or (ii) a civil judgment
or criminal conviction for fraud or misrepresentation, or for any other offense
that, if prosecuted criminally, would constitute a felony under applicable law;
(b) on any date after a cumulative time
period or series of time periods, consisting only of Ineffective Periods and
Delisting Events, that lasts for an aggregate of four (4) months;
(c) if at any time the Company has
filed for and/or is subject to any bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors instituted by or against the Company or any
subsidiary of the Company;
(d) after the sooner of (i) the date
that is three (3) years after the Effective Date, or (ii) the Put Closing Date
on which the aggregate of the Put Dollar Amounts for all Puts equal the Maximum
Offering Amount (the "Commitment Period");
(e) the Company has materially breached
any covenant in Section 6 or Section 9 hereof and the Investor has provided the
Company with written notice of such breach and such breach has not been cured
within (10) business days of such notice or the Company fails to cure such
breach within such time period; or
(f) if no Registration Statement has been
declared effective by the date that is one (1) year after the date of this
Agreement, the Automatic Termination shall occur on the date that is one (1)
year after the date of this Agreement.
2.3.3 Maximum Offering Amount. 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.
2.3.4 Put Interruption. Once the Company
delivers an Advance Put Notice to the Investor, the Company may not cancel the
Put. In the event of a "Put Interruption Event" (as defined below) during any
Pricing Period, then (A) the Company shall notify the Investor in writing (a
"Put Interruption Notice") as soon as possible by facsimile and overnight
courier, but no later than the end of the Business Day in which the Company
becomes aware of such facts, (B) the Pricing Period shall be extended or
shortened, as applicable, such that the Pricing Period End Date is the tenth
(10th) Business Day after the date of such Put Interruption Notice from the
Company (the "Put Interruption Date") or, in the case of 2.3.4(e) the tenth
Business Day after the registration statement has been amended or supplemented
to reflect such Material Breach, and (C) each Business Day from and including
the Put Interruption Date through and including the Pricing Period End Date for
the applicable Put (as extended or shortened, if applicable), shall be
considered to be an "Excluded Day," as that term is used in this Agreement, and
(D) the Company Designated Minimum Put Share Price, if any, shall not apply to
the affected Put. In the event that a Put Interruption Event occurs after an
Advance Put Notice Date, but before the applicable Put Date, that Put shall be
deemed to be terminated, and the Company may deliver an Advance Put Notice for a
new Put anytime beginning on the following Business Day, if otherwise allowed
under this Agreement. A "Put Interruption Event" shall mean any of the
following: (i) an Automatic Termination, (ii) the failure of one of the items
specified in Section 2.3.5 below to be true and correct on any day during and
Extended Pricing Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a
subdivision or combination, including a reverse split, of its Common Stock or
has subdivided or combined its Common Stock;
(b) the Company has paid a dividend of its
Common Stock or has made any otherdistribution of its Common Stock;
(c) the Company has made a distribution of
all or any portion of its assets orevidences of indebtedness to the holders of
its Common Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of
Material Facts or any IneffectivePeriod or Delisting Event occurs
2.3.5 Conditions Precedent to the Right of the
Company to Deliver an Advance Put Notice or a Put Notice. The right of the
Company to deliver an Advance Put Notice or a Put Notice is subject to the
satisfaction, on the date of delivery of such Advance Put Notice or Put Notice,
of each of the following conditions:
(a) the Company's Common Stock shall be listed for and
trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market or the
New York Stock Exchange and the Put Shares shall be
so listed, and to the Company's knowledge there is no
notice of any suspension or delisting with respect to
the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing
of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities
and the requirement that the Registration Statement
shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with
any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the Company in
Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.10, 5.13, 5.14,
5.15, 5.16, 5.18, 5.19, 5.21, and 5.25 hereof are
true and correct in all material respects as if made
on such date, the Company has satisfied its
obligations under Section 2.6 hereof and the
conditions to Investor's obligations set forth in
this Section 2.3.5 are satisfied in all material
respects as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the
Company, to such effect to the Investor;
(d) the Company shall have authorized and reserved for
issuance a sufficient number of Common Shares for the
purpose of enabling the Company to satisfy any
obligation to issue Common Shares pursuant to any Put
and to effect exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration
Rights Agreement, the prospectus included therein is
current and deliverable, and to the Company's
knowledge there is no notice of any investigation or
inquiry concerning any stop order with respect to the
Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of
the Put would exceed the Cap Amount, the Company
shall have obtained the Stockholder 20% Approval as
specified in Section 6.11, if the Company's Common
Stock is listed on the NASDAQ Small Cap Market or the
NASDAQ National Market System (the "NMS"), and such
approval is required by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event
that, in the Company's opinion, is more likely than
not to have the effect of causing any Registration
Statement to be suspended or otherwise ineffective
(which event is more likely than not to occur within
the thirty Business Days following the date on which
such Advance Put Notice and Put Notice is deemed
delivered);
(h) there is not then in effect any law, rule or
regulation prohibiting or restricting the
transactions contemplated hereby, or requiring any
consent or approval which shall not have been
obtained, nor is there any pending or threatened
proceeding or investigation which may have the effect
of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement;
(i) no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted,
entered, promulgated or adopted by any court or
governmental authority of competent jurisdiction
that prohibits the transactions contemplated by
this Agreement, and no actions, suits or
proceedings shall be in progress, pending or
threatened by any person (other than the Investor
or any affiliate of the Investor), that seek to
enjoin or prohibit the transactions contemplated
by this Agreement. For purposes of this paragraph
(i), no proceeding shall be deemed pending or
threatened unless one of the parties has received
written or oral notification thereof prior to the
applicable Closing Date;
(j) the Put Shares delivered to the Investor are DTC
eligible and can be immediately converted into
electronic form;
(k) the Company shall have obtained all permits and
qualifications (if any) required by any state
securities laws or Blue Sky laws for the offer and
sale of the Common Stock to the Investor and by the
Investor or shall have the availability of exemptions
therefrom; and
(l) the Put Shares shall have been delivered to the
Depository Trust Company DWAC account specified by
the Investor for the Put Shares.
(m) the Transfer Agent Instructions have been duly
executed by both the Company and the Transfer Agent.
2.3.6 Documents Required to be Delivered on the
Put Date as Conditions to Closing of any Put. The Closing of
any Put and Investor's obligations hereunder shall
additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put
Documents") on or before the applicable Put Date:
(a) a number of DWAC Put Shares equal to
the Intended Put Share Amount shall have been delivered to
the Depository Trust Company DWAC account specified by the
Investor for the Put Shares (unless the Investor has
requested physical stock certificates, in writing, in which
case the Company shall have delivered to the Investor a
number of physical Unlegended Share Certificates equal to
the Intended Put Share Amount, in denominations of not more
than 50,000 shares per certificate); and
(b) the following documents: Put Opinion
of Counsel, Officer's Certificate, Put Notice, Registration
Opinion, and any report or disclosure required under Section
2.3.7 or Section 2.5.
2.3.7 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be
delivered to the Investor, (i) whenever required by Section 2.3.7(b) or by
Section 2.5.3, and (ii) on the date that is three (3) Business Days prior to
each Put Date (the "Registration Opinion Deadline"), an opinion of the Company's
independent counsel, in substantially the form of Exhibit N (the "Registration
Opinion"), addressed to the Investor stating, inter alia, that no facts
("Material Facts") have come to such counsel's attention that have caused it to
believe that the Registration Statement is subject to an Ineffective Period or
to believe that the Registration Statement, any Supplemental Registration
Statement (as each may be amended, if applicable), and any related prospectuses,
contain an untrue statement of material fact or omits a material fact required
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. If a Registration Opinion cannot be
delivered by the Company's independent counsel to the Investor on the
Registration Opinion Deadline due to the existence of Material Facts or an
Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
Supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Pricing Period End Date, the Company acquires knowledge of
such Material Facts or any Ineffective Period occurs, the Company shall promptly
notify the Investor and shall deliver a Put Interruption Notice to the Investor
pursuant to Section 2.3.4 by facsimile and overnight courier by the end of that
Business Day.
(b) (i) the Company shall engage its
independent auditors to perform the procedures in accordance with the provisions
of Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor
shall have requested delivery of an Agreed Upon Procedures Report pursuant to
Section 2.5.3, the Company shall engage its independent auditors to perform
certain agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this Section
2.3.7(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.
2.3.8 Investor's Obligation and Right to
Purchase Shares. Subject to the conditions set forth in this Agreement,
following the Investor's receipt of a validly delivered Put Notice, the Investor
shall be required to purchase (each a "Purchase") from the Company a number of
Put Shares equal to the Put Share Amount, in the manner described below.
2.3.9 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 this Section 2, the closing of the purchase by the
Investor of Shares shall occur by 5:00 PM, New York City Time, on the date which
is five (5) Business Days following the applicable Pricing Period End Date (the
"Payment Due Date") at the offices of Investor. On each or before each Payment
Due Date, the Investor shall deliver to the Company, in the manner specified in
Section 8 below, the Put Dollar Amount to be paid for such Put Shares,
determined as aforesaid, less any Non-Usage Fees that are due and unpaid by the
Company. The closing (each a "Put Closing") for each Put shall occur on the date
that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar
Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar
Amount for such Put Closing on or before the Payment Due Date, then the Investor
shall pay to the Company, in addition to the Put Dollar Amount, an amount (the
"Late Payment Amount") at a rate of X% per month, accruing daily, multiplied by
such Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.10 Limitation on Short Sales. The Investor
and its agents, representatives and affiliates shall not in any manner
whatsoever enter into or effect, directly or indirectly, any (i) "short sale"
(as such term is defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock or
(ii) hedging transaction, which establishes a net short position with respect to
the Common Stock; provided, however, that the Investor or its agents,
representatives and affiliates may enter into any short exempt sale or any short
sale or other hedging or similar arrangement it deems appropriate with respect
to Put Shares after it receives a Put Notice with respect to such Put Shares so
long as such sales or arrangements do not involve more than the number of such
Put Shares specified in the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed
on the Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the
Company has obtained Stockholder 20% Approval as set forth in Section 6.11 or
unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued
Shares exceed the maximum number of shares of Common Stock (the "Cap Amount")
that the Company can, without stockholder approval, so issue pursuant to Nasdaq
Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor
rule) (the "Nasdaq 20% Rule").
2.3.12 Investment Agreement Termination. 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. Following either a Company Termination or an Automatic Termination: (i)
the Termination Fee, and any accrued but unpaid Non-Usage Fees, shall become due
and payable as further described in Section 2.6 below, (ii) following payment of
the Termination Fee and any accrued but unpaid Non-Usage Fees in full, no
additional Non-Usage Fees shall accrue, and (iii) such termination shall have no
effect on the parties' other rights and obligations under this Agreement or any
of the agreements referenced in this Agreement, including but not limited to the
Registration Rights Agreement, the Warrants or the Warrant Antidilution
Agreement (collectively, the "Related Agreements"). Notwithstanding a
Termination or Automatic Termination, the Related Agreements between the parties
shall not terminate and shall remain in full force and effect in accordance with
their respective terms. Notwithstanding the above, any Put Interruption Notice
occurring during an Extended Put Period is governed by Section 2.3.4.
2.3.13 Return of Excess Common Shares. In the
event that the number of Shares purchased by the Investor pursuant to its
obligations hereunder is less than the Intended Put Share Amount, the Investor
shall promptly return to the Company any shares of Common Stock in the
Investor's possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial
consideration hereof, following the execution of the Letter of Agreement dated
on or about March 26, 2001 between the Company and the Investor, the Company
issued and delivered to Investor warrants (the "Commitment Warrants") in the
form attached hereto as Exhibit P, to purchase 510,000 shares of Common Stock.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the
issuance of the Commitment Warrant and the issuance of the common stock upon
exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of
this Agreement, regardless of whether or not the Registration Statement is or is
not filed, and regardless of whether or not the Registration Statement is or is
not declared effective by the SEC, the Investor shall retain full ownership of
the Commitment Warrant, in accordance with its terms, as partial consideration
for its commitment hereunder.
2.4.2 [Intentionally Left Blank].
2.5 Due Diligence Review. Subject to any limitations imposed
by applicable laws, including Regulation FD promulgated under the Securities
Exchange Act of 1934, 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 publicly
available financial and other records, all filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 Disclosure of Misstatements and
Omissions. The Investor's advisors or representatives shall make complete
disclosure to the Investor's counsel of all events or circumstances constituting
nonpublic information discovered by such advisors or representatives in the
course of their due diligence upon which such advisors or representatives form
the opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in the light of
the circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's independent
counsel in order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related Prospectus.
2.5.3 Procedure if Material Facts are
Reasonably Believed to be Untrue or are Omitted. In the event after such
consultation the Investor or the Investor's counsel reasonably believes that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading,
(a) the Company shall file
with the SEC an amendment to the Registration Statement responsive to such
alleged untrue statement or omission and provide the Investor, as promptly as
practicable, with copies of the Registration Statement and related Prospectus,
as so amended, or
(b) if the Company disputes the
existence of any such material misstatement or omission, (i) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (ii) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
2.6 Commitment Payments.
On the last Business Day of each twelve (12) Calendar Month
period following the Effective Date (each such period a "Commitment Evaluation
Period"), if the Company has not sold at least $500,000 during the first such
twelve month period and $1,000,000 thereafter, in aggregate Put Dollar Amount
worth of Put Shares 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 "Non-Usage Fee")
equal to the difference of (i) $100,000, minus (ii) 10% of the aggregate Put
Dollar Amount of the Put Shares purchased by the 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 Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x) $150,000,
minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares purchased by
the Investor during all Puts to date, and the Company shall not be required to
pay the Non-Usage Fee thereafter.
Each Non-Usage Fee or Termination Fee is payable, in cash or
Common Stock (in the manner described below), at the Company's option, within
ten (10) business days of the date it accrued. If such payment is made in
restricted and unregistered Common Stock, the Company shall deliver to the
Investor a number of shares of Common Stock equal to 125% of the amount of the
Non-Usage Fee or Termination Fee that is then payable, divided by the lowest
closing price of the Company's Common Stock for the five (5) Business Days
immediately preceding the date of delivery of such shares to the 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.
3. Representations, Warranties and Covenants of Investor.
Investor hereby represents and warrantsto and agrees with the Company as
follows:
3.1 Accredited Investor. Investor is an accredited
investor ("Accredited Investor"), as defined in Rule 501 of Regulation D,
and has checked the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or
Investor's professional advisor has been granted the opportunity to ask
questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the terms and conditions of
this Offering, the Company and its business and prospects, and to obtain any
additional information which Investor or Investor's professional advisor deems
necessary to verify the accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has
relied completely on the advice of, or has consulted with, Investor's own
personal tax, investment, legal or other advisors and has not relied on the
Company or any of its affiliates, officers, directors, attorneys, accountants or
any affiliates of any thereof and each other person, if any, who controls any of
the foregoing, within the meaning of Section 15 of the Act for any tax or legal
advice (other than reliance on information in the Disclosure Documents as
defined in Section 3.2.4 below and on the Opinion of Counsel). The foregoing,
however, does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has
such knowledge and experience in financial and business matters so as to enable
such Investor to utilize the information made available to it in connection with
this 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, 2000, (ii) the Company's quarterly report on Form 10-QSB for the
quarters ended June 30, 2000, September 30, 2000, and Xxxxx 00, 0000 (xxx) the
Risk Factors, attached as Exhibit I, (the "Risk Factors") (iv) the
Capitalization Schedule, attached as Exhibit J, (the "Capitalization Schedule")
and (v) the Use of Proceeds Schedule, attached as Exhibit K, (the "Use of
Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely on the
documents described in (a) above, the Company's representations and warranties
and other information in this Agreement, including the exhibits, documents
prepared by the Company which have been specifically provided to Investor in
connection with this Offering (the documents described in this Section 3.2.4 (a)
and (b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Investor and Investor's representatives, if
any; (c) Investor has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which have
been filed as exhibits to the Company's filings under the Act and the Exchange
Act and has had an opportunity to ask questions of and receive answers from the
Company's officers and directors; and (d) is not relying on any oral
representation of the Company or any other person, nor any written
representation or assurance from the Company other than those contained in the
Disclosure Documents or incorporated herein or therein. The foregoing, however,
does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self.
Investor has substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor acknowledges
that Investor is able to fend for Investor's self in the transaction
contemplated by this Agreement, that Investor has the ability to bear the
economic risk of Investor's investment pursuant to this Agreement and that
Investor is an "Accredited Investor" by virtue of the fact that Investor meets
the investor qualification standards set forth in Section 3.1 above. Investor
has not been organized for the purpose of investing in securities of the
Company, although such investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment
Agreement was not offered to Investor through, and Investor is not aware of,
any form of general solicitation or general advertising, including, without
limitation, (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, and (ii) any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands
that the Investment Agreement is, the Common Stock issued at each Put Closing
will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold without
registration under the Act or pursuant to an exemption therefrom. In this
connection, Investor represents that Investor is familiar with Rule 144 under
the Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a
registration statement under the Act and any applicable state securities laws
covering such proposed disposition and such disposition is made in accordance
with such registration statement and in compliance with applicable prospectus
delivery requirements; or
(b) (i) Investor shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition to the extent relevant for determination of the availability of an
exemption from registration, and (ii) if reasonably requested by the Company,
Investor shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of the Securities under the Act or state securities laws. It is agreed that the
Company will not require the Investor to provide opinions of counsel for
transactions made pursuant to Rule 144 provided that Investor and Investor's
broker, if necessary, provide the Company with the necessary representations for
counsel to the Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own
account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this
Investment Agreement, if executing this Agreement in a representative or
fiduciary capacity, has full power and authority to execute and deliver this
Agreement and each other document included herein for which a signature is
required in such capacity and on behalf of the subscribing individual,
partnership, trust, estate, corporation or other entity for whom or which
Investor is executing this Agreement. Investor has reached the age of majority
(if an individual) according to the laws of the state in which he or she
resides.
3.4.2 Due Authorization. Investor is duly and
validly organized, validly existing and in good standing as a limited liability
company under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 Partnerships. If Investor is a partnership,
the representations, warranties, agreements and understandings set forth above
are true with respect to all partners of Investor (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing
in a representative or fiduciary capacity, the representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
Investor is so purchasing.
4. Acknowledgments. Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an
investment in the Company involves substantial risks, including the potential
loss of Investor's entire investment herein. Investor recognizes that the
Disclosure Documents, this Agreement and the exhibits hereto do not purport to
contain all the information, which would be contained in a registration
statement under the Act;
4.2 No Government Approval. No federal or state agency
has passed upon the Securities, recommended or endorsed this Offering,
or made any finding or determination as to the fairness of this
transaction;
4.3 No Registration, Restrictions on Transfer. As of the date
of this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance
that any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it may
be required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the
Securities are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings set
forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire such
Securities.
4.7 Legends. The certificates representing the Put Shares
shall not bear a legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
specified 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 Nevada, 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, in the
Company's opinion, 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 Dealers, 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, in the Company's opinion, have a material adverse effect upon the
Company. The Company does not have any subsidiaries.
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects from the dates of such Disclosure
Documents through the date of the Investment Commitment Closing. The financial
statements as contained in the Company's most recent 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, or Generally Accepted Accounting Principles, as applicable),
subject, in the case of unaudited interim financial statements, to customary
year end adjustments and the absence of certain footnotes, and fairly present
the financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the periods then ended. Without limiting the foregoing, there are no
material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes that are due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the best
of the Company's knowledge, threatened against the Company, except as disclosed
in the Disclosure Documents. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would, in the Company's opinion, have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement or the Registration Rights
Agreement. The execution, delivery and performance of this Agreement and the
other agreements entered into in conjunction with this Offering and the
consummation of the transactions contemplated hereby and thereby will not (a)
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company, which would,
in the Company's opinion, have a material adverse effect on the Company's
business or prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would, in the
Company's opinion, have a material adverse effect on the Company's business or
prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed or approved for quotation
on the O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of
the date hereof subject to exercise of any outstanding warrants and/or exercise
of any outstanding stock options, and after taking into account the offering of
the Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, is as set forth in the Capitalization Schedule
as set forth in Exhibit J. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities. Except as disclosed in the Capitalization Schedule, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 Intellectual Property. To its knowledge, the Company has
valid, unrestricted and exclusive ownership of or rights to use the patents,
trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business. Exhibit L 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 L. 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 L. To
the best of the Company's knowledge after due inquiry, the Company is not
infringing on the intellectual property rights of any third party, nor is any
third party infringing on the Company's intellectual property rights. There are
no restrictions in any agreements, licenses, franchises, or other instruments
that preclude the Company from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as Exhibit K hereto. These purposes and amounts are estimates
and are subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 Company Acknowledgment. The Company hereby acknowledges
that Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has made
no representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The
Company is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The
Company is currently eligible and agrees to maintain its eligibility to register
the resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any
of its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 Key Employees. As of the date of this Agreement, each
"Key Employee" (as defined in Exhibit M) is currently serving the Company in the
capacity disclosed in Exhibit M. No Key Employee, to the best knowledge of the
Company and its subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee has,
to the best knowledge of the Company and its subsidiaries, any intention to
terminate his employment with, or services to, the Company or any of its
subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Nevada law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.22 [Intentionally Left Blank].
5.23 Major Transactions. As of the date of this
Agreement, there are no other Major Transactions currently pending or
contemplated by the Company.
5.24 Financings. As of the date of this Agreement,
there are no other financings currently pending or contemplated by the Company.
5.25 Shareholder Authorization. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small Cap
Market or the Nasdaq National Market, or at a special meeting to be held as soon
as practicable thereafter, use its reasonable 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) increase 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.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
5.27 Dilution. The number of shares of Common Stock issuable
as Put Shares may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines during the period between the Effective Date and the
end of the Commitment Period. The Company's executive officers and directors
fully understand the nature of the transactions contemplated by this Agreement
and recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, whenever the Company elects to initiate a Put, its obligation
to issue the Put Shares is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
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; Change in Corporate Entity.
The Company shall, until at least the Termination Date, maintain its corporate
existence in good standing and, once it becomes a "Reporting Issuer" (defined as
a Company which files periodic reports under the Exchange Act), remain a
Reporting Issuer and shall pay all its taxes when due except for taxes which the
Company disputes. The Company shall not, at any time after the date hereof,
enter into any merger, consolidation or corporate reorganization of the Company
with or into, or transfer all or substantially all of the assets of the Company
to, another entity unless the resulting successor or acquiring entity in such
transaction, if not the Company (the "Surviving Entity"), (i) has Common Stock
listed for trading on Nasdaq or on another national stock exchange and is a
Reporting Issuer, (ii) assumes by written instrument the Company's obligations
with respect to this Investment Agreement, the Registration Rights Agreement,
the Transfer Agent Instructions, the Warrant Antidilution Agreement, the
Warrants and the other agreements referred to herein, including but not limited
to the obligations to deliver to the Investor shares of Common Stock and/or
securities that Investor is entitled to receive pursuant to this Investment
Agreement and upon exercise of the Warrants and agrees by written instrument to
reissue, in the name of the Surviving Entity, any Warrants (each in the same
terms, including but not limited to the same reset provisions, as the applicable
Warrant originally issued or required to be issued by the Company) that are
outstanding immediately prior to such transaction, making appropriate
proportional adjustments to the number of shares represented by such Warrants
and the exercise prices of such Warrants to accurately reflect the exchange
represented by the transaction.
6.3 Registration Rights. Contemporaneously herewith, the
Company will enter into a registration rights agreement covering the resale of
the Common Shares and the Warrant Shares substantially in the form of the
Registration Rights Agreement attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 Capital Raising Limitations.
6.5.1 Capital Raising Limitations. During the
period from the date of this Agreement until the date that is ninety (90) days
after the Termination Date (the "Limitation Period"), the Company shall not
issue or sell, or agree to issue or sell Variable Equity Securities (as defined
below), for cash in private capital raising transactions or any securities of
the Company pursuant to an equity line structure or format similar in nature to
this Offering without obtaining the prior written approval of the Investor of
this Offering. For purposes hereof, the following shall be collectively referred
to herein as the "Variable Equity Securities": any debt or equity securities
which are convertible into, exercisable or exchangeable for, or carry the right
to receive additional shares of Common Stock either (i) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, (ii) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future date at
any time after the initial issuance of such debt or equity security or upon the
occurrence of specified contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock, or (iii) with a
fixed purchase price or conversion, exercise or exchange price that is less than
75% of the average closing price of the Company's Common Stock for the five (5)
trading days immediately preceding the closing of the offering.
6.5.2 [Intentionally Left Blank].
6.5.3 Exceptions to Capital Raising.
Notwithstanding the above, the Capital Raising Limitations shall not apply to
(a) any transaction involving issuances of securities by the Company to a
company being acquired by the Company, as payment to such company for such
acquisition, or in connection with the exercise of options by employees or
directors of the Company, or a primary underwritten offering of the Company's
Common Stock, (b) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (c) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan for the benefit of the Company's employees or directors, (d) the
issuance of debt securities, with no equity feature, incurred solely for working
capital purposes or (e) any financing(s) completed prior to the Effective Date
involving the issuance of an aggregate of up to 2.31 million shares of Common
Stock at a price of no less than 12 cents per share.
6.6 Financial 00-XXX Xxxxxxxxxx, Etc. and Current Reports on
Form 8-K. The Company shall deliver to the Investor copies of its annual reports
on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as Exhibit B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as Exhibit H or in
such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering instructions in the form of Exhibit O hereto, to issue certificates,
registered in the name of the Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by the
holder thereof. Such certificates shall not bear a Legend unless issuance with a
Legend is permitted by the terms of this Agreement and Legend removal is not
permitted by Section 6.8 hereof and the Company shall cause the Transfer Agent
to issue such certificates without a Legend. Nothing in this Section shall
affect in any way Investor's obligations and agreement set forth in Sections
3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If the 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, the Company shall permit the transfer, and, in the case of Put
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.10 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.10, that an
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize the
issuance of the full number of shares of Common Stock which would be issuable
pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.12 Press Release. Any public announcement relating to this
financing (a "Press Release") shall be submitted to the Investor for review at
least two (2) business days prior to the planned release. The Company shall not
disclose the Investor's name in any press release or other public announcement
without the Investor's prior written approval. The Company shall obtain the
Investor's written approval of the Press Release prior to issuance by the
Company which approval shall not be unreasonably withheld (except with respect
to the inclusion of the Investor's name in any Press Release prior to
effectiveness of a Registration Statement).
6.13 Change in Law or Policy. In the event of a change in law,
or policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, the Investor and the Company shall cooperate
to formulate an alternative structure to carry out the intent of this Agreement
which does not violate such law or policy. If the Investor and the Company are
unable to formulate such alternative structure, or such alternative structure
would involve commercially unreasonable expenses, this Agreement shall be
automatically terminated and no Termination Fee shall be due, provided that
notwithstanding any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant, in accordance with its terms,
as partial consideration for its commitment hereunder, and provided that such
termination shall have no effect on the parties' other rights and obligations
under this Agreement, the Registration Rights Agreement or the Warrant
Antidilution Agreement, except that no additional Non-Usage Fees shall accrue.
6.14. Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company shall immediately notify the
Investor, but in no event later than two (2) business days by facsimile and by
overnight courier, upon the occurrence of any of the following events in respect
of a Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
6.15 Acknowledgment Regarding Investor's Purchase of the
Securities. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by the Investor or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Investor's purchase of the
Securities. The Company further represents to the Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives and advisors.
6.16. Liquidated Damages. The parties hereto acknowledge and
agree that the sums payable as Non-Usage Fees, Termination Fees and Ineffective
Period Payments shall each give rise to liquidated damages and not penalties.
The parties further acknowledge that (a) the amount of loss or damages likely to
be incurred by the Investor is incapable or is difficult to precisely estimate,
(b) the amounts specified bear a reasonable proportion and are not plainly or
grossly disproportionate to the probable loss likely to be incurred by the
Investor, and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
6.17. Copies of Financial Statements, Reports and Proxy
Statements. Promptly upon the mailing thereof to the shareholders of the Company
generally, the Company shall deliver to the Investor copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders.
6.18. Notice of Certain Litigation. Promptly following the
commencement thereof, the Company shall provide the Investor written notice and
a description in reasonable detail of any litigation or proceeding to which the
Company or any subsidiary of the Company is a party, in which the amount
involved is $250,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought.
6.19. Term. The term ("Term") of this Agreement shall be a
period of time beginning on the date of this Agreement and ending on the
Termination Date, provided that notwithstanding the expiration of the Term and
notwithstanding any Termination or Automatic Termination, (A) the Company's
covenants in Sections 4.7, 5.1, 5.4, 6.1, 6.2, 6.3, 6.4, 6.8, 6.9, 6.10, 6.13
and 7.9 hereof shall survive and remain in full force and effect until sixty
(60) days following the later of (i) the Termination Date or (ii) the date that
all of the Warrants have been exercised, (B) the Company's covenants under
Section 7.8 and Section 9 hereof shall survive and remain in full force and
effect for the full period of time that a suit could be brought against the
Investor with respect to this Agreement, the Related Agreements or with respect
to the Registration Statement and related prospectus under any applicable
statutes of limitations, and (C) notwithstanding a Termination or Automatic
Termination, the Related Agreements between the parties shall not terminate and
shall remain in full force and effect in accordance with their respective terms.
7. Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties shall
survive the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be
assignable by either party.
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 neuter 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 and their
counsel at the addresses set forth below or such other address as a party, or
their counsel, may request by notifying the other in writing;.
Counsel to the Company: Membrado & Montell, LLP
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Tel No: (000) 000-0000
Fax No.: (000) 000-0000
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 Arbitration; Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Georgia
applicable to agreements made in and wholly to be performed in that
jurisdiction, except for matters arising under the Act or the Securities
Exchange Act of 1934, which matters shall be construed and interpreted in
accordance with such laws. Any controversy or claim arising out of or related to
the Transaction Documents or the breach thereof, shall be settled by binding
arbitration in Atlanta, Georgia in accordance with the Expedited Procedures
(Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). A proceeding shall be commenced upon written demand by
Company or any Investor to the other. The arbitrator(s) shall enter a judgment
by default against any party, which fails or refuses to appear in any properly
noticed arbitration proceeding. The proceeding shall be conducted by one (1)
arbitrator, unless the amount alleged to be in dispute exceeds two hundred fifty
thousand dollars ($250,000), in which case three (3) arbitrators shall preside.
The arbitrator(s) will be chosen by the parties from a list provided by the AAA,
and if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in Atlanta, Georgia or to the United
States District Court sitting in Georgia for purposes of enforcement of any
discovery order, judgment or award in connection with such arbitration. The
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
Although the parties, as expressed above, agree that all
claims, including claims that are equitable in nature, for example specific
performance, shall initially be prosecuted in the binding arbitration procedure
outlined above, if the arbitration panel dismisses or otherwise fails to
entertain any or all of the equitable claims asserted by reason of the fact that
it lacks jurisdiction, power and/or authority to consider such claims and/or
direct the remedy requested, then, in only that event, will the parties have the
right to initiate litigation respecting such equitable claims or remedies. The
forum for such equitable relief shall be in either a state or federal court
sitting in Atlanta, Georgia. Each party waives any right to a trial by jury,
assuming such right exists in an equitable proceeding, and irrevocably submits
to the jurisdiction of said Georgia court. Georgia law shall govern both the
proceeding as well as the interpretation and construction of the Transaction
Documents and the transaction as a whole.
7.9 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg L.P. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any Put
Share Price) by wire transfer, to the Company pursuant
to a wire instruction letter to be provided by the
Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges
and agrees, subject to the provisions of any applicable
laws providing for the refund of subscription amounts
submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to
cancel, terminate or revoke this Agreement or any other
agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other
agreements shall survive the death or disability of
such Investor and shall be binding upon and inure to
the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and
assigns. If the Securities subscribed for are to be
owned by more than one person, the obligations of all
such owners under this Agreement shall be joint and
several, and the agreements, representations,
warranties and acknowledgments herein contained shall
be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators,
successors, legal representatives and assigns.
9. Indemnification and Reimbursement.
(a) Indemnification. In consideration of the
Investor's execution and delivery of the Investment Agreement, the Registration
Rights Agreement and the Warrants (the "Transaction Documents") and acquiring
the Securities thereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless Investor and all of its stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents, members, partners or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorney's fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim,
derivative or otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors of their
fiduciary or other obligations to the stockholders of the Company, or (d) claims
made by third parties against any of the Indemnitees based on a violation of
Section 5 of the Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to the
Registration Statement.
To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which it would be required to make if such foregoing undertaking was
enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of
the commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made against
the other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
(b) Reimbursement. If (i) the Investor,
other than by reason of its gross negligence or willful misconduct, becomes
involved in any capacity in any action, proceeding or investigation brought by
any stockholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, or
if the Investor is impleaded in any such action, proceeding or investigation by
any person or entity, or (ii) the Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Investor is
impleaded in any such action, proceeding or investigation by any person or
entity, then in any such case, the Company will reimburse the Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation ) incurred in connection therewith, as such expenses are incurred.
In addition, other than with respect to any matter in which the Investor is a
named party, the Company will pay the Investor the charges, as reasonably
determined by the Investor, for the time of any officers or employees of the
Investor devoted to appearing and preparing to appear as witnesses, assisting in
preparation for hearing, trials or pretrial matters, or otherwise with respect
to inquiries, hearing, trials, and other proceedings relating to the subject
matter of this Agreement. The reimbursement obligations of the Company under
this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Investor who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Investor and any such Affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Investor and any such
Affiliate and any such person or entity. The Company also agrees that neither
the Investor nor any such Affiliate, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the Investor
or any inaccuracy in any representation or warranty of the Investor contained
herein or any breach by the Investor of any of the provisions hereof.
[INTENTIONALLY LEFT BLANK]
10. Accredited Investor. Investor is an "accredited
investor" because (check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] ___________________________.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 6th day of June, 2001.
XXXXXX PRIVATE EQUITY, LLC
By: /s/ Xxxx X. Xxxxxx
---------------------------
Xxxx X. Xxxxxx, Manager
SECURITY DELIVERY INSTRUCTIONS:
Xxxxxx Private Equity, LLC
c/o Xxxx X. Xxxxxx
000 Xxxxxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 6TH DAY OF JUNE, 2001.
XXXXXX.XXX, INC.
By: /s/ Xxxxxx Xxxxxx
------------------------------
Xxxxxx Xxxxxx, President
Address:
Attn: Xxxxxx Xxxxxx, President
00000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT D
ADVANCE PUT NOTICE
XxxxXx.xxx, 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 June 6, 2001.
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):
________________________________________.
XXXXXX.XXX, INC.
By:
_________________________________
Xxxxxx Xxxxxx, President
Address:
Attn: Xxxxxx Xxxxxx, President
00000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT E
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
XxxxXx.xxx, 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 June 6, 2001.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT F
PUT NOTICE
XxxxXx.xxx, 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 June 6, 2001.
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.
XXXXXX.XXX, INC.
By:
---------------------------
Xxxxxx Xxxxxx, President
Address:
Attn: Xxxxxx Xxxxxx, President
00000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000
Telephone (000) 000-0000
Facsimile (000) 000-0000
EXHIBIT G
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
XxxxXx.xxx, 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 June 6, 2001.
Date of Confirmation: ____________________
Date of Put Notice: _______________
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.: ____________________________________
