Exhibit 10.31
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July
26, 2001 by and between Data Race, Inc., a corporation organized and existing
under the corporate law of the State of Texas (the "Company") and Grenville
Finance Ltd. (the "Purchaser"), a British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $30,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of, $30,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto, (the "Initial Closing") shall take place at the offices of Xxxxxxx
Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to this Agreement for late delivery of the Draw
Down Shares and the Registration Rights Agreement for a suspension of the
Registration Statement or the Purchaser's right to resell the Draw Down Shares
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely
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to be incurred is incapable or is difficult to precisely estimate, (b) the
amount specified in such provisions bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be incurred
by the Purchaser in connection with the failure of the Company to deliver the
Draw Down Shares in a timely manner or the suspension of the Purchaser's rights
to resell the Draw Down Shares under the Registration Statement, and (c) the
parties are sophisticated businesses and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. Except as set
forth in the SEC Documents or on the Disclosure Schedule prepared by the Company
and attached hereto, or as contemplated by this Agreement, the Company hereby
makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under
the laws of the State of Texas and has all requisite corporate authority to
own, lease and operate its properties and assets and to carry on its
business as now being conducted. The Company does not have any active
subsidiaries and does not own more than fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not
have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares pursuant to their respective terms, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required, and
(iii) the Transaction Documents have been duly executed and delivered by
the Company and at the Initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 70,000,000 shares of Common Stock of which 29,986,153 shares
are issued and outstanding, and no shares of preferred stock. All of the
outstanding shares of the Company's Common Stock have been duly and validly
authorized and are fully paid and non-assessable except as set forth in the
SEC Documents. No shares of Common Stock
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are entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company. There
are no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. The Company is not a party to any
agreement granting registration rights to any person with respect to any of
its equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of the Company. The Company has made available
to the Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof (the
"Charter"), and the Company's bylaws as in effect on the date hereof (the
"Bylaws"). The Company has not received any notice from the Principal
Market questioning or threatening the continued inclusion of the Common
Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the
Warrant, the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Purchaser shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any
provision of the Company's Charter or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by which
the Company is bound or by which any of its respective properties or assets
are bound, or (iv) result in a violation of any federal, state, local or
other foreign statute, rule, regulation, order, judgment or decree
(including any federal or state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset
of the Company or any of its subsidiaries are bound or affected, except, in
all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or
in the aggregate, have a Material Adverse Effect. The business of the
Company and its subsidiaries is not being conducted in violation of any
laws, ordinances or regulations of any governmental entity, except for
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under any federal,
state or local law, rule or regulation to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of
its obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be
required to be made by the Company with the SEC or state securities
administrators and any registration statement which may be filed pursuant
hereto); provided, however, that for purpose of the
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representations made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act, and,
the Company is current with all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has
delivered or made available to the Purchaser, through the XXXXX system or
otherwise, true and complete copies of the SEC Documents filed with the SEC
since December 31, 1998. The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements under GAAP and the published rules and regulations of the SEC
or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may
not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents or the Disclosure Schedule
attached hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the
percentage of the Company's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly
or indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each subsidiary have
been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding
upon any subsidiary for the purchase or acquisition of any shares of
capital stock of any subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any shares of
such capital stock. Neither the Company nor any subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any
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shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of any subsidiary.
(h) No Material Adverse Effect. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10-KSB), whichever is most current, no Material Adverse
Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on the Disclosure Schedule attached
hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or on the Disclosure Schedule attached hereto, neither the
Company nor any of its subsidiaries has any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) that would be required to be
disclosed on a balance sheet of the Company or any subsidiary (including
the notes thereto) in conformity with GAAP which are not disclosed in the
SEC Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since such date and
which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10- Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the SEC Documents.
(k) Indebtedness. The SEC Documents or the Disclosure Schedule
attached hereto sets forth as of the date hereof all outstanding secured
and unsecured Indebtedness of the Company or any subsidiary, or for which
the Company or any subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (A) any liabilities for borrowed money
or amounts owed in excess of $500,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (C) the present value of any lease
payments in excess of $500,000 due under leases required to be capitalized
in accordance with GAAP. Neither the Company nor any subsidiary is in
default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in
the SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC
Documents or such that do not
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cause a Material Adverse Effect. All said real property leases of the
Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of
their respective properties or assets, which action, suit, claim,
investigation or proceeding would have a Material Adverse Effect. There are
no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or
any subsidiary except those orders, judgments, injunctions, awards or
decrees which would not have a Material Adverse Effect.
(n) Compliance with Law. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects, and have been prepared in
compliance with all applicable laws; except as set forth in the SEC
Documents the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1999, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are to its knowledge adequate to
cover any Tax liabilities of the Company if its current tax year were
treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is
or may be subject to taxation by that jurisdiction. Except as set forth in
the SEC Documents, there are no foreign, federal, state or local tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company or
any subsidiary from any foreign, federal, state or local taxing authority.
Except as set forth in the SEC Documents, there are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to ss. 7121
of the Internal Revenue Code or any predecessor
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provision thereof or any similar provision of state, local or foreign law;
and (B) has not agreed to or is required to make any adjustments pursuant
to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United
States real property holding corporation within the meaning of ss.
897(c)(2) of the Internal Revenue Code during the applicable period
specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code.
The Company has not made an election under ss.341 (f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not
made any payments, is not obligated to make payments nor is it a party to
an agreement that could obligate it to make any payments that would not be
deductible under ss. 280G of the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(p) Certain Fees. Except for the fees paid to Hadrian Investments
Limited pursuant to the Escrow Agreement, no brokers, finders or financial
advisory fees or commissions will be payable by the Company or any
subsidiary with respect to the transactions contemplated by this Agreement.
(q) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents
or the Disclosure Schedule attached hereto, and all rights with respect to
the foregoing, which to its knowledge would be reasonably necessary for the
conduct of its business as now conducted without any conflict with the
rights of others.
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(r) Books and Records. The records and documents of the Company and
its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries,
the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
(s) Material Agreements. The Company and each of its subsidiaries has
in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge are not in
default under any Material Agreement now in effect, the result of which
would cause a Material Adverse Effect. Except as set forth in the SEC
Documents, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits
or shall limit the payment of dividends on the Company's Common Stock.
(t) Transactions with Affiliates. There are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company, any subsidiary or any of their respective customers or
suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning 5% or more of the capital stock of the
Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(u) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Shares or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person (other than
the Purchaser), so as to bring the issuance and sale of the Shares under
the registration provisions of the Securities Act and applicable state
securities laws. Neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) in connection with the offer or sale of the
Shares.
(v) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees. Neither the Company nor any subsidiary is in breach of any
employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating
to the right of any officer, to be employed or engaged by the Company or
such subsidiary. Since the date of the December 31, 2000 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
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(w) Absence of Certain Developments. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10KSB), whichever is most current, neither the Company nor
any subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any
shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the
ordinary course of business or to the Purchaser or its
representatives;
(vii) suffered any material losses (except for anticipated losses
consistent with prior quarters) or waived any rights of material
value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(x) entered into any other material transaction, whether or not
in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
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(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries.
(x) Governmental Approvals. Except for the filing of any notice prior
or subsequent to any Settlement Date that may be required under applicable
federal or state securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or
post-effective amendment pursuant to this Agreement, no authorization,
consent, approval, license, exemption of, filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereunder. The Company further represents to the Purchaser
that the Company's decision to enter into this Agreement has been based
solely on (a) the Purchaser's representations and warranties in Section
2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under
the laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to
purchase the Shares being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and at the Initial Closing shall constitute
valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which the Purchaser is a party, or result in a
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violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits
of an investment in the Shares by virtue of its experience as an investor
and its knowledge, experience, and sophistication in financial and business
matters and the Purchaser is capable of bearing the entire loss of its
investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in
order to determine the suitability of the Purchaser to acquire the Shares.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down, the
Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, (i) at no time will the
Company request a Draw Down which would result in the issuance of an aggregate
number of shares of Common Stock pursuant to this Agreement which exceeds 19.9%
of the number of shares of Common Stock issued and outstanding on the Initial
Closing Date without obtaining stockholder approval of such excess issuance, or
such other amount as would require stockholder approval under rules of the
Principal Market or otherwise without obtaining stockholder approval of such
excess issuance, and (ii) the Company may not make a Draw Down to the extent
that, after such purchase by the Purchaser, the sum of the number of shares of
Common Stock beneficially
11
owned by the Purchaser and its affiliates would result in beneficial ownership
by the Purchaser and its affiliates of more than 9.9% of the then outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal Market, in accordance with its rules and regulations, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrant
to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Purchaser has disposed of all of the
Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
12
Section 3.7. Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will promptly notify the Purchaser
in writing upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any 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 the 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 Shares 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 the 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 the 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; and (v) the Company's
reasonable determination that the filing of a post-effective amendment to or the
withdrawal of the Registration Statement would be appropriate. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation of any
of the foregoing events. The Company shall promptly make available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time, provided that the registration statement and any supplements and
amendments thereto are then effective, the Company may recommence the delivery
of Draw Down Notices.
Section 3.11. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
13
Section 3.12. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the then current market price (including securities
convertible, exchangeable, adjustable or which may be reset at a discount to the
then current market price) until the earlier of (i) 36 months from the Effective
Date, (ii) sixty (60) days after the entire Commitment Amount has been purchased
by the Purchaser, or (iii) the date this Agreement is terminated pursuant to the
terms herein. The foregoing shall not prevent or limit the Company from engaging
in any sale of securities (i) in a registered public offering by the Company
which is underwritten by one or more established investment banks (not including
an "equity line" type of financing), (ii) pursuant to a private placement where
the investors do not have registration rights, (iii) pursuant to any
compensatory plan for a full-time employee or key consultant, (iv) in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money, or (v) to which Purchaser gives
its prior written consent. Further, the Purchaser shall have a right of first
refusal to undertake and complete such subsequent transaction in the case of
(i), (ii) and (v) above. Such right of first refusal must be exercised in
writing within five (5) Trading Days of the Purchaser's receipt of notice of the
proposed terms of such financing or the right to participate in such financing
shall be waived.
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes,
including the retirement of outstanding convertible debentures.
The Purchaser covenants with the Company as follows:
Section 3.14. Compliance with Law.
The Purchaser agrees that its trading activities with respect to shares of
the Company's Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and rules and regulations of the
Principal Market on which the Company's Common Stock is listed. Without limiting
the generality of the foregoing, the Purchaser agrees that it will, whenever
required by federal securities laws, deliver the prospectus included in the
Registration Statement to any purchaser of Shares from the Purchaser.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement
14
Date as though made at that time, except for representations and warranties
that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Initial Closing and as of each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and
no investigation by any governmental authority shall have been threatened,
against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated as of the
Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant to purchase up to a number of shares of Common
Stock equal to
15
$1,000,000 divided by the average of the VWAPs during the 15 Trading Days
immediately prior to the Initial Closing (the "Warrant Base Price"). The
Warrant shall have a term from its initial date of exercise of 3 years. The
exercise price of the Warrant shall be 110% of the Warrant Base Price. The
Common Stock underlying the Warrant will be registered in the Registration
Statement referred to in Section 4.3 hereof. The Warrant shall be in the
form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied, or the Purchaser shall have waived at the Initial Closing,
the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares, subject to the Draw Down request, shall have been
declared effective by the SEC and shall remain effective on each Settlement
Date.
(c) No Suspension. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down
Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Principal Market shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal Market
unless the general suspension or limitation shall have been terminated
prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform
the Company's obligations shall have occurred, such occurrences to be
determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there is
no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as
to the additional items specified in Exhibit C hereto.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
16
(a) The Company may, in its sole discretion, issue and exercise draw
downs (each a "Draw Down") during the Commitment Period, which Draw Downs
the Purchaser shall be obligated to accept, subject to the terms and
conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period. There shall be a minimum of five (5) Trading Days between Draw Down
Pricing Periods. The number of shares of Common Stock purchased by the
Purchaser with respect to each Draw Down shall be determined as set forth
in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 11th Trading Day during the Draw
Down Pricing Period, on or before the 13th Trading Day after such Draw
Down Pricing Period commences; and
(ii) as to the 12th through the 22nd Trading Day during the Draw
Down Pricing Period commences, on or before the 24th Trading Day after
such Draw Down Pricing Period (such settlement periods and such
settlement dates in subsection (i) and this subsection (ii) each
referred to as a "Settlement Period" and a "Settlement Date",
respectively).
(c) In connection with each Draw Down Pricing Period, the Company may
set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000
and the maximum Investment Amount as to each Draw Down shall be the lesser
of (i) $1,000,000, and (ii) 15% of the EQY weighted average price field (as
reported on Bloomberg Financial L.P. using the BLPH function) for the
Common Stock for the 30 calendar days immediately prior to the applicable
Commencement Date (defined below) multiplied by the total trading volume in
respect of the Common Stock for such period; Notwithstanding anything
herein to the contrary, in the event the minimum Investment Amount is
greater than the maximum Investment Amount, as to such Draw Down only, the
minimum Investment Amount shall equal the maximum Investment Amount, but in
no event shall the minimum Investment Amount be less than $50,000, such
that if the maximum Investment Amount is less than $50,000, then the
Company shall be precluded from exercising a Draw Down at such time.
(e) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x) 1/22nd
of the Investment Amount, and (y) the Purchase Price on each Trading Day
within the Settlement Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is less than the Threshold
Price, then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/22nd of the
Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period;
17
(ii) if during any Trading Day during the Settlement Period
trading of the Common Stock on the Principal Market is suspended for
more than three (3) hours, in the aggregate, or if any Trading Day
during the Settlement Period is shortened because of a public holiday,
then that portion of the Investment Amount to be paid on the
immediately pending Settlement Date shall be reduced by 1/22nd of the
Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period; and
(iii) if during any Trading Day during the Settlement Period
sales of Draw Down Shares pursuant to the Registration Statement are
suspended by the Company in accordance with Sections 3(j) or 5(e) of
the Registration Rights Agreement for more than three (3) hours, in
the aggregate, during the Settlement Period, then that portion of the
Investment Amount to be paid on the immediately pending Settlement
Date shall be reduced by 1/22nd of the Investment Amount and such
Trading Day shall be withdrawn from the Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise,
before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down Notice,
the Draw Down Notice must be delivered to and receipt confirmed by the
Purchaser at least one (1) hour before trading commences on such date. At
no time shall the Purchaser be required to purchase more than the maximum
Investment Amount for a given Draw Down Pricing Period so that if the
Company chooses not to exercise the maximum Investment Amount in a given
Draw Down Pricing Period the Purchaser is not obligated to and shall not
purchase more than the scheduled maximum Investment Amount in a subsequent
Draw Down Pricing Period.
(g) On each Settlement Date, the Shares purchased by the Purchaser
shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf. Upon the Company electronically delivering whole shares
of Common Stock to the Purchaser or its designees via DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. EST, the
Purchaser shall wire transfer immediately available funds to the Company's
designated account on such day, less any fees as set forth in the Escrow
Agreement, which fees shall be wired as directed in the Escrow Agreement.
Upon the Company electronically delivering whole shares of Common Stock to
the Purchaser or its designees DTC account via DWAC after 1:00 p.m. EST,
the Purchaser shall wire transfer next day available funds to the Company's
designated account on such day, less any fees as set forth in the Escrow
Agreement, which fees shall be wired as directed in the Escrow Agreement.
In the event that either party elects to use the Escrow Agent, the Shares
shall be credited by the Company to the DTC account designated by the
Purchaser via DWAC upon receipt by the Escrow Agent of payment for the Draw
Down Shares into the Escrow Agent's master escrow account, as further set
forth in the Escrow Agreement. The Escrow Agent shall be directed to pay
the purchase price to the Company, net of $1,000 per Settlement as escrow
expenses to the Escrow Agent and any additional fees as set forth in the
Escrow Agreement. The Company
18
understands that a delay in the delivery of the Draw Down Shares into the
Purchaser's DTC account beyond 3 Trading Days after the dates set forth
herein or in the Escrow Agreement, as the case may be, could result in
economic loss to the Purchaser. Notwithstanding anything herein to the
contrary, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late delivery after 3
Trading Days from such dates in accordance with the following schedule
(where "No. Trading Days Late" is defined as the number of Trading Days
beyond three 3 Trading Days from the dates set forth herein or in the
Escrow Agreement, as the case may be, on which such Draw Down Shares are to
be delivered into the Purchaser's DTC account via the DWAC system):
--------------------------------------------------------------------------------
No. Trading Days Xxxx Xxxx Payment for Each
$5,000 of Draw Down Shares
Being Purchased
--------------------------------------------------------------------------------
1 $100
--------------------------------------------------------------------------------
2 $200
--------------------------------------------------------------------------------
3 $300
--------------------------------------------------------------------------------
4 $400
--------------------------------------------------------------------------------
5 $500
--------------------------------------------------------------------------------
6 $600
--------------------------------------------------------------------------------
7 $700
--------------------------------------------------------------------------------
8 $800
--------------------------------------------------------------------------------
9 $900
--------------------------------------------------------------------------------
10 $1,000
--------------------------------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
--------------------------------------------------------------------------------
The Company shall pay any payments incurred under this Section 5.1(g)
in immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company,
including, without limitation, the Purchaser's actual losses occasioned by
any "buy-in" of Common Stock necessitated by such late delivery.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end on the earlier of 36 months from the Effective Date or as
otherwise set forth in Section 6.2.
Section 6.2. Other Termination.
19
(a) This Agreement shall terminate upon one (1) Trading Day's notice
if (i) an event resulting in a Material Adverse Effect has occurred and has
not been cured for a period of thirty (30) days after giving written notice
thereof, (ii) the Common Stock is de-listed from the Principal Market
unless such de-listing is in connection with the Company's subsequent
listing of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, the American Stock Exchange, the OTC Bulletin Board or the New York
Stock Exchange, or (iii) the Company files for protection from creditors
under any applicable law.
(b) The Company may terminate this Agreement upon one (1) Trading
Day's notice if the Purchaser shall fail to fund more than one properly
noticed Draw Down within five (5) Trading Days of the end of the applicable
Settlement Period.
Section 6.3. Effect of Termination.
In the event of termination of this Agreement pursuant to Section 6.2
herein, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 6.1 or 6.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 8.1, 8.2 and 8.9, and Article 7 herein.
Nothing in this Section 6.3 shall be deemed to release the Company or the
Purchaser from any liability for any breach under this Agreement, or to impair
the rights of the Company or the Purchaser to compel specific performance by the
other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser
(and its directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Purchaser as a result of
any material inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company
and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Company as result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein. Notwithstanding anything to the
contrary herein, the Purchaser shall be liable under this Section 7.1(b)
for only that amount as does not exceed the net proceeds to the Purchaser
as a result of the sale of the Shares.
20
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
21
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth in the Escrow
Agreement, each of the parties to this Agreement shall pay its own fees and
expenses related to the transactions contemplated by this Agreement. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or waivers
of this Agreement, the Escrow Agreement or the Registration Rights Agreement or
incurred in connection with the enforcement of this Agreement, the Escrow
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys' fees and expenses if such subsequent amendment,
modification or waiver is at the request of the Company. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire understanding of the parties with respect to the matters covered in
the Transaction Documents. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx, Xxxxx 00000
Attn: Xxxxxxx XxXxxxxxx, President & CEO
Tel: (000) 000-0000
Fax: (972) [_______]
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With copies to: Xxxxxxx Xxxxxx L.L.P.
(which shall not constitute 000 Xxxx Xxxxxx, Xxxxx 0000
notice) Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxx, III
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: x/x Xxxxxxx Xxxxxxxx
X.X. Xxx 000
Road Town, Tortola
British Virgin Islands
Attn: Francois Morax
Fax: 000-000-000-0000
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not constitute 000 Xxxx Xxxxxx
xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 8.5. Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. No Third Party Beneficiaries.This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions thereof. The Company and
the Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
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be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one or more
of the provisions or part of the provisions contained in this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement and this Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to
24
the maximum extent possible, so long as such construction does not materially
adversely affect the economic rights of either party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term
in Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (i) the date on
which the Purchaser shall have exercised an aggregate amount of Draw Downs
equal to the Commitment Amount, (ii) the date this Agreement is terminated
in accordance with the terms hereof, or (iii) the date occurring thirty-six
(36) months from the Effective Date.
(d) "Common Stock" shall mean the Company's common stock, no par value
per share.
(e) "Disclosure Schedule" shall mean the schedules prepared by the
Company and attached hereto.
(f) "Draw Down" shall have the meaning assigned to such term in
Section 5.1(a) hereof.
(g) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(h) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down
Notice (as defined in Section 5.1(f) herein); provided, however, the Draw
Down Pricing Period shall not begin before the day on which receipt of such
notice is confirmed by the Purchaser.
25
(i) "DTC" shall have the meaning assigned to such term in Section
5.1(g).
(j) "DWAC" shall have the meaning assigned to such term in Section
5.1(g).
(k) "Effective Date" shall mean the date the Registration Statement of
the Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(m) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(n) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(o) "Initial Closing Date" shall have the meaning assigned to such
term in Section 1.2 hereof.
(p) "Investment Amount" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(q) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the
ability of the Company to perform any of its material obligations under
this Agreement or the Registration Rights Agreement or to perform its
obligations under any other Material Agreement.
(r) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy
of which is required to be filed with the SEC as an exhibit to any of the
SEC Documents.
(s) "Principal Market" shall mean initially the Nasdaq National Market
and shall include the American Stock Exchange, Nasdaq Small-Cap Market, the
OTC Bulletin Board and the New York Stock Exchange if the Company becomes
listed and trades on such market or exchange after the date hereof.
(t) "Purchase Price" shall mean, with respect to Shares purchased
during each applicable Settlement Period, 82.5% of the VWAP on the date in
question.
(u) "Registration Statement" shall mean the registration statements
under the Securities Act, to be filed with the Securities and Exchange
Commission for the
26
registration of the Shares pursuant to the Registration Rights Agreement
attached hereto as Exhibit A (the "Registration Rights Agreement).
(v) "SEC" shall mean the Securities and Exchange Commission.
(w) "SEC Documents" shall mean the Company's latest Form 10-K or Form
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation
to maintain the effectiveness of a Registration Statement as set forth in
the Registration Rights Agreement.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(y) "Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account via DTC's DWAC System in exchange for payment
therefor.
(z) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(aa) "Settlement Period" shall have the meaning assigned to such term
in Section 5.1(b).
(bb) "Shares" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (the "Draw Down Shares") and the
shares of Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(cc) "Threshold Price" shall mean the price per Share designated by
the Company as the lowest VWAP during any Draw Down Pricing Period at which
the Company shall sell its Common Stock in accordance with this Agreement.
(dd) "Trading Day" shall mean any day on which the Principal Market is
open for business.
(ee) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(ff) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02
p.m. Eastern Time) using the VAP function on the date in question.
(gg) "Warrant" shall mean the warrant issued to the Purchaser pursuant
to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
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[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this 26th day of
July, 2001.
DATA RACE, INC.
By: /s/ Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx, President & CFO
Grenville Finance Ltd.
By: /s/ Francois Morax
Francois Morax, Authorized Signatory
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