1
GO ONLINE NETWORKS CORPORATION
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT J.
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THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the ___ day of
, 1999, by and between Go Online Networks Corporation, a corporation duly
organized and validly existing under the laws of the State of Delaware (the
"Company"), and the undersigned Investor executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, par value $0.001 per share (the "Common
Stock"), as part of an offering of Common Stock by the Company to Investor, for
a maximum aggregate offering amount of Ten Million Dollars ($10,000,000) (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 pursuant to
the Company's Registration Statement on Form SB-2, file number 333-88615 filed
on October 7, 1999 under the Securities Act of 1933, as amended (the "Act").
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Investment Agreement (including the
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recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.26.
"AAA" shall have the meaning set forth in Section 7.8.
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.5.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.6.3(b).
"Agreement" shall mean this Investment Agreement.
"Annual Commitment Amount" shall have the meaning set forth in Section 2.7.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bid Price" shall mean the bid price of the Common Stock on the Company's
Principal Market.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is open
for business.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month (the "Numeric Day") and for Calendar Months
thereafter, beginning on the earlier of (i) the same Numeric Day of the next
calendar month or (ii) the last day of the next calendar month. Each Calendar
Month shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.6.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, and shall be attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on the 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 of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by such principal securities exchange or trading market, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security, or,
if no closing bid price is reported for such security, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Investor in this Offering. If the
Company and the Investor in this Offering are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved by an
investment banking firm mutually acceptable to the Company and the Investor in
this offering and any fees and costs associated therewith shall be paid by the
Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.7.
"Commitment Warrant" shall have the meaning set forth in Section 2.7.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company, par value $0.001
per share.
"Company" shall mean Go Online Networks Corporation, a corporation duly
organized and validly existing under the laws of the State of Delaware.
"Company Termination" shall have the meaning set forth in Section 2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set forth
in Section 2.2.4.
"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 2.6.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Extended Put Period" shall mean the period of time between the Advanced
Put Notice Date until the Pricing Period End Date.
"Gross Discount Amount," for each Purchase of Put Shares, shall equal the
product of (i) the difference of one minus the quotient obtained when the Put
Share Price for such Purchase is divided by the Market Price for such Purchase,
multiplied by (ii) the Put Dollar Amount paid to the Company by the Investor for
the Put Shares in that Purchase.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in this
Investment Agreement and the Registration Rights Agreement) becomes ineffective
or unavailable for use for the sale or resale, as applicable, of any or all of
the Registrable Securities (as defined in the Investment Agreement and
Registration Rights Agreement) for any reason (or in the event the prospectus
under either of the above is not current and deliverable) during any time period
required under this Investment Agreement and the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.3.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.18, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Look Back Period" shall mean the period of ten (10) consecutive trading
days during the Pricing Period ending immediately prior to the Put Closing Date.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Investment Agreement and the Registration
Rights Agreement). For purposes hereof, an entity shall have Substantially
Similar Trading Characteristics as the Company if the average daily dollar
trading volume of the common stock of such entity is equal to or in excess of $
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the average of the five (5) lowest Closing Bid
Prices for the Common Stock on the Principal Market during the Look Back Period
for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Offering Amount" shall mean Ten Million Dollars ($10,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"NYSE" shall have the meaning set forth in Section 6.10.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date.
"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 Purchase Warrant Opinion
of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall have the meaning set forth in Section 2.3.7(b).
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Pricing Period Extension" shall have the meaning set forth in Section
2.3.7(b).
"Principal Market" shall mean the Nasdaq Small Cap Market, the O.T.C.
Bulletin Board, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7(a).
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from Company's
independent counsel, substantially in the form attached as Exhibit O, or such
other form as agreed upon by the parties, as to the issuance of Purchase
Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth in
Section 2.3.13(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the Put Share Price with respect to such Put Date, subject to the limitations
herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall mean those shares of the Common Stock of the
Company together with any capital stock issued in replacement of, in exchange
for or otherwise in respect of such Common Stock, that are: (i) issuable or
issued to the Investor pursuant to this Investment Agreement, and (ii) issuable
or issued upon exercise of the Warrants; provided, however, that notwithstanding
the above, the following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to be Registrable
Securities, if and to the extent that those shares of Common Stock may be resold
in a public transaction without volume limitations or other material
restrictions without registration under the Act, including without limitation,
pursuant to Rule 144 under the Act; and
(b) any shares of Common Stock which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
parties.
"Registration Statement" shall mean the Registration Statement filed by the
Company on Form SB-2 on October 7, 1999 covering the offer and sale of the
Registrable Securities pursuant to this Agreement.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"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 5.26.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the Effective Date of this Agreement and ending on the
Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date of this Agreement, or (ii) the date that is
thirty (30) Business Days after the later of (a) the Put Closing Date on which
the sum of the aggregate Put Share Price for all Put Shares equals the Maximum
Offering Amount, (b) the date that the Company has delivered a Termination
Notice to the Investor, and (c) the date that all of the Warrants have been
exercised.
"Termination Notice" shall have the meaning as set forth in Section 2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.7(b).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.13(b).
"Twelve Month Anniversary" shall mean the date that is the same Numeric Day
of the twelfth (12th) calendar month after the Investment Date, and the date
that is the same Numeric Day of each twelfth (12th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Unlegended Share Certificates" shall mean a certificate or certificates
(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, 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.
"Variable Priced Securities" shall have the meaning set forth in Section
6.6.1.
"Warrant Shares" shall mean the Common Stock issuable upon exercise of the
Warrants and the Commitment Warrants.
"Warrants" shall mean the Purchase Warrants and the Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock and accompanying Warrants as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Puts pursuant to Section 2.3
below.
2.2 Investment Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Investment Commitment Closing. The closing of this Investment
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Investment Agreement and the Registration Rights Agreement have been
executed by both Investor and the Company, and the other Conditions to
Investor's Obligations set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Investor's Obligations. As a prerequisite to the
Investment Commitment Closing and the Investor's obligations hereunder, all of
the following (the "Conditions to Investor's Obligations") shall have been
satisfied prior to or concurrently with the Company's execution and delivery of
this Agreement:
(a) the following documents shall have been delivered to the Investor: (i)
the Registration Rights Agreement, in the form attached hereto as Exhibit A, or
such other form as agreed upon by the parties, (the "Registration Rights
Agreement") (executed by the Company and Investor), (ii) the Investment
Commitment Opinion of Counsel (signed by the Company's counsel), and (iii) 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 Registration Statement on Form SB-2, File No. 333-88615,
shall have been declared effective by the SEC;
(d) the Company's Common Stock shall be listed for trading and actually
trading on the O.T.C. Bulletin Board or the Nasdaq Small Cap Market;
(e) other than continuing losses described in the Risk Factors set forth in
the Disclosure Documents (provided for in Section 3.2.4), as of the Closing
there have been no material adverse changes in the Company's business 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
(f) the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects and the conditions to
Investor's obligations set forth in this Section 2.2.4 shall have been satisfied
as of such Closing; and the Company shall deliver an Officer's Certificate,
signed by an officer of the Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual Put Limit,
the Maximum Offering Amount and the Cap Amount (if applicable), and the other
conditions and limitations set forth in this Agreement, at any time beginning on
the date on which the Registration Statement is declared effective by the SEC
(the "Effective Date"), the Company may, in its sole and absolute discretion,
elect to exercise one or more Puts according to the following procedure:
(a) Delivery of Advance Put Notice. At least ten (10) Business Days but not
more than twenty (20) Business Days prior to any intended Put Date (unless
otherwise agreed in writing by the Investor), the Company shall deliver advance
written notice (the "Advance Put Notice," the form of which is attached hereto
as Exhibit E, the date of such Advance Put Notice being the "Advance Put Notice
Date") to Investor stating the Put Date for which the Company shall, subject to
the limitations and restrictions contained herein, exercise a Put and stating
the number of shares of Common Stock (subject to the Individual Put Limit and
the Maximum Put Dollar Amount) which the Company intends to sell to the Investor
(the "Intended Put Share Amount").
Notwithstanding the above, if more than two (2) Calendar Months have passed
since the date of the previous Put Closing, the Company shall deliver the
Advance Put Notice at least twenty (20) Business Days prior to any intended Put
Date, unless waived in writing by the Investor. In order to effect delivery of
the Advance Put Notice, the Company shall (i) send the Advance Put Notice by
facsimile on such date so that such notice is received by the Investor by 6:00
p.m., New York time, and (ii) surrender such notice on such date to a courier
for overnight delivery to the Investor (or two (2) day delivery in the case of
an Investor residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Advance Put Notice, the Investor shall, within two (2)
Business Days, send, via facsimile, a confirmation of receipt (the "Advance Put
Notice Confirmation," the form of which is attached hereto as Exhibit F) of the
Advance Put Notice to the Company specifying that the Advance Put Notice has
been received and affirming the intended Put Date and the Intended Put Share
Amount.
(b) Put Share Amount. The "Put Share Amount" is the number of shares of
Common Stock that the Investor shall be obligated to purchase in a given Put,
and shall equal the lesser of (i) the Intended Put Share Amount, and (ii) the
Individual Put Limit. The "Individual Put Limit" shall equal 20% of the sum of
the daily reported trading volume in the outstanding Common Stock on the
Company's Principal Market during the Pricing Period, as extended or shortened
under the terms hereof. Notwithstanding the above, the Company shall have the
right to seek a one-time waiver of the "Put Share Amounts" and depending on
market conditions and business operations, such waiver shall not be unreasonably
withheld
(c) Put Share Price. The purchase price for the Put Shares (the "Put Share
Price") shall equal 82.5% of the Market Price for such Put.
(d) Delivery of Put Notice. After delivery of an Advance Put Notice, on the
Put Date specified in the Advance Put Notice, or on the sixth (6th) Business Day
following the last day of the previous Pricing Period, whichever is later, the
Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date and (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"). 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 time, and (ii) surrender such notice on
the Put Date to a courier for overnight delivery to the Investor (or two (2) day
delivery in the case of a Investor residing outside of the U.S.). Upon receipt
by the Investor of a facsimile copy of the Put Notice, the Investor shall,
within two (2) Business Days, send, via facsimile, a confirmation of receipt
(the "Put Notice Confirmation," the form of which is attached hereto as Exhibit
H) of the Put Notice to Company specifying that the Put Notice has been received
and affirming the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the Put Date for such
Put, the Company shall deliver the Required Put Documents (as defined in Section
2.3.5 below) to the Investor (or to an agent of Investor, if Investor so
directs). Unless otherwise specified by the Investor, the Put Shares of Common
Stock shall be transmitted electronically pursuant to such electronic delivery
system as the Investor shall request; otherwise delivery shall be by physical
certificates. If the Company has not delivered all of the Required Put Documents
to the Investor on or before the Put Date, the Put shall be automatically
cancelled, unless the Investor agrees to delay the Put Date by up to three (3)
Business Days, in which case the Pricing Period begins on the Business Day
following such new Put Date. If the Company has not delivered all of the
Required Put Documents to the Investor on or before the Put Date (or new Put
Date, if applicable), and the Investor has not agreed in writing to delay the
Put Date, the Put is automatically canceled (an "Impermissible Put
Cancellation") and, unless the Put was otherwise canceled in accordance with the
terms of Section 2.3.13, the Company shall pay the Investor reasonable due
diligence expenses up $5,000 incurred in preparation for the canceled Put and
the Company may deliver an Advance Put Notice for the subsequent Put no sooner
than ten (10) Business Days after the date that such Put was canceled.
2.3.2 Termination of Right to Put. The Company's right to require the
Investor to purchase any subsequent Put Shares shall terminate permanently (an
"Automatic Termination"), unless waived in writing by the Investor, upon the
occurrence of any of the following:
(a) the Company shall not exercise a Put or any Put thereafter if, at any
time, either the Company or any director or executive officer of the Company has
engaged in a transaction or conduct related to the Company that gives rise to
(i) a Securities and Exchange Commission enforcement action, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;
(b) the Company shall not exercise a Put or any Put thereafter, on any date
after (i) any Ineffective Period or Delisting Event, both as defined in the
Registration Rights Agreement, that last for four (4) consecutive months, or
(ii) a cumulative time period, including both Ineffective Periods and Delisting
Events, that lasts for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put thereafter if at any
time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors instituted by or against
the Company or any subsidiary of the Company; provided that in the event that an
involuntary bankruptcy petition is filed against the Company, the Company shall
have sixty (60) days to obtain dismissal of such petition before such Put
prohibition shall initiate; and
(d) the Company shall not exercise a Put after the sooner of (i) the date
that is three (3) years after the Effective Date of this Agreement, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts
equals the Maximum Offering Amount.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows, unless waived in writing by the Investor:
(a) [Intentionally Left Blank].
(2) notwithstanding the amount of any Put, the Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount;
(c) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has announced a subdivision
or combination, including a reverse split, of its Common Stock or has subdivided
or combined its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has paid a dividend of its
Common Stock or has made any other distribution of its Common Stock during the
Extended Put Period;
(e) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which the Company has made, during the
Extended Put Period, a distribution of all or any portion of its assets or
evidences of indebtedness to the holders of its Common Stock; or
(f) the Investor shall not be obligated to acquire and pay for the Put
Shares with respect to any Put for which a Major Transaction has occurred during
the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Investor to
Purchase Put Shares. The right of the Company to deliver an Advance Put Notice
or a Put Notice and the obligation of the Investor hereunder to acquire and pay
for the Put Shares incident to a Put Closing is subject to the satisfaction, on
(i) the date of delivery of such Advance Put Notice or Put Notice and (ii) the
applicable Put Closing Date, of each of the following conditions, unless waived
in writing by the Investor:
(a) the Company's Common Stock shall be listed for and actively trading on
the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National
Market or the New York Stock Exchange and the Put Shares shall be so listed, and
subject to NASD Rule 4820, to the Company's knowledge there shall be 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 Registration Statement covering the sale of the Registrable
Securities to the Investor shall be effective and, if so required, the Company
shall have satisfied any and all obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing of the Supplemental
Registration Statement with the SEC with respect to the resale of all
Registrable Securities and the requirement that the Supplemental 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) there shall have been no material adverse changes in the Company's
business prospects or financial condition, including but not limited to
incurring material liabilities, except as disclosed in the SEC documents filed
by the Company since the date of this Investment Agreement;
(d) the representations and warranties of the Company shall be true and
correct in all material respects as if made on such date and the conditions to
Investor's obligations set forth in this Section 2.3.4 are satisfied as of such
Closing, and the Company shall deliver a certificate, signed by an officer of
the Company, to such effect to the Investor;
(e) the Company shall have reserved for issuance a sufficient number of
Common Shares for the purpose of enabling the Company to satisfy any obligation
to issue Common Shares pursuant to any Put and to effect exercise of the
Warrants;
(f) the Registration Statement or Supplemental 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 or
Supplemental Registration Statement; and
(g) 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 6.12.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions
to Closing of any Put. The Closing of any Put and Investor's obligations
hereunder shall additionally be conditioned upon the delivery to the Investor of
each of the following (the "Required Put Documents") on or before the applicable
Put Date, unless waived or extended in writing by the Investor:
(a) a number of Unlegended Share Certificates equal to the Intended Put
Share Amount, in denominations of not more than 1,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel, Officer's Certificate,
Put Notice, any required Registration Opinion, and any report or disclosure
required under Section 2.3.6 or Section 2.6;
(3) current Risk Factors; and
(d) all documents, instruments and other writings required to be delivered
on or before the Put Date pursuant to any provision of this Agreement in order
to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the Investor, (i)
whenever required by Section 2.3.6(b) or by Section 2.6, and (ii) on the date
that is three (3) Business Days prior to each Put Date (the "Registration
Opinion Deadline"), an opinion of the Company's independent counsel, in
substantially the form of Exhibit R (the "Registration Opinion"), addressed to
the Investor stating, inter alia, that no facts ("Material Facts") have come to
such counsel's attention that have caused it to believe that the Registration
Statement is subject to an Ineffective Period or to believe that the
Registration Statement, any Supplemental Registration Statement (as each may be
amended, if applicable), and any related prospectuses, contains 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 Statement,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Cancellation Notice to the Investor pursuant to Section 2.3.13 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.
(2) in the event that the Investor shall have requested delivery of an
"Agreed Upon Procedures Report" pursuant to Section 2.6, the Company shall
engage its independent auditors to perform certain agreed upon procedures and
report thereon as shall have been reasonably requested by the Investor with
respect to certain financial information of the Company and the Company shall
deliver to the Investor a copy of such report addressed to the Investor. In the
event that the report required by this Section 2.3.6(b) cannot be delivered by
the Company's independent auditors, the Company shall, if necessary, promptly
revise the Registration Statement and the Company shall not deliver a Put Notice
until such report is delivered.
2.3.7 Mechanics of Purchase of Put Shares.
(a) Investor's Obligation and Right to Purchase Shares. Subject to the
conditions set forth in this Agreement, following the Investor's receipt of a
validly delivered Put Notice, the Investor shall be required to purchase (each a
"Purchase") from the Company a number of Put Shares equal to the Put Share
Amount, in the manner described below.
(b) Pricing Period. For purposes hereof, the "Pricing Period," shall mean,
unless otherwise shortened or lengthened 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 twenty (20) Business Days after such
Put Date; provided that, if a Put Cancellation Notice has been delivered to the
Investor after the Put Date, the Pricing Period for such Put shall end at the
close of trading on the last full trading day on the Principal Market that ends
prior to the moment of initial delivery of the Put Cancellation Notice (a
"Truncated Pricing Period") to the Investor.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
by either of them pursuant to this Agreement at or prior to each Closing.
Subject to such delivery and the satisfaction of the conditions set forth in
Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor of Put
Shares shall occur by 5:00 PM, New York time, on the date which is five (5)
Business Days following the applicable Pricing Period End Date (or such other
time or later date as is mutually agreed to by the Company and the Investor)
(the "Payment Due Date") at the offices of Investor. On each Closing Date, the
Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid. The closing (each a "Put Closing") for each Put shall occur on the
date that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar
Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
2.3.9 [Intentionally Left Blank].
1.1.10 Limitation on Short Sales. The Investor and its Affiliates
shall not engage in short sales of the Company's Common Stock; provided,
however, that the Investor may enter into any short 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 6.12 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.12 Investor's Right to Defer Receipt. If at any time the Investor
would have the right to receive shares of Common Stock from the Company, and/or
the right to receive a Warrant or Warrants by reason of Section 2.4 hereof, and
as a result of receiving such additional shares of Common Stock or such Warrants
the Investor would be deemed to be, after taking into account Common Shares
previously acquired from the Company, Warrant Shares deemed to be beneficially
owned pursuant to ownership of the Warrants, and any other shares of Common
Stock of the Company deemed to be beneficially owned by the Investor, the
beneficial owner (within the meaning of Section 13(d) of the Exchange Act) of
9.9% of the Common Stock of the Company, the Investor may elect to defer receipt
of all or any portion of such Common Shares from the Company and/or defer
receipt of all or any portion of such Warrant or Warrants, by sending a notice
to the Company of such election. Such election shall not affect the Investor's
obligation to pay for Put Shares, as if such election had not been made, nor
shall it affect (other than by way of deferral, as set forth herein) the
Investor's absolute and unconditional right to receive the shares of Common
Stock and/or Warrants to which it was otherwise entitled. In the event the
Investor makes such election, (i) it may waive such election, in whole or in
part, at any time effective on sixty one (61) days' prior notice to the Company
and (ii) may waive it effective immediately upon notice to the Company in the
event of the announcement by the Company or any third party of a Major
Transaction. The Company shall deliver the shares and/or Warrants to which the
Investor is entitled on the effective date of the waiver in the case of clause
(i)
2.3.13 Put Cancellation.
(4) Mechanics of Put Cancellation. Subject to the limitations below, at any
time from the Advance Put Notice Date through the last day of the Pricing
Period, the Company may cancel a Put (a "Put Cancellation"), in whole or in
part, by delivering written notice to the Investor (the "Put Cancellation
Notice"), attached as Exhibit Q, by facsimile and overnight courier. The "Put
Cancellation Date" shall be the date that the Put Cancellation Notice is first
received by the Investor, if such notice is received by the Investor by 6:00
p.m., New York time, and shall be the following date, if such notice is received
by the Investor after 6:00 p.m., New York time. The Investor shall, within one
(1) Trading Day of receipt of a Put Cancellation, send, via facsimile, a
confirmation of receipt (the "Put Cancellation Confirmation," the form of which
is attached hereto as Exhibit S) of the Put Cancellation Notice to Company
specifying that the Put Cancellation Notice has been received;
(b) Limitations of Put Cancellation. The Company may not deliver a Put
Cancellation Notice unless (i) the Company discovers the existence of Material
Facts or any Ineffective Period occurs after a Put Date but before the Put
Closing (in which case Put Cancellation is mandatory), or (ii) the Closing Bid
Price on the Put Cancellation Date is less than eighty percent (80%) of the
Closing Bid Price on the applicable Advance Put Notice Date. Notwithstanding
any Put Cancellation Notice, the Put shall remain effective with respect to the
number of shares of Common Stock sold by the Investor from the Advance Put
Notice Date through the close of trading on the Put Cancellation Date and the
Pricing Period shall end on the Put Cancellation Date.
(c) Effect of Canceling a Put. Once the Company delivers a valid Put
Cancellation Notice, (i) the Pricing Period shall end on the close of trading on
the Put Cancellation Date ("Truncated Pricing Period") and the Pricing Period
End Date shall be deemed to be the Put Cancellation Date for purposes of
calculating the Put Share Price and (ii) the Investor shall not be obligated to
purchase any shares of Common Stock for that Put. Notwithstanding the above,
the Company shall be obligated, upon canceling any Put, to issue to the Investor
Unlegended Share Certificates representing a number of shares of Common Stock
equal to the number of shares of Common Stock sold, if any, by the Investor from
the Advance Put Notice Date through the close of trading on the Put Cancellation
Date, but not exceeding the Intended Put Share Amount.
(d) Put Cancellation Notice Confirmation. Upon receipt by the Investor of a
facsimile copy of the Put Cancellation Notice, the Investor shall promptly send,
via facsimile, a confirmation of receipt (the "Put Cancellation Notice
Confirmation") of the Put Cancellation Notice to Company specifying that the Put
Cancellation Notice has been received and affirming the Put Cancellation Date
and the number of shares of Common Stock that have been sold by the Investor
from the Advance Put Notice Date through the close of trading on the Put
Cancellation Date.
2.3.14 Investment Agreement Cancellation. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing written
notice ("Termination Notice") to the Investor, by facsimile and overnight
courier, at any time, provided that such termination shall have no effect on the
parties' other rights and obligations under this Agreement, the Registration
Rights Agreement or the Warrants.
2.3.15 Return of Excess Common Shares. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is less
than the Intended Put Share Amount, the Investor shall 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 [Intentionally Omitted].
2.4.2 Purchase Warrants. Within five (5) Business Days of the end of
each Pricing Period, the Company shall issue and deliver to the Investor a
warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or such
other form as agreed upon by the parties, to purchase a number of shares of
Common Stock equal to 10% of the number of Put Shares issued to Investor in that
Put. Each Purchase Warrant shall be exercisable at a price (the "Purchase
Warrant Exercise Price") which shall initially equal 100% of the Market Price on
the Pricing Period End Date. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on date that is three (3) years
thereafter. The Warrant Shares shall be covered by the Registration Statement
or, if necessary, registered for resale pursuant to the Registration Rights
Agreement. Concurrently with the issuance and delivery of the Purchase Warrant
to the Investor, the Company shall deliver to the Investor a Purchase Warrant
Opinion of Counsel (signed by the Company's independent counsel).
2.5 [Intentionally Left Blank].
2.6 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.6.1 Treatment of Nonpublic Information. The Company shall not
disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
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 2.6 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.6.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the Investor's
counsel of all events or circumstances constituting nonpublic information
discovered by such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's counsel shall consult with the Company's independent counsel in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
1.1.11 Procedure if Material Facts are Reasonably Believed to be Untrue
or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement or a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading,
(a) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such material misstatement
or omission, (i) the Company's independent counsel shall provide the Investor's
counsel with a Registration Opinion and (ii) in the event the dispute relates to
the adequacy of financial disclosure and the Investor shall reasonably request,
the Company's independent auditors shall provide to the Company a letter
("Agreed Upon Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter.
2.7. Commitment Payments. On the date of the Investment Commitment
Closing, the Company shall pay to the Investor an amount equal to $250,000 (the
"Initial Commitment Fee"), representing 2_% of the Maximum Offering Amount.
Such amount shall be payable in either cash or by delivering to the Investor a
number of unrestricted shares of the Company's common stock which, when
multiplied by the average Closing Bid Price of the Company's common stock for
the five (5) trading days immediately prior to the date of the Investment
Commitment Closing, will equal the Initial Commitment Fee.
On each anniversary of the Investment Commitment Closing, if the Investor
has not purchased a number of Put Shares for an aggregate Put Dollar Amount of
at least $1,000,000 (the "Annual Commitment Amount") during the preceding twelve
(12) Calendar Months (each such period a "Commitment Evaluation Period"), the
Company, in consideration of the Investor's commitment costs, including but not
limited to, due diligence expenses, shall deliver to the Investor a warrant
(each a "Commitment Warrant") to purchase a number of shares of the Company's
Common Stock equal to 10% of the number of shares of the Company's Common Stock
determined by dividing (i) the Commitment Shortfall, which shall be equal to the
Annual Commitment Amount less the actual aggregate Put Dollar Amount for the
relevant Commitment Evaluation Period, by (ii) the average Closing Bid Price of
the Company's Common Stock for the five (5) Trading Days ending on the last day
of the relevant Commitment Evaluation Period. The Commitment Warrant shall be
immediately exercisable, shall have an exercise price equal to 100% of the price
determined in clause (ii) above and shall be exercisable for a period of three
(3) years. The Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
3. Representations, Warranties and Covenants of Investor. Investor hereby
represents and warrants to and agrees with the Company as follows:
1.3 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 12 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.
1.3.10 Reliance on Own Advisors. Investor has relied completely on the
advice of, or has consulted with, Investor's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any of the foregoing, within the meaning
of Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 3.2.4 below and on
the Opinion of Counsel). The foregoing, however, does not limit or modify
Investor's right to rely upon covenants, representations and warranties of the
Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's investment
decision to subscribe for the Investment Agreement hereunder, represents that
(a) Investor has received and had an opportunity to review (i) the Company's
preliminary Registration Statement on Form SB-2, together with all amendments
thereto and comments from the SEC thereon (ii) the Company's audited financial
statements for the years ended December 31, 1998 and 1997, (iii) the Company's
unaudited financial statements for the six (6) months ended June 30, 1999 and
1998, (iv) the Risk Factors, attached as Exhibit J, (the "Risk Factors"), (v)
the Capitalization Schedule, attached as Exhibit K, (the "Capitalization
Schedule"), and (vi) the Use of Proceeds Schedule, attached as Exhibit L, (the
"Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely
on the documents described in (a) above, the Company's representations and
warranties and other information in this Agreement, including the exhibits,
documents prepared by the Company which have been specifically provided to
Investor in connection with this Offering (the documents described in this
Section 3.2.4 (a) and (b) are collectively referred to as the "Disclosure
Documents"), and an independent investigation made by Investor and Investor's
representatives, if any; (c) Investor has, prior to the date of this Agreement,
been given an opportunity to review material contracts and documents of the
Company which have been filed as exhibits to the Company's Registration
Statement 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 Registered Securities; Investment Intent; Resale Restrictions.
3.3.1 Registered Securities. The Investor understands that the Company
has filed a Registration Statement on Form SB-2 covering the shares of Common
Stock, and Warrants and Warrant Shares to be issued to Investor at each Put
Closing, and as such, such securities shall be registered under the Act
(collectively, the "Registered Securities").
3.3.2 Investment Intent. 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, except as required by Section 3.3.3 below, does not agree to hold the
Common Stock for any minimum or other specific term and reserves the right to
dispose of the Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment Agreement, if
executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Investor is executing this Agreement. Investor
has reached the age of majority (if an individual) according to the laws of the
state in which he or she resides.
3.4.2 Due Authorization. If Investor is a corporation, Investor is duly
and validly organized, validly existing and in good tax and corporate standing
as a corporation under the laws of the jurisdiction of its incorporation with
full power and authority to purchase the Securities to be purchased by Investor
and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the representations,
warranties, agreements and understandings set forth above are true with respect
to all partners of Investor (and if any such partner is itself a partnership,
all persons holding an interest in such partnership, directly or indirectly,
including through one or more partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a representative or
fiduciary capacity, the representations and warranties shall be deemed to have
been made on behalf of the person or persons for whom Investor is so purchasing.
4. Acknowledgments. Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of Investor's
entire investment herein. Investor recognizes that the Disclosure Documents,
this Agreement and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 [Intentionally Left Blank.]
4.4 Restrictions on Transfer. Unless the Investor has otherwise
satisfied the requirements of Section 3.3.3 above, Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof.
4.5 [Intentionally Left Blank.]
4.6 [Intentionally Left Blank.]
4.7 Legends. Neither the certificates representing the Put Shares nor
the certificates representing the Warrant Shares shall bear a restrictive
legend.
5. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to Investor (which shall be true at
the signing of this Agreement, and as of any such later date as contemplated
hereunder) and agrees with Investor that, except as set forth in the Schedule of
Exceptions attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, The National Association of Securities Dealer, Inc. The Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. Except as set forth in the
Disclosure documents, the Company has no subsidiaries.
5.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure Documents, if applicable), except for changes in
the ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition, or prospects since the dates of such Disclosure Documents. The
financial statements as contained in the Form SB-2 have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act), subject,
in the case of the unaudited 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 results of its operations and cash flows for the
periods then ended. Without limiting the foregoing, there are no material
liabilities, contingent or actual, that are not disclosed in the Disclosure
Documents (other than liabilities incurred by the Company in the ordinary course
of its business, consistent with its past practice, after the period covered by
the Disclosure Documents). The Company has paid all material taxes that are
due, except for taxes that it reasonably disputes. There is no material claim,
litigation, or administrative proceeding pending or, to the best of the
Company's knowledge, threatened against the Company, except as disclosed in the
Disclosure Documents. This Agreement and the Disclosure Documents do not contain
any untrue statement of a material fact and do not omit to state any material
fact required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
The Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants,
when issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Certificate of Incorporation or Bylaws, each
as amended and in effect on and as of the date of the Agreement, or of any
material provision of any material instrument or material contract to which it
is a party or by which it is bound or of any provision of any federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery
and performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws, or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 [Intentionally Left Blank.].
5.7 Capitalization. The capitalization of the Company as of June 30,
1999 is, and the capitalization as of the Closing, subject to exercise of any
outstanding warrants and/or exercise of any outstanding stock options, after
taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities. Except as
disclosed in the Capitalization Schedule, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, and
(ii) there are no agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Act (except
the Registration Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes and in
the approximate amounts set forth on the Use of Proceeds Schedule set forth as
Exhibit L hereto. These purposes and amounts are estimates and are subject to
change without notice to any Investor.
1.4 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,
subject to Section 3.3.3, 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 [Intentionally Left Blank].
5.13 Underwriter's Fees and Rights of First Refusal. The Company shall
be obligated to pay 10% of the proceeds received pursuant to the Offering to any
underwriter, broker, agent or other representative other than the Investor in
connection with this Offering.
5.14 [Intentionally Left Blank.]
5.15 [Intentionally Left Blank.]
5.16 [Intentionally Left Blank].
5.17 Foreign Corrupt Practices. Neither the Company, nor any director,
officer, agent, employee or other person acting on behalf of the Company 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.
1.5 Key Employees. Each "Key Employee" (as defined in Exhibit N) is
currently serving the Company in the capacity disclosed in Exhibit N. No Key
Employee, to the best knowledge of the Company and its subsidiaries, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best knowledge of the Company,
any intention to terminate his employment with, or services to, the Company.
5.19 Representations Correct. The foregoing representations, warranties
and agreements are true, correct and complete in all material respects, and
shall survive any Put Closing and the issuance of the shares of Common Stock
thereby.
5.20 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.21 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, 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.
5.22 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Delaware law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.23 Other Agreements. The Company has not, directly or indirectly,
made any agreements with the Investor under a subscription in the form of this
Agreement for the purchase of Common Stock, relating to the terms or conditions
of the transactions contemplated hereby or thereby except as expressly set forth
herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.25 Financings. Except as set forth in Exhibit , there are no
other financings currently pending or contemplated by the Company.
5.26 Shareholder Authorization. The Company shall, at its next annual
shareholder meeting following its listing on either the Nasdaq Small Cap Market
or the Nasdaq National Market, or at a special meeting to be held as soon as
practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least [27,027,027] 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 [27,027,027] shares of Common Stock for issuance under this
Agreement.
6. Covenants of the Company.
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least
the Termination Date, maintain its corporate existence in good standing and,
concurrent with the Effective Date of its Registration Statement file a Form 8-A
under the Securities Exchange Act of 1934 (the "Exchange Act") and remain a
"Reporting Issuer" (defined as a Company which files periodic reports under the
Exchange Act) (provided, however, that the foregoing covenant shall not prevent
the Company from entering into any merger or corporate reorganization as long as
the surviving entity in such transaction, if not the Company, assumes the
Company's obligations with respect to the Common Stock and has Common Stock
listed for trading on a stock exchange or on Nasdaq and is a Reporting Issuer)
and shall pay all its taxes when due except for taxes which the Company
disputes.
6.3 Registration Rights. The Company will enter into a registration
rights agreement covering the resale of the Common Shares and the Warrant
Shares, if necessary, substantially in the form of the Registration Rights
Agreement attached as Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (i) transfer, sell, convey
or otherwise dispose of any of its material assets 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.
6.6 Capital Raising Limitations; Rights of First Refusal.
6.6.1 Capital Raising Limitations. During the period from the date
of this Agreement until the earlier of (i) the Termination Date, or (ii) (a) in
the case of a Company Termination, the date of such Company Termination, or (b)
in the case of an Automatic Termination that is not waived by the Investor, the
date of such Automatic Termination, the Company shall not issue or sell, or
agree to issue or sell, for cash in private capital raising transactions (the
following to be collectively referred to herein as, the "Variable Priced
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, or (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. During the period from the date of this
Agreement until the Termination Date, the Company shall not issue or sell, or
agree to issue or sell, for cash in private capital raising transactions 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 the Offering (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising Limitations").
6.6.2 Investor's Right of First Refusal. For any private capital
raising transactions of Variable Priced Securities or equity line structured
investments which close after the Capital Raising Deadline and on or prior to
the date that is six (6) months after the Termination Date of this Agreement,
not including any warrants issued in conjunction with this Investment Agreement,
the Company agrees to deliver to Investor, at least ten (10) days prior to the
closing of such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the same
terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights of First
Refusal. Notwithstanding the above, the Capital Raising Limitations and the
Rights of First Refusal shall not apply to any transaction involving issuances
of securities in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or exercise of options by employees, consultants or
directors. The Capital Raising Limitations also shall not apply to (a) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, (b)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants, or (c) the
issuance of debt securities, with no equity feature, incurred solely for working
capital purposes.
6.7 Financial 00-XXX Xxxxxxxxxx, Etc. and Current Reports on Form 8-K.
The Company shall deliver to the Investor copies of its annual reports on Form
10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor
current reports on Form 8-K within two (2) days of filing for the Term of this
Agreement.
6.8 Opinion of Counsel. Investor shall, concurrent with the purchase of
the Common Stock and accompanying Warrants pursuant to this Agreement, receive
an opinion letter from the Company's legal counsel, in the form attached as
Exhibit B or in such form as agreed upon by the parties, as to the Investment
Commitment Closing and in the form attached as Exhibit I or in such form as
agreed upon by the parties, as to any Put Closing.
[6.9 Removal of Legend. If the certificates representing any Securities
are issued with a restrictive Legend in accordance with the terms of this
Agreement, the Legend shall be removed and the Company shall issue a certificate
without such Legend to the holder of any Security upon which it is stamped, and
a certificate for a security shall be originally issued without the Legend, if
(a) the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Investor), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.]
6.10 Listing. Subject to the remainder of this Section 6.10, the
Company shall ensure that its shares of Common Stock (including all Warrant
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.
6.11 The Company's Instructions to Transfer Agent. The Company will
instruct the Transfer Agent of the Common Stock, by delivering instructions in
the form of Exhibit T hereto, to issue certificates, registered in the name of
each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.9 hereof 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 3.3.3 hereof with
respect to any resale of the Securities. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to a Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 6.11 will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 6.11, that a Investor shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put that
would cause the Aggregate Issued Shares to exceed the Cap Amount, the Company
shall obtain approval of its stockholders to authorize (i) the issuance of the
full number of shares of Common Stock which would be issuable pursuant to this
Agreement but for the Cap Amount and eliminate any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or any of its securities with respect to the Company's ability to issue shares
of Common Stock in excess of the Cap Amount (such approvals being the
"Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Investor shall have the
right to review and comment upon any press release issued by the Company in
connection with the Offering which approval shall not be unreasonably withheld
by Investor.
6.14 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no further Commitment Warrants shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, the Investor, at its option, may terminate this
Agreement or require that other terms of the Agreement be amended to compensate
for such material economic changes.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent. If assigned, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Investor may assign Investor's rights hereunder, in
connection with any private sale of the Common Stock of such Investor, so long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement in a form acceptable to the Company and provides an original copy of
such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be executed
in any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights Agreement,
each of the Company and Investor shall pay all costs and expenses that it
respectively incurs, with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants 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. Except as otherwise provided in Section 6.11 of this
Agreement, any controversy or claim arising out of or related to the Transaction
Documents or the breach thereof, shall be settled by binding arbitration in
Wilmington, Delaware 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 Wilmington, Delaware or to the United
States District Court sitting in Delaware 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
Wilmington, Delaware. 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 Delaware court. Delaware law shall govern both the
proceeding as well as the interpretation and construction of the Transaction
Documents and the transaction as a whole.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(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.
8.2 Acceptance of Subscription. Ownership of the number of securities
purchased hereby will pass to Investor upon the Warrant Closing or any Put
Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
In consideration of the Investor's execution and delivery of the Investment
Agreement, the Registration Rights Agreement and the Warrants (the "Transaction
Documents") and acquiring the Securities thereunder and in addition to all of
the Company's other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless Investor and all of its
stockholders, officers, directors, employees and direct or indirect investors
and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(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.
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.
10. [Intentionally Left Blank].
11. [Intentionally Left Blank].
12. 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 for ___________% of 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 __ day of ___________, 1999.
Your Signature PRINT EXACT NAME IN WHICH
YOU WANT THE SECURITIES TO
BE REGISTERED
SECURITY DELIVERY INSTRUCTIONS:
Your Signature
Please type or print address where delivered your security is to be:
ATTN:
_____________________________
Title/Representative Capacity
(if applicable)
Name of Company You Represent Street Address
(if applicable)
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where Copy is
is to be delivered to be delivered
ATTN: ___________________________ ATTN: ____________________________
Xxxxxx Xxxxxxx Xxxxxx Xxxxxxx
Xxxx, Xxxxx or Province, Country, City, State or Province, Country,
Offshore Postal Code Offshore Postal Code
Telephone: _____________________ Telephone: ______________________
Facsimile: ______________________ Facsimile: _______________________
Facsimile: ______________________ Facsimile: _______________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF 100% OF THE MAXIMUM
OFFERING AMOUNT ON THE ____ DAY OF _______________, 1999.
GO ONLINE NETWORKS CORPORATION
By: ______________________
Xxxxxx X. Xxxxxxxx
Address: GO ONLINE NETWORKS CORPORATION
0000 Xxxxx Xxxxxxxxx, Xxxxx 000/000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Fax No.: (714) ___________
EXHIBIT E
ADVANCE PUT NOTICE
GO ONLINE NETWORKS CORPORATION (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 Triton
Private Equities Fund, L.P. dated on or about _________, 1999.
Date of Advance Put Notice: ___________________
Intended Put Date :____________________________
Intended Put Share Amount: ____________________
GO ONLINE NETWORKS CORPORATION
By: _____________________
Address: GO ONLINE NETWORKS CORPORATION
0000 Xxxxx Xxxxxxxxx, Xxxxx 000/000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Fax No.: (714) ___________
EXHIBIT F
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________, the Investor, hereby confirms receipt of GO
ONLINE NETWORKS CORPORATION'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 Triton Private Equities Fund, L.P. dated on or about ____________,
1999.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _____________________________
_____________________________
_____________________________
Telephone No.: _________________
Facsimile No.: __________________
EXHIBIT G
PUT NOTICE
GO ONLINE NETWORKS CORPORATION (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 Triton Private Equities Fund, L.P. dated on or about ____________,
1999.
Put Date :
Intended Put Share Amount (from Advance Put Notice):
Common Shares
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
GO ONLINE NETWORKS CORPORATION
By: _____________________
Xxxxxx X. Xxxxxxxx
Address: GO ONLINE NETWORKS CORPORATION
0000 Xxxxx Xxxxxxxxx, Xxxxx 000/000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Fax No.: (714) ___________
EXHIBIT H
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
GO ONLINE NETWORKS CORPORATION (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 Triton Private Equities Fund, L.P. dated on or about
____________, 1999.
Date of this Confirmation: ________________
Put Date: ______________
Number of Put Shares of Common Stock to be Issued: _________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _________________________________
_________________________________
_________________________________
Telephone No.: _________________
Facsimile No.: __________________
EXHIBIT Q
PUT CANCELLATION NOTICE
GO ONLINE NETWORKS CORPORATION (the "Company") hereby cancels the Put
specified below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Triton Private Equities Fund, L.P.
dated on or about _____________, 1999 as of the close of trading on the date
specified below (the "Cancellation Date," which date must be on or after the
date that this notice is delivered to the Investor), provided that such
cancellation shall not apply to the number of shares of Common Stock equal to
the Truncated Put Share Amount (as defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty
(20) Business Days advance written notice to the Investor before effecting the
next Put.
GO ONLINE NETWORKS CORPORATION
By: _____________________
Xxxxxx X. Xxxxxxxx
Address: GO ONLINE NETWORKS CORPORATION
0000 Xxxxx Xxxxxxxxx, Xxxxx 000/000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Fax No.: (714) ___________
EXHIBIT S
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the
"Investment Agreement") by and between the Company, and Triton Private Equities
Fund, L.P. dated on or about _____________, 1999, hereby confirms receipt of Go
Online Networks Corporation's (the "Company") Put Cancellation Notice, and
confirms the following:
DATE OF THIS CONFIRMATION:
PUT CANCELLATION DATE:
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: _________________________________
_________________________________
_________________________________
Telephone No.: _________________
Facsimile No.: __________________
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