INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT, made and entered into this 12th day of
January, 2000, by and among BRISTOL RETAIL SOLUTIONS, INC., a corporation
incorporated under the laws of the State of Delaware (the "Company"), XXXXXXX
SBIC, LLC, a Delaware limited liability company (the "Investor") and Xxxxxxxx
Xxxxx, (the "Principal"):
RECITALS
WHEREAS, the Company has an authorized capitalization of 20,000,000
shares of common stock, .001 par value (the "Common Stock"), of which 6,968,000
shares are issued and outstanding, and 5,000,000 shares of preferred stock; and
WHEREAS, the Company is and will be principally engaged in the resale
of point of sale hardware and software; and
WHEREAS, the Company proposes to sell to the Investor and the Investor
is prepared under the terms and conditions specified herein, to purchase 500,000
shares of the Series C Convertible Preferred Stock; and
WHEREAS, the Company proposes to sell to the Investor and the Investor
is prepared under the terms and conditions specified herein, to purchase a
warrant for the purchase of 425,000 shares of the Common Stock; and
WHEREAS, the parties hereto wish to agree to the terms and conditions
of the foregoing sale and purchase, and other related matters, to the extent set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, the premises and
representations contained herein, and the payment of valuable consideration,
receipt of which is hereby acknowledged by each party hereto, it is agreed as
follows:
TERMS
I. SALE AND PURCHASE OF SECURITIES
Subject to the terms, conditions and warranties that follow, the
Company agrees to sell to the Investor, and subject to the terms and
conditions herein, and on the basis of the representations and
warranties set forth herein, the Investor agrees to purchase from the
Company the following securities:
A. Five Hundred Thousand (500,000) shares of the Series C
Convertible Preferred Stock (the "Series C Preferred Stock"),
having the rights and preferences set forth in the Certificate
of Designation for such Series C Preferred Stock, attached
hereto as Exhibit I.A, at a price per share of Two and no/100
Dollars ($2.00).
B. A Warrant (the "Warrant"), in the form designated as Exhibit
I.B hereto, for the purchase of Four Hundred Twenty-Five
Thousand (425,000) shares of the Common Stock (the "Warrant
Shares").
II. RESERVED.
III. CLOSING
A. The closing shall take place at the offices of Xxxxxxx & Xxxxx
PC and the Closing Date shall be on January 12, 2000, or such
other time and/or place as the parties may mutually agree in
writing, and the date of which closing shall be the "Closing
Date".
B. The Investor shall purchase the Series C Preferred Stock and
Warrant subject to the terms and conditions of this Agreement,
by delivery to the Company, on the Closing Date, of a check or
wire transfer to an account designated by the Company, in the
amount of the Purchase Price.
C. The Company shall simultaneously therewith issue and deliver
to the Investor on such Closing Date an executed Series C
Preferred Stock in favor of the Investor in the amount of the
Purchase Price, and the Warrant.
IV. SURRENDER AND CANCELLATION OF PRINCIPAL OPTIONS
The Company and the Principal agree that either: (i) not later than the
close of business on June 1, 2000 the Principal shall surrender,
without exercise by the Principal, options granted to the Principal by
the Company for the acquisition of 1,330,000 shares of Common Stock, at
an average exercise price per share of $1.06, and the Company shall
thereupon cancel such options, or (ii) such options shall expire by
their terms not later than the close of business on such date,
unexercised.
V. CONDITIONS PRECEDENT TO THE INVESTOR'S OBLIGATION TO PURCHASE
The Investor's obligation to purchase the Series C Preferred Stock and
Warrant from the Company shall be subject to the performance of the
Company of all its agreements to be performed hereunder before the time
of such purchase, to the accuracy of the covenants, representations and
warranties of the Companies herein contained, and to the satisfaction
of the following further conditions precedent:
A. Delivery of a certified copy of the resolution of the Board of
Directors of the Company, designated as Exhibit V.A,
authorizing the execution, delivery and performance of this
Agreement, and the execution and delivery of the Series C
Preferred Stock and Warrant called for hereunder.
B. Delivery of the opinion of the Company's counsel, Atlas,
Xxxxxxxx, Trop & Borkson, P.A., dated the Closing Date in the
form of Exhibit V.B hereto.
C. Delivery of SBA Form 480 Size Status Declaration, SBA Form
1031 Portfolio Financing Report, and SBA Form 652(d) Assurance
of Compliance.
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D. Delivery of a certificate or certificate of the President or
Chief Financial Officer of the Company, attached hereto as
Exhibit V.D, dated the Closing Date to the effect that there
is no condition or event constituting an event of default as
defined herein, and that the representations and warranties
set forth in Section VI are true and correct as of the Closing
Date.
E. Delivery of a certified copy of the Certificate of
Incorporation and By-Laws of the Company, which shall be
attached to this Agreement as Exhibit V.E.
F. Delivery of such other documents or instruments as the
Investor may reasonably request, consistent, however, with the
provisions of this Agreement.
G. As a further condition to the purchase of the Series C
Preferred Stock and Warrant hereunder:
1. Each of the representations and warranties contained
in Section VI shall be true and correct on the date
hereof and as of the Closing Date as if such
representations and warranties had been made again as
of such later date.
2. The Company shall not be in default hereunder or
under any other material agreement and no event shall
have occurred, but for the giving of notice or lapse
of time or both, which would constitute a default
hereunder or thereunder.
3. The Principal, and any other shareholder of the
Company holding anti-dilution and/or stock issuance
rights, if any, pertaining to the Common Stock held
by such shareholder, shall have waived such rights
with respect to the issuance of the Preferred Stock
and the Warrant, and the issuances of the Common
Stock contemplated thereby.
VI. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Investor to purchase the Series C Preferred Stock and
Warrant issued hereunder, the Company represents and warrants to the
Investor that:
A. The Company is duly incorporated and validly existing and in
good standing under the laws of the State of Delaware, with
all franchise and other taxes, currently or previously due,
paid, authorized to carry on the business in which they are
engaged and to own the property owned by them and to execute
and deliver this Agreement, the Series C Preferred Stock and
the Warrant, and to perform and observe the provisions hereof
and thereof and that they are duly qualified, licensed and in
good standing in each state where licensing is required by the
nature of their business or the character and location of
their property, except where the failure to so qualify would
not have a material adverse effect on the Company or its
operations.
B. There is: (i) no litigation, proceeding or governmental
investigation pending nor to the best of the knowledge and
belief of the executive officers and directors of the Company,
are there any actions at law or suits in equity that may be
threatened against the Company, except those items listed in
the Company Disclosure Schedule, attached hereto as Exhibit
VI, or in the documents filed by the Company with the
Securities Exchange Commission (the "SEC"), and publicly
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available on the XXXXX system (the "Company SEC Filings") nor
do the executive officers or the Board of Directors of the
Company have any knowledge of any pending and/or threatened
actions at law or suits in equity which might affect this
transaction; (ii) no proceeding before any governmental
commission, bureau or other administrative agency pending, or
to the knowledge of the executive officers and directors of
the Company, threatened against the Company except as listed
in the Company Disclosure Schedule; and (iii) no material
change in the financial condition or affecting the business or
properties of the Company that is not reflected on the balance
sheet of the Company as of September 30, 1999, attached hereto
as Exhibit VI.B (the "Company Balance Sheet"); and (iv) no
outstanding indebtedness of the Company other than that
reflected on the Company Balance Sheet, except for changes in
accounts payable incurred in the ordinary and normal course of
business.
C. The making and performance by the Company of this Agreement,
the Series C Preferred Stock and the Warrant, and all other
documents required hereby have been duly authorized by all
corporate action and will not (i) conflict with or result in
any breach of any of the terms, conditions or provisions of
the Certificate of Incorporation or Bylaws of the Company or
of any material indenture, mortgage, deed of trust, loan
agreement, contract, agreement or other instrument or of any
regulation, order, injunction or decree of any court or
governmental or public body or authority to which the Company
is a party or by which they may be bound or to which they are
subject or (ii) constitute a default thereunder or an event
that, but for the giving of notice or lapse of time or both,
would constitute a default thereunder or (iii) result in the
creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of
the Company.
D. The Company has corporate power to enter into this Agreement
as herein contemplated and have taken all necessary corporate
action to authorize the provisions of this Agreement herein
provided for upon the terms and conditions herein set forth
and to execute and deliver the Series C Preferred Stock, the
Warrant and this Agreement, and this Agreement is, and such
instruments, upon delivery thereof will be valid and
enforceable obligations of the Company in accordance with
their terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium,
preference, fraudulent conveyance or other laws affecting the
enforcement of creditors' rights or remedies generally now or
hereafter in effect and by the availability of equitable
remedies, regardless of whether the same are considered in a
proceeding in equity or at law.
E. There are no liabilities of the Company known to its executive
officers or directors, contingent or otherwise, not reflected
on the Company Balance Sheet and since the date of the Company
Balance Sheet, the Company has not issued, sold or acquired
any of their shares of any class or declared or paid any
dividends on their outstanding shares.
F. The Company Balance Sheet is a true and correct and fairly
presents, in conformity with generally accepted accounting
principles, consistently applied in all material respects
throughout the periods indicated ("GAAP"), the financial
position and the results of operation of the Company as of the
date indicated and for the respective period indicated,
subject to normal recurring adjustments.
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G. The Company is not party to any contract or agreement made
otherwise than in the ordinary course of business, except as
disclosed in the Company Disclosure Schedule or the Company
SEC Filings.
H. The Company has authorized 20,000,000 shares of the Common
Stock, of which 6,968,200 shares are validly issued and
outstanding. Except as set forth in the Company Disclosure
Schedule or the Company SEC Filings, other than the Warrant,
there is no agreement, obligation or duty of any kind of the
Company to issue or authorize additional Common Stock, or any
other capital stock.
I. The Company has authorized 4,000,000 shares of preferred
stock; it has designated the rights and preferences of shares
of 4,000,000 shares of Series A Preferred Stock, of which only
1,000,000 shares were ever issued, no shares of which are
issued or outstanding, and which class has been canceled by
the Board of Directors of the Company; it has designated the
rights and preferences of 1,000,000 shares of Series B
Preferred Stock, of which 400,000 shares are issued and
outstanding; and it has designated the rights and preferences
of 500,000 shares of Series C Preferred Stock, of which no
shares were issued and outstanding prior to the Closing
hereunder; and it has designated the rights and preferences of
100,000 shares of Series B Participating Preferred Stock, of
which no shares have ever been issued.
J. The Company is a "small business concern" as such term is
defined in the Small Business Investment Act of 1958, as
amended, and in the Regulations of the Small Business
Administration as promulgated thereunder.
K. The Company has good and marketable title to its properties
and assets, including the properties and assets reflected in
its financial statements furnished to the Investor and has all
permits, licenses, and franchise rights necessary to allow it
to conduct its business as now operated and, so far as the
Company can now foresee, as proposed to be operated, and no
royalties or commissions are payable under the license or
franchise agreements to any shareholder, officer or director
of the Company.
L. Except as set forth in the Company Disclosure Schedule or the
Company SEC Filings, the Company has no (i) subsidiaries; (ii)
other investments (either in equity or debt securities) or
interests in any other person or company; or (iii) commitment
to acquire any such subsidiary or any such investment or
interest.
M. The Company Disclosure Schedule or the Company SEC Filings
list, among other documents and matters set forth elsewhere
herein:
1. All material contracts or other commitments to which
the Company is a party or is bound.
2. Any and all contracts or commitments relating to the
management of the Company to which a shareholder
and/or director and/or officer of the Company is a
party and all leases of real and/or personal property
to which the Company is a party.
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3. All stockholder agreements to which the Company is a
party, or which relate to or affect the equity
ownership of either the Company.
4. Any options to purchase real estate granted or held
by the Company. On or prior to the date hereof, the
Company has delivered to the Investor a true and
correct copy of each of the documents listed on the
Company Disclosure Schedule, initialed by the
President or Secretary of the Company for
identification.
N. The Company, taken together with its "affiliates" (as that
term is defined in 13 C.F.R. ss.121.103), is a "Small Business
Concern" within the meaning of 15 U.S.C.ss.662(5), that is
Section r 103(5) of the Small Business Investment Act of 1958,
as amended (the "SBIC Act"), and the regulations thereunder,
including 13 C.F.R.ss.107, and meets the applicable size
eligibility criteria set forth in 13 C.F.R.ss.121.301(c)(1) or
the industry standard covering the industry in which the
Company is primarily engaged as set forth in 13 C.F.R.
ss.121.301(c)(2).
O. The Company does not presently engage in any activities for
which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations
thereunder, including 13 C.F.R.ss.107.
P. The Company has its principal business operations in the
United States or its territories.
Q. The Company has a class of securities registered pursuant to
Section 12(b) of the Securities Exchange Act of 1934
("Exchange Act") or a class of equity securities registered
pursuant to Section 12(g) of the Exchange Act or is required
to file reports pursuant to Section 15(d) of the Exchange Act.
R. The Company: (a) has been subject to the requirements of
Section 12 or 15(d) of the Exchange Act and has filed all the
material required to be filed pursuant to Sections 13, 14 or
15(d) for a period of at least twelve calendar months; and (b)
has filed in a timely manner all reports required to be filed
during the twelve calendar months and any portion of a month
immediately preceding this Agreement and, if the Company has
used (during the twelve calendar months and any portion of a
month immediately preceding the date hereof) Rule 12b-25(b)
under the Exchange Act with respect to a report or a portion
of a report, that report or portion thereof has actually been
filed within the time period prescribed.
S. Neither the Company nor any of its consolidated or
unconsolidated subsidiaries have, since the end of the last
fiscal year for which certified financial statements of the
registrant and its consolidated subsidiaries were included in
a report filed pursuant to Section 13(a) or 15(d) of the
Exchange Act: (a) failed to pay any dividend or sinking fund
installment on preferred stock; or (b) defaulted (i) on any
installment or installments on indebtedness for borrowed
money, or (ii) on any rental on one or more long term leases,
which defaults in the aggregate are material to the financial
position of the Company and its consolidated and
unconsolidated subsidiaries, taken as a whole.
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T. The Principal owns options to purchase 2,660,000 shares of
Common Stock, at an average exercise price per share of $0.63;
warrants to purchase 20,000 shares of Common Stock, at an
average exercise price per share of $6.00; and 1,285,600
shares of Common Stock. The spouse of the Principal is the
owner of 31,775 shares of Common Stock, and warrants to
purchase 5,000 shares of Common Stock. The Principal is not
the beneficial owner of any other shares of Common Stock, or
rights to acquire the Common Stock of the Company.
U. The Company has set aside 131,845 shares of Common Stock for
issuance pursuant to its 1997 Employee Stock Purchase Plan.
V. The Company has granted to its employees, officers and
directors, options to acquire 3,410,000 shares, at an average
price per share of $0.92. Other than such options, the Company
has no other outstanding options to acquire the Common Stock.
The Company has set aside an additional 40,000 shares of its
common stock for issuance pursuant to its option plan for
employees, officers and directors.
W. The Company has issued, in the amounts and to the parties set
forth on the Company Disclosure Schedule, warrants to purchase
1,306,312 shares of Common Stock, at an average exercise price
per share of $5.21. Other than such warrants, the Company has
no other outstanding warrants to acquire the Common Stock.
VII. AFFIRMATIVE COVENANTS OF THE COMPANIES
The Companies covenant and agree that from the date hereof, and so long
as the Investor and/or its assigns shall, collectively be holders of
the Warrant or of three percent (3%) or more of the outstanding Common
Stock of the Company that the Companies will:
a. Maintain true and accurate accounting records in accordance
with GAAP; and shall provide to the Investor:
1. Monthly and year-to-date income statements, balance
sheets, and cash flow statements for each of the
Companies within thirty (30) days after the end of
each month, prepared (although unaudited) in
accordance with GAAP, and certified by the Chief
Financial Officer of each of the Companies.
2. Within forty-five (45) days after the end of each
quarter, a consolidated balance sheet of the Company
and any other subsidiary that may or may not be
acquired after Closing Date.
3. Within ninety (90) days after the end of each fiscal
year, a certified audit report prepared by a Board
agreed upon certified public accounting firm (which
shall be a Big Six firm or another firm of recognized
standing acceptable to the Investor and the Board)
prepared in accordance with GAAP accounting
principles and, together with these reports, a copy
of such firm's management letter which shall include
a statement with reference to the Company's
compliance with its financial covenants in its
material agreements.
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Each report described above in (1), (2) and (3) shall
set forth in each case comparisons to the Budget (as
described below) and the corresponding period to the
previous fiscal year, all in reasonable detail and
signed, subject in the case of unaudited reports to
changes resulting from year-end audit adjustments, by
the Chief Financial Officer of the Company, who shall
also certify that the Company is not in default under
the Company's Certificate of Incorporation, its
By-Laws, this Agreement or any other agreements to
which it is a party or to which it or any of its
properties is subject.
4. Thirty (30) days prior to each fiscal year-end
(except as to the fiscal year ended December 31,
1999, in which case, within forty-five (45) days
after the fiscal year end), a detailed operating
budget (the "Budget"), complete with written
narrative, for the subsequent fiscal year. The Budget
shall be broken down on a month-to-month basis and
shall include detailed balance sheets, profit and
loss statements, and cash flow statements. All
budgets will be approved by the Board of Directors
prior to the beginning of each fiscal year. The
Investor expressly acknowledges that the failure of
the Company to meet or fulfill an annual Budget shall
not alone constitute an Event of Default pursuant to
this Investment Agreement; PROVIDED, however, that
such acknowledgment shall not affect, limit or
preclude the existence or declaration of an Event of
Default under any other provision of this Agreement.
5. Within ten (10) days of issuance, duplicate copies of
any material written communications received from or
delivered by either of the Companies to their
stockholders, the Board of Directors, any
committee(s) thereof, lenders or with the financial
community at large and any reports filed by the
Company with and securities exchange, the National
Association of Securities Dealers, Inc., any
governmental official or agency.
6. Copies of all Federal and State Income Tax Returns
filed by the Companies within twenty (20) days of
filing thereof.
7. All other information reasonably requested by the
Investor.
B. Give immediate notice to the Investor, or its assigns, by
telephone, with confirmation in writing, of any failure by
either of the Companies to file timely Federal, State or local
tax returns, or any material default by the Company on any
obligation, or violation of the terms and conditions of any
such obligation.
C. Promptly pay and discharge, when due, all of their taxes and
assessments of any kind whatsoever as well as all of their
claims and other liabilities which, if unpaid, might become a
lien or charge upon their property or assets, except those
contested in good faith and in appropriate proceedings
diligently prosecuted.
D. At all times maintain on all of their insurable property, real
and personal, adequate insurance against loss or damage by
fire and from other casualties, contingencies, hazards and
liabilities (including public liability and products liability
insurance) in such amounts, with such carriers and for such
coverage as are reasonable and proper in accordance with sound
business practice and as customarily carried by businesses
similarly situated.
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E. Take all action necessary to preserve and maintain their
corporate existence as well as their right to continue
business.
F. Promptly notify the Investor or its assigns of any default,
declared or otherwise, of the Company in the performance or
observance of any material obligation or material condition of
any indebtedness or other material agreement of the Company.
G. Indemnify and hold harmless the Investor and its assigns from
any and all claims for a broker's or finder's fee arising out
of this transaction.
H. Execute such documents, forms, or other instruments and
furnish such information as may be required to effectuate this
Agreement and/or to comply with any Rules and Regulations of
the Small Business Investment Act of 1958 and Amendments
thereto and/or of the Small Business Administration.
I. Furnish to the Investor or its assigns with reasonable
promptness, such other information concerning the business,
financial conditions, results of operation and ownership of
the Company and of each subsidiary, if any, as may be
reasonably requested by the Investor and at any and all
reasonable times during business hours, upon written request,
permit the Investor, by its agents and attorneys to examine
all the books of account, records, reports and financial
papers of the Company.
J. Maintain its property in good repair, working order and
condition; from time to time to make all needful and proper
repairs, replacements, additions, betterments and improvements
thereto; and comply in all material respects with the
requirements of all governmental authorities, so that the
business carried on by the Companies may be properly conducted
at all times in accordance with prudent business management.
K. Keep in full force and effect the life insurance policy on the
life of the Xxxxxxx Xxxxxxxxx, required by the terms of this
Agreement, so long as Xxxxxxx Xxxxxxxxx shall be employed by,
or party to a written or oral independent contractor agreement
with, the Company, and so long as the Company is able to
obtain such insurance policy at an annual cost to the Company
not in excess of $10,000.
L. Use the proceeds from the Investor's purchase of the Series C
Preferred Stock and the Warrant solely for purposes set forth
on Exhibit VII.L , and for no other purposes; and to assure
such application, (i) deliver to the Investor, within ninety
(90) days of the Closing, a written report, certified as
correct by the Principal, verifying the purposes and amounts
for which the purchase price for the Series C Preferred Stock
and Warrant have been disbursed and, if the proceeds have not
been fully disbursed within that ninety (90) day period, an
additional report shall be delivered not later than the end of
each succeeding ninety (90) period verifying the purposes and
amounts for which the proceeds have been disbursed; and (ii)
supply to the Investor such additional information and
documents as the Investor reasonably requests with respect to
the use of proceeds and permit the Investor to have access to
any and all Company records and information and personnel as
the Investor deems necessary to verify how proceeds have been
or are being used, and to assure that the proceeds have been
used for the purposes specified. (The Company acknowledges (a)
that the Investor is a federally licensed small business
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investment company and is subject to the regulations
promulgated by the SBA relating to the small business
investment company program (the "Regulations"), that the
Regulations prohibited certain uses of proceeds of loans made
by small business investment companies, as follows: (i)
personal use of loan proceeds by shareholders, officers, and
employees of the Company; (ii) any relending or reinvestment
of loan proceeds, if the Company's primary business activity
of the Company involves, directly or indirectly, providing
funds to others; the purchasing debt obligations factoring; or
long- term leasing of equipment with no provision for
maintenance or repair; (iii) purchasing any stock in or
providing capital to any small business investment company;
(iv) making any real estate purchases if the Company is
classified under Major Group 65 of the Standard Industrial
Classification Manual, unless such transaction would otherwise
be exempt by virtue of Section 901(c) of the Regulations; (v)
any use of proceeds that is contrary to the public interest,
including, but not limited to, activities which are in
violation of law, or inconsistent with free competitive
enterprise; or (vi) foreign investment and use outside the
United States, except as permitted under Section 901(e) of the
Regulations; and (b) the Company represents, covenants and
agrees that no portion of the proceeds shall be used for any
of the foregoing prohibited purposes or for any purposes not
expressly permitted by this Agreement and the Regulations, and
that any prohibited use of any portion of the proceeds shall
constitute a material breach of this Agreement and shall,
notwithstanding any other provision hereof to the contrary, at
the option of the Investor, cause all amounts invested
hereunder shall become immediately due and payable upon
written notice to the Company.)
M. Furnish such information as shall be required by the SBA
concerning the economic impact of the Investor's investment in
the Company, including but not limited to, information
concerning federal, state and local income taxes paid, number
of employees, gross revenues, source of revenue growth,
after-tax profit or loss, and federal, state and employee
income tax withholding; furnish annually all required
information on the appropriate SBA forms; furnish or cause to
be furnished to the SBA such other information regarding the
business, affairs and condition of the Company as the SBA may
from time to time reasonably request in connection with the
Investor's investment hereunder.
N. Permit SBA examiners or the SBA to inspect the books and any
of the properties or assets of the Company and its
subsidiaries, and to discuss the Company business with senior
management employees at such reasonable times as the SBA may
from time to time request in connection with the Investor's
investment hereunder.
O. Assure that at all times the Bylaws of the Company, as
necessary to assure that such provision is enforceable
according to its terms, shall contain a provision for
indemnification of directors to the fullest extent permitted
by applicable law.
P. Promptly pay all taxes, including excise taxes, unless
contested in good faith, as well as lawful claims for labor,
materials, and supplies which, if unpaid, might become a lien
or charge on any of their properties.
Q. Promptly notify the Investors of any material adverse change
in the condition of the Companies, financial or otherwise,
including material obligations.
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R. Maintain compliance in all material respects with all
applicable laws, regulations, ordinances, rule and orders,
including but not limited to legislative and regulatory
requirements of ERISA, EPA, OSHA, etc.
S. Acquire and maintain directors and officers liability
insurance.
T. Provide in each of their By-laws for a number of directors not
to exceed seven (7) members, and also provide in such By-laws
that:
1. Any two members of the respective Boards of Directors
shall have the right to call a meeting of such Board
of Directors at the principal office of the Company,
as applicable, upon at least forty-eight hours prior
notice;
2. A majority of the members of the Board of Directors
shall constitute a quorum.
U. Within thirty (30) days of the Closing Date, adopt a written
policy regarding related party transactions.
V. Maintain all commercially reasonable protections of their
proprietary information.
W. Unless the Company is unable, with reasonable best efforts, to
obtain such insurance policy at an annual cost to the Company
not in excess of $10,000, deliver to Investor, within 45 days
after the Closing Date, satisfactory evidence of issuance of a
life insurance policy, or "binder" to issue a policy to the
Company, by an acceptable insurance company, in the amount of
One Million Dollars ($1,000,000) on the life of the Xxxxxxx
Xxxxxxxxx, which policy shall be non-cancellable for so long
as Xxxxxxx Xxxxxxxxx shall be employed by, or party to a
written or oral independent contractor agreement with, the
Company, and the Series C Preferred Stock is outstanding, and
the proceeds of which upon the death of Xxxxxxx Xxxxxxxxx
shall be applied first to redeem the Series C Preferred Stock
with the balance of the proceeds, if any, to be used by the
Company in its discretion.
X. Maintain its principal business operations in the United
States or its territories.
Y. Maintain the registration of the class of its securities
currently registered pursuant to Section 12(g) of the Exchange
Act.
Z. File all the material required to be filed pursuant to
Sections 13, 14 or 15(d) of the Exchange Act for a period of
at least twelve calendar months; and file in a timely manner
all reports required to be filed pursuant to such Sections.
AA. Assure that the Principal shall, within the time periods
permitted for such filings to be deemed timely by the SEC,
file all required Forms 3, 4 and 5, and Schedules 13D and/or
13G with respect to his beneficial ownership of the Common
Stock, or rights to acquire the Common Stock, of the Company.
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VIII. NEGATIVE COVENANTS OF THE COMPANIES
The Company covenants and agrees that from the date hereof, and so long
as the Investor and/or its assigns shall, collectively be holders of
the Warrant or of three percent (3%) or more of the outstanding Common
Stock of the Company that the Company will not:
A. Make any redemption or purchase or otherwise acquire any of
its capital stock, now or hereafter issued other than
mandatory redemptions required by the terms of the Series B
Preferred Stock presently outstanding, or an optional
redemption by the Company of the Series B Preferred Stock
presently outstanding.
B. Guarantee, endorse or otherwise become surety for any
obligations of others or purchase any evidence of indebtedness
or securities (including stock) or the business or
substantially all of the property of any other person or make
any capital contribution or capital advance to any other
person or firm except (i) guarantees of the indebtedness of
wholly-owned subsidiaries of the Company; (ii) guarantees
undertaken in connection with, and as required to permit
acquisition by the Company of the stock, or all or
substantially all of the assets of another entity or business.
C. Modify or amend its Certificate of Incorporation or Bylaws or
change in any manner its capitalization as to adversely affect
the Investor; provided, however, without limiting the
foregoing, that the Company may: (i) increase the authorized
number of common or preferred shares; and (ii) effect stock
splits.
D. Make any loans or advances to any of their officers or
directors or any persons related to such persons.
E. Enter into, or permit to remain in effect, any agreement to
rent or lease any real or personal property except those
rental agreements listed in the Company Disclosure Schedule,
other than in the ordinary course of business.
F. Enter into any sale and lease-back arrangement, other than in
the ordinary course of business.
G. Make any payment of principal upon or purchase or retire in
any manner except as otherwise permitted or required hereunder
any present outstanding indebtedness to any present
shareholder or relative thereof.
H. Move the place where its corporate and business records are
kept, or its management maintained from one state to another
state or jurisdiction unless the Company shall have given
written notice to the Investor of date of its relocation, and
of its new address, not less than 30 days in advance of the
date of such relocation.
I. Sell, assign, transfer, mortgage, pledge or encumber any part
of their assets or property now owned or hereafter acquired or
permit the same to be sold, assigned, transferred, mortgaged,
pledged or encumbered except as to (i) the lien of taxes,
assessments or other governmental charges not yet due that may
be paid without penalty; (ii) liens of carriers, warehousemen,
and materialsmen incurred in the ordinary course of business
for sums not yet due; (iii) any pledge or lien securing only
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unemployment insurance, workmen's compensation or similar
obligations that are not in default; (iv) deposits to secure
surety and appeal bonds to which it is a party; (v) sales in
the ordinary course of business; or (vi) refinancing of
existing indebtedness of the Company, on terms not less
favorable to the Company than the terms of the indebtedness
that is refinanced.
J. Declare or pay dividends of any kind, other than dividends on
the Series B Preferred Stock; PROVIDED, however, that the
Company has paid all accumulated or current dividends on the
Series C Preferred Stock.
K. Merge, liquidate or consolidate with or into any other entity,
or lease, sell or otherwise transfer all or substantially all
of its property, or business assets, other than as expressly
permitted by the Certificate of Designation for the Series C
Preferred Stock, or transfer any of its property for
consideration less than fair market value.
L. Except as disclosed on the Company Disclosure Schedule or the
Company SEC Documents, directly or indirectly purchase,
acquire or lease any property to or from any stockholder,
director, officer, agent or employee of the Companies or any
relative thereof or any firm or corporation in which any one
or more of the foregoing have directly or indirectly in the
aggregate more than a five percent (5%) interest.
M. Except for those contracts set forth in the Company Disclosure
Schedule, make or enter into any management agreement whereby
management, supervision or control of its business shall be
delegated to or placed in any person other than their duly
elected Boards of Directors and their executive officers nor
any contract or agreement whereby any of the principal
functions of operating their present business or any other
business is delegated or placed with any agent or independent
contractor, excepting, however, work let to or subcontractors
in the ordinary course of business consistent with past
practice.
N. Reserved.
O. Change the general character of their business as constituted
at the time of execution and delivery of this Agreement. Such
"change" shall include, but not be limited to, a sale of all
or a significant portion of their assets.
P. Permit the occurrence of a net loss by the Company (as
determined in accordance with GAAP) for any calendar year
ended after December 31, 1999; provided, however, that the
Company shall not be deemed in violation of this provision,
with respect to the year ended December 31, 2000, if it shall
have negative EBIT for such period of not more than One
Hundred Fifty Thousand and no/100 Dollars ($150,000);
PROVIDED, however, that even if such negative EBIT for the
period ended December 31, 2000 shall exceed One Hundred Fifty
Thousand and no/100 Dollars ($150,000), it shall not be a
violation of this Section VIII.P if, for the six month period
ended June 30, 2001, the Company shall have positive EBIT of
not less than One Dollar ($1.00). For the purpose of this
section, "net loss" shall mean such loss before all
extraordinary items and after all taxes. Whenever the term
"EBIT" is used in this Agreement, it shall mean, as all
amounts shall be determined in accordance with GAAP, (i) the
sum of the Company's revenue for the relevant period,
exclusive of any interest income during such period, less (ii)
the cost of goods sold producing such revenue for such period,
less (iii) the sales, general and administrative expenses
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incurred in the ordinary course of the business of the Company
during the relevant period; such expenses exclusive of (x) the
amount of any interest expense; and (y) the amount of the
provision for foreign, federal, state, and local income taxes
for such period.
Q. Use the proceeds of the Offering in any manner other than as
set forth in Section VII.L hereof.
R. Issue any Common Stock, preferred stock, equity or any other
security with equity or profit sharing features: (i) having
rights and preferences superior to, or pari passu with those
of the Series C Preferred Stock; or (ii) for a consideration
less than fair market value.
S. Create or permit to continue in existence any liens , liens
for taxes not yet due and payable, involuntary liens contested
in good faith or other similar encumbrances, other than in the
ordinary course of business.
T. Create or permit to continue to exist any secured or unsecured
debt (or guarantees) above $50,000 in the aggregate, other
than liabilities incurred in the ordinary course of business
and not more than 90 days past due.
U. Enter into any transaction not in the ordinary course of
business, or for less than fair market value to the Company,
including without limitation, the purchase, sale, lease,
rental or exchange of property or the rendering of any
service, with an affiliate, employee, officer, director or
shareholder or engage in any transaction not in the ordinary
course of business with any supplier, customer or any other
person.
V. Approve or agree to any reorganization, merger, consolidation
or combination with, any person, or dispose of fifty percent
(50%) or more of its assets other than the sale of inventory
in the ordinary course of business, or liquidate, dissolve,
recapitalize or reorganize in any form of transaction.
W. Issue to any future purchaser of securities of the Company
registration rights that are equal to or more favorable to the
new purchasers than those granted to the Investor.
X. Issue any securities for any consideration other than cash,
other than issuances of Common Stock:
1. in connection with the conversion or exercise, as the
case may be, of the Series C Preferred Stock and
Warrant;
2. as dividends payable on shares of outstanding Common
Stock, provided such issuance is not otherwise
prohibited by this Agreement; or
3. in connection with the exercise of stock options
under any incentive stock option plan of the Company;
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4. in connection with the conversion or exercise, as the
case may be, of any rights outstanding as of the
Closing, to acquire the Common Stock of the Company;
or
5. in connection with, and as consideration for or as
necessary to facilitate, the acquisition by the
Company of the stock, or all or substantially all of
the assets of another entity or business.
Y. Make loans or advances to any company, other than a subsidiary
of the Company.
Z. Make any investment in, or purchase any stock, security or
evidence of indebtedness of any person except for those of the
US government and banks with capital in excess of $25 million,
having a maturity of one year or less, except in connection
with the acquisition by the Company of the stock, or all or
substantially all of the assets of another entity or
business..
AA. Fail to pay any dividend or sinking fund installment on any
class of preferred stock.
BB. Default (i) on any installment or installments on indebtedness
for borrowed money, or (ii) on any rental on one or more long
term leases, which defaults in the aggregate are material to
the financial position of the Company and its consolidated and
unconsolidated subsidiaries, taken as a whole.
IX. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company that (i) it
has the corporate power and authority to enter into this Agreement and
consummate the transaction contemplated hereby, (ii) the execution and
delivery of this Agreement, and the purchase of the Series C Preferred
Stock and Warrant, have been duly authorized by all necessary actions.
The Investor represents that it is acquiring the Series C Preferred
Stock and the Warrant for investment and not with a view to
distribution. The Investor is an "accredited investor" as defined in
the Securities Act.
X. WAIVERS/SEVERABILITY
Any of the acts that the Company is required to do, or prohibited from
doing, by any of the provisions hereof, may, notwithstanding the
provisions hereof, be omitted or done, as the case may be, if the
Investor, by an instrument in writing, consents thereto. The invalidity
of any provision of this Agreement, or part thereof, shall not affect
the validity or enforceability of the remainder of such provision
and/or this Agreement.
XI. EVENTS OF DEFAULT
An event of default ("Event of Default") under this Agreement shall be
deemed to have occurred if:
A. The Company fails to perform or comply with or observe any of
the other terms, conditions or covenants hereof, and such
failure shall continue for a period of sixty (60) days after
written notice thereof shall have been given by the Investor.
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B. The Company becomes insolvent, makes an assignment for the
benefit of creditors or admits in writing its inability to pay
its debts as they mature, consents to, or acquiesces in the
appointment of a Trustee or Receiver for the Company or any
property thereof, or any bankruptcy reorganization, debt
arrangements, or other proceeding under any bankruptcy or
insolvency law is instituted by or against the Company (and
where in the case of an involuntary petition it is not
dismissed within sixty (60) days from its filing), or shall
consent to any involuntary petition filed pursuant to or
purporting to be pursuant to any bankruptcy, reorganization or
insolvency law of any jurisdiction or shall be adjudicated
bankrupt.
C. The Company fails within sixty (60) days from the entry
thereof to discharge or have vacated any final judgment for
the payment of money in an amount exceeding Fifty Thousand
Dollars ($50,000), which shall be rendered against it or,
within such period, appealed therefrom and give such security
as may be required by law for payment of any amount ultimately
found to be due.
D. The Company discontinues business; or any parent or subsidiary
shall take, suffer or permit any of the actions or events
specified in Section B or C above.
E. The Company shall have made any representation or warranty
herein or in any report, financial or otherwise, or any
statement or instrument furnished pursuant to this Agreement,
that shall be in any material respect false or erroneous as of
the date of which the facts therein set forth were stated or
certified.
F. The Company becomes the subject of a liquidation or
dissolution proceeding.
G. If any material indebtedness of the Company becomes or is
declared to be due and payable prior to its expressed maturity
by reason of any default by the Company in the performance or
observance of any obligation or condition, and the Company
fails to cure such default or condition, and all other
accelerations caused by such default within the period of
grace, if any therein specified.
H. Default by the Company in the performance of any material
agreement.
I. The occurrence of a Change of Control. A "Change of Control
shall be deemed to have occurred if, any time after the date
hereof: (x) the Company or any shareholder of the Company
other than the Investor issues, grants or otherwise conveys,
to any person or entity, or combination of persons or
entities, not shareholders of the Company as of the date
hereof, rights to purchase Common Stock, or the equivalent
thereof, of the Company equal to, on a cumulative basis,
twenty-five percent (25%) or more of the fully diluted number
of the Company's shares as of the Closing Date; PROVIDED,
however, that a "Change of Control" shall not be deemed to
occur hereunder if the Company shall sell, at a price or
prices determined by the Board of Directors acting in good
faith to be not less than fair market value, Common Stock, or
rights to acquire Common Stock, constituting twenty-five
percent (25%) or more of the then outstanding Common Stock of
the Company, in a private or public offering to not fewer than
25 purchasers, none of whom shall acquire in such offering
more than ten percent (10%) of the securities sold in such
offering.
-16-
J. If: (i) Xxxxxxx Xxxxxxxxx shall, as a result of his death,
cease to be one of (x) an executive officer of the Company, or
(y) be party to an oral or written independent contractor
agreement with the Company; (ii) the Company shall have
received the proceeds of the life insurance policy maintained
by the Company on the life of Xxxxxxx Xxxxxxxxx; and (iii) the
Company shall have failed to redeem the outstanding Series C
Preferred Stock at the amount of its Base Liquidation
Preference, as defined in the Certificate of Designation for
the Series C Preferred Stock within 60 days of notice from the
Investor to the Company of demand for such redemption.
K. The Principal sells, or liquidates by any method, (i) unless
there shall be a Qualified Exchange Listing (as defined in
Section XIII.B.2 below), forty percent (40%) or more of the
ownership interest of the Principal in the Company, owned by
the Principal at the Closing Date, as determined on a fully
diluted basis; or (ii) while there shall be a Qualified
Exchange Listing, fifty percent (50%) or more of the ownership
interest of the Principal in the Company, owned by the
Principal at the Closing Date, as determined on a fully
diluted basis.
XII. REMEDIES
A. The Investor or its assigns may pursue any rights or remedies
hereunder independently or concurrently, and all such rights,
powers and remedies shall be cumulative to the extent not
prohibited by law, and not exclusive of any other thereof. The
Investor or its assigns may proceed to protect and enforce its
rights hereunder by suit in equity, action at law and/or by
other appropriate proceedings, whether for specific
performance of any covenant herein, or in the aid of the
exercise of any power granted herein or to enforce any other
legal or equitable right.
B. To the extent permitted by law, the Company agrees to waive
and does hereby absolutely and irrevocably waive and
relinquish the benefit and advantage of any valuation,
appraisement or redemption laws now existing or which may
hereafter exist, which, but for this provision, might be
applicable to any enforcement of or any sale made under any
judgment, order or decree of any court, or pursuant to the
provisions hereof, or otherwise based hereon or on any claim
for interest due hereon.
C. Notwithstanding anything herein contained to the contrary, in
the event that a court of competent jurisdiction shall have
determined that there shall have been an Event of Default as
herein specified, the Investor or its assigns, to the extent
permitted by law shall be entitled as a matter of right to the
appointment of a Receiver or Receivers of the property,
interest, rights and business of the Company and the
subsidiaries, if any, and of the earnings, income, rents,
issues and profits thereof pending such proceedings and with
such power as the Court in making such appointment shall
confer. This remedy, as with all others, is cumulative and not
exclusive of any other rights, powers, or remedies available
to the Investor and its assigns.
D. The Company shall, in the event of the occurrence of an Event
of Default, pay to the Investor all costs and expenses
incurred in the enforcement and collection of this Agreement,
the successful enforcement of any rights as a holder of the
Series C Preferred Stock, or any other provision of any
agreement entered into by the Company hereunder, including
reasonable compensation to the Investor's agents and attorneys
as well as any all actual expenses of such agent or attorney,
including, without limitation, travel, lodging, meals,
deposition expenses and expert witness fees.
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XIII. PUT
A. In the circumstances set forth in XIII.B, below, the Investor
may tender to the Company the Warrant or Warrant Shares, and
shares of Common Stock held by the Investor as a result of the
conversion of all or any part of the Series C Preferred Stock
(such shares of Common Stock are referred to herein as
"Conversion Shares"), and shares of the Series C Preferred
Stock, or any portion or combination of the foregoing, and the
Company shall pay to holder the Put Price, as defined below.
B. Investor may exercise its rights pursuant to this Section XIII
at any time after the fifth anniversary of the Closing Date,
and prior to the close of business on the seventh anniversary
of the Closing Date; unless the Common Stock shall, at the
time of such exercise, be listed or approved for quotation on
(i) a stock exchange or automated quotation system such that
the Common Stock will qualify as a "covered security" within
the meaning of Section 18(b) of the Securities Act; or (ii)
the NASDAQ Small Cap Market, provided that there shall have
been average daily trading volume for the prior thirty (30)
trading days, of at least seventy thousand (70,000) shares
(either (i) or (ii), a "Qualified Exchange Listing").
C. The price at which the Investor may put the Warrant, any of
the Warrant Shares, the Conversion Shares and/or the Series C
Preferred Stock to the Company shall be the "Put Price," which
shall be equal to the "Fair Market Value" of the Company,
multiplied by a fraction,
the numerator of which is the total of (i) the number
of Warrant Shares tendered by the Investor, (ii) the
number of shares of Common Stock for which the
portion of the Warrant tendered by the Investor
remains exercisable, (iii) the number of Conversion
Shares tendered by the Investor and (iv) the number
of shares of Common Stock for which the Series C
Preferred Stock tendered by the Investor remain
convertible;
and the denominator of which is the total of (x) the
total shares of outstanding Common Stock of the
Company, (y) the number of shares of Common Stock for
which the Warrant remains exercisable, and (z) the
number of Conversion Shares for which all shares of
Series C Preferred Stock held by the Investor remain
convertible.
The Put Price, as determined according to the foregoing, shall
be increased by the amount of all accrued and unpaid dividends
on the Warrant Shares, Conversion Shares and shares of Series
C Preferred Stock tendered by the Investor.
1. "Fair Market Value" shall be, if the Company and the
Investor are able to reach agreement within 30 days
of notice from Investor of its exercise of rights
pursuant to this Section XIII, the higher of: (i) the
average of the closing "bid and "ask" prices of the
Common Stock for the thirty (30) trading days
immediately prior to the date on which the Investor
shall give notice to the Company of the exercise of
its put rights hereunder; or (ii) an amount
determined pursuant to the Appraisal Process,
described below.
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2. The Appraisal Process shall be as set forth in this
paragraph. If the Company and the Investor shall be
unable to agree on Fair Market Value within 30 days
of notice from Investor of its exercise of rights
pursuant to this Section XIII, each of the Company
and the Investor shall select a qualified appraiser,
regularly doing business in the area of business
valuation, and each of the two appraisers selected
shall, within 30 days of retention, render an opinion
as to Fair Market Value. If the lower of the two
appraisals rendered is at least 90% of the higher of
the two appraisals, Fair Market Value shall be the
average of the two appraisals. If the lower of the
two appraisals is not at least 90% of the higher of
the two appraisals, the two appraisers selected by
the parties shall select a third appraiser, who shall
then, within 30 days of retention, render an opinion
concerning Fair Market Value. In this event, the Fair
Market Value shall be the average of the two closest
appraisals. The appraisals shall be made without
consideration of any discount for minority interest
or lack of public market.
3. Each party shall each bear the cost of the appraiser
it selects hereunder. The parties shall share evenly
the cost of the third appraisal.
4. Following the determination of Fair Market Value, the
Investor may rescind its election to put its Common
Stock and/or Warrant to the Company, without
prejudice to its right to later exercise its rights
hereunder; provided it shall then be required to pay
the cost of all appraisals hereunder.
D. In the event of the exercise by the Investor of any rights
pursuant to this Section XIII, the Company shall pay the total
Put Price to the Investor within one hundred twenty (120) days
from the date the Company receives written notice from the
Investor of the exercise of the put rights granted by this
Section, or such later date as shall be sixty (60) days after
the date Fair Market Value is finally determined hereunder.
XIV. REGISTRATION RIGHTS
A. At any time after the Closing Date, the Investor may demand
registration under the Securities Act of shares of Common
Stock owned by the Investor, on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registration"), provided
that the Company shall then be eligible to use such form in
the registration of its securities. The registration requested
pursuant to this Section XIV.A is referred to herein as
"Demand Registration."
1. The Investor shall be entitled to demand two Demand
Registrations hereunder. A registration will count as
the Demand Registration when it has become effective
or is withdrawn prior to effectiveness at the request
of the Investor; provided that in any event, the
Company shall, as provided in Section XIV.E, pay all
registration expenses in connection with any
registration initiated as a Demand Registration.
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2. If the Demand Registration is an underwritten
offering, and the managing underwriters advise the
Company in writing that in their opinion the number
of shares of Common Stock requested to be included
exceeds the number of shares of Common Stock that can
be sold in such offering, the Company will include in
such registration prior to the inclusion of any
securities that are not shares of Common Stock owned
by the Investor, the number of shares of Common Stock
requested by the Investor to be included, which in
the opinion of such underwriters can be sold. The
balance of the shares of Common Stock that the
Investor requested to be included in such offering
shall be withheld from sale for a period of time
requested by the underwriters, but not to exceed 180
days from the effective date of the registration
statement.
3. The Company will not be obligated to effect the
Demand Registration within 180 days after the
effective date of a registration in which the
Investor was given "piggyback rights" pursuant to
Section XIV.B hereof. The Company may postpone the
filing or the effectiveness of a registration
statement for the Demand Registration if the Board of
Directors of the Company shall determine that such
Demand Registration might have an adverse effect on
any proposal or plan by the Company to engage in any
acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation,
tender offer or similar transaction; provided that in
such event, the Investor will be entitled to withdraw
such request and that, if such request is withdrawn,
such Demand Registration will not be considered as a
Demand Registration.
4. The Company will have the right to select the
investment banker(s) and manager(s) to administer any
offering, subject to the approval of Investor, which
approval will not be unreasonably withheld.
B. If the Company at any time or times proposes or is required to
register any of its Common Stock or other equity securities
for public sale for cash under the Securities Act (other than
on Forms S-4 or S-8 or similar registration forms not
permitting the registration of the Common Stock owned by the
Investor), or any applicable state securities law, it will at
each such time or times give written notice to the Investor of
its intention to do so. Upon the written request of the
Investor, given within ten days after receipt of any such
notice, the Company shall use its reasonable best efforts to
cause any Common Stock held by the Investor and requested to
be registered, to be included in such registration under the
Securities Act and any applicable state securities laws;
provided, that if the managing underwriter advises that less
than all of the shares to be registered should be offered for
sale so as not materially and adversely to affect the price or
saleability of the shares being registered by the Company, the
Investor and each other shareholder not exercising demand
rights to include shares in the registration statement (but
not the Company to the extent it desires to include shares for
its own account) shall reduce on a pro rata basis the number
of their shares to be included in the registration statement
as required by the underwriter to the extent requisite to
permit the sale or other disposition (in accordance with the
intended method of disposition thereof as aforesaid) by the
prospective seller or sellers of the securities so registered.
-20-
The rights of Investor under this Section XIV.B and Section
XIV.A above shall terminate at such date as the Investor holds
less than 3% of the total Common Stock of the Company
outstanding on a fully diluted basis.
C. It shall be a condition precedent to the obligation of the
Company to register any Common Stock pursuant to Sections
XIV.A or XIV.B that the Investor shall (a) furnish to the
Company such information regarding the Common Stock and the
intended method of disposition thereof and other information
concerning the Investor as the Company shall reasonably
request and as shall be required in connection with the
registration statement to be filed by the Company; (b) agree
to abide by such additional or customary terms affecting the
proposed offering as reasonably may be requested by the
managing underwriter of such offering, including a
requirement, if applicable, to withhold from the public market
for a period of at least 120 days after any such offering, any
shares excluded from the offering at the instance of the
underwriter as permitted under Sections XIV.A and XIV.B; and
(c) agree in writing in form satisfactory to the Company to
pay all underwriting discounts and commissions applicable to
the securities being sold by the Investor.
D. If and whenever the Company is required by the provisions of
Sections XIV.A or XIV.B to effect the registration of the
Common Stock under the Securities Act, until the securities
covered by such registration statement have been sold, or for
six months after effectiveness, whichever is the shorter
period of time, the Company shall:
1. Prepare and file with the SEC a registration
statement with respect to such securities and use its
reasonable best efforts to cause such registration
statement to become and remain effective;
2. Prepare and file with the SEC such amendments to such
registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective;
3. Furnish to the security holders participating in such
registration and to the underwriters of the
securities being registered such reasonable number of
copies of the registration statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order
to facilitate the public offering of such securities;
4. Use its reasonable best efforts to register or
qualify the securities covered by such registration
statement under such state securities or "Blue Sky"
laws of such jurisdictions as such participating
holders may reasonably request within 20 days
following the original filing of such registration
statement, except that the Company shall not for any
purpose be required to execute a general consent to
service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is
not so qualified, and except that the Company shall
not be required to so register or qualify in more
than 25 such jurisdictions if in the good faith
judgment of the Company, the Investor such additional
registrations or qualifications would be unreasonably
expensive or harmful to the consummation of the
proposed offering;
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5. Notify the security holders participating in such
registration, promptly after it shall receive notice
thereof, of the time when such registration statement
has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
6. Notify such holders promptly of any request by the
SEC for the amending or supplementing of such
registration statement or prospectus or for
additional information;
7. Prepare and file with the SEC, promptly upon the
request of any such holders, any amendments or
supplements to such registration statement or
prospectus which, in the opinion of counsel for such
holders, are required under the Securities Act or the
rules and regulations thereunder in connection with
the distribution of Common Stock by such holders;
8. Prepare and promptly file with the SEC and promptly
notify such holders of the filing of such amendment
or supplement to such registration statement or
prospectus as may be necessary to correct any
statements or omissions if, at the time when a
prospectus relating to such securities is required to
be delivered under the Securities Act, any event
shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact
or omit to state any material fact necessary to make
the statements therein, in light of the circumstances
in which they were made, not misleading;
9. In case any of such holders or any underwriter for
any such holders is required to deliver a prospectus
at a time when the prospectus then in circulation is
not in compliance with the Securities Act, the
Company will prepare and file such supplements or
amendments to such registration statement and such
prospectus or prospectuses as may be necessary to
permit compliance with the requirements of the
Securities Act;
10. Advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance
of any stop order by the SEC suspending the
effectiveness of such registration statement or the
initiation or threatening of any proceeding for that
purpose and promptly use its reasonable best efforts
to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be
issued;
11. Not file any amendment or supplement to such
registration statement or prospectus to which a
majority in interest of such holders shall reasonably
have objected on the grounds that such amendment or
supplement does not comply in all material respects
with the requirements of the Securities Act or the
rules and regulations thereunder, after having been
furnished with a copy thereof at least five business
days prior to the filing thereof; and
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12. If required by an underwriter selected by the
Company, at the request of any holder, (i) use its
best efforts to obtain and furnish on the effective
date of the registration statement or, if such
registration includes an underwritten public
offering, at the closing provided for in the
underwriting agreement, a customary opinion, dated
such date, of the counsel representing the Company
for the purposes of such registration, addressed to
the underwriters, if any, and to the holder or
holders making such request, or, if the offering is
not underwritten, shall notify the holders that such
registration statement has become effective under the
Securities Act and (ii) use its best efforts to
obtain customary letters dated on such effective
date, and such closing date, if any, from the
independent certified public accountants of the
Company, addressed to the underwriters, if any, and
to the holder or holders making such request, stating
that they are independent certified public
accountants within the meaning of the Securities Act
and dealing with such matters as the underwriters may
request, or, if the offering is not underwritten,
stating that in the opinion of such accountants, the
financial statements and other financial data
pertaining to the Company included in the
registration statement or the prospectus or any
amendment or supplement thereto comply in all
material respects with the applicable accounting
requirements of the Securities Act.
E. With respect to each inclusion of Common Stock in a
registration statement pursuant to Sections XIV.A or XIV.B,
all registration expenses, fees, costs and expenses of and
incidental to such registration, inclusion and public offering
in connection therewith shall be borne by the Company;
provided, however, that holders participating in the
registration shall bear their pro rata share of the
underwriting discount and commissions and shall bear any fees
and disbursements of accountants and counsel retained by them
(other than accountants and counsel also retained by the
Company). The fees, costs and expenses of registration to be
borne by the Company shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company
(including the cost of any special audit requested in order to
effect such registration), fees and disbursements of counsel
for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are required to bear
such fees and disbursements), all legal fees and disbursements
and other expenses of complying with state securities or "blue
sky" laws of any jurisdiction in which the securities to be
offered are to be registered or qualified, fees and
disbursements of counsel and accountants for the selling
holders who are also retained by the Company and the premiums
and other costs of policies of insurance against liability
arising out of such public offering which the Company
determines to obtain.
F. Subject to the conditions set forth below, in connection with
any registration of Securities pursuant to Sections XIV.A or
XIV.B above, the Company agrees to indemnify and hold harmless
each person selling securities pursuant to said Sections and
each person, if any, who controls any such seller, within the
meaning of Section 15 of the Securities Act, as follows:
1. Against any and all loss, claim, damage and expense
whatsoever arising out of or based upon (including,
but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or
defending any litigation, commenced or threatened, or
any claim whatsoever based upon) any untrue or
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alleged untrue statement of a material fact contained
in any preliminary prospectus (if used prior to the
effective date of the registration statement), the
registration statement or the prospectus (as from
time to time amended and supplemented), or in any
application or other document executed by the Company
or based upon written ,information furnished by the
Company filed in any jurisdiction in order to qualify
the Company's securities under the securities laws
thereof; or the omission or alleged omission
therefrom of a material fact required to be stated
therein or necessary to make the statements therein
not misleading; or any other violation of applicable
federal or state statutory or regulatory requirements
or limitations relating to action or inaction by the
Company in the course of preparing, filing, or
implementing such registered offering; provided,
however, that the indemnity agreement contained in
this Section XIV.F(1) shall not apply to any loss,
claim, damage, liability or action arising out of or
based upon any untrue or alleged untrue statement or
omission made in reliance upon and in conformity with
any information furnished in writing to the Company
by or on behalf of any seller expressly for use in
connection therewith;
2. Subject to the proviso contained in Section XIV.F(1)
above, against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the
aggregate amount paid in settlement of any
litigation, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or
omission or any such alleged untrue statement or
omission (including, but not limited to, any and all
expense whatsoever reasonably incurred in
investigating, preparing or defending against any
such litigation or claim) if such settlement is
effected with the written consent of the Company;
3. In no case shall the Company be liable under this
indemnity agreement with respect to any claim made
against any seller or any such controlling person
unless the Company shall be notified, by letter or by
telegram confirmed by letter, of any action commenced
against such persons, promptly after such person
shall have been served with the summons or other
legal process giving information as to the nature and
basis of the claim, but failure to so notify the
Company shall not relieve it from any liability which
it may have otherwise than on account of this
indemnity agreement. The Company shall be entitled to
participate at its own expense in the defense of any
suit brought to enforce any such claim, but if the
Company elects to assume the defense, such defense
shall be conducted by counsel chosen by it, provided
that such counsel is reasonably satisfactory to the
sellers or controlling persons, defendants in any
suit so brought. If the Company elects to assume the
defense of any such suit and retain such counsel, the
sellers or controlling persons, defendants in the
suit, shall, after the date they are notified of such
election, bear the fees and expenses of any counsel
thereafter retained by them as well as any other
expenses thereafter incurred by them in connection
with the defense thereof.
G. Each person selling securities in any registered offering
pursuant to Sections XIV.A or XIV.B severally and individually
agrees to indemnify and hold harmless the Company, each
underwriter for the offering, and each of their officers and
directors and agents and each other person, if any, who
controls the Company within the meaning of Section 15 of the
Securities Act against any and all such losses, liabilities,
claims, damages and expenses as are indemnified against by the
Company under Section XIV.F; provided, however, that such
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indemnification by such sellers hereunder shall be limited to
statements or omissions, if any, made (or in settlement of any
litigation effected with the written consent of such sellers,
alleged to have been made) in any preliminary prospectus, the
registration statement or prospectus or any amendment or
supplement thereof or any application or other document in
reliance upon, and in conformity with, written information
furnished in respect of such seller by or on behalf of such
seller expressly for use in any preliminary prospectus, the
registration statement or prospectus or any amendment or
supplement thereof or in any such application or other
document. In case any action shall be brought against the
Company, or any other person so indemnified, in respect of
which indemnity may be sought against any seller, such seller
shall have the rights and duties given to the Company, and
each other person so indemnified shall have the rights and
duties given to the several sellers, by the provisions of
Section XIV.F(3). The person indemnified agrees to notify the
sellers promptly after the assertion of any claim against the
person indemnified in connection with the sale of securities.
H. Whenever the Company is subject to the reporting requirements
of either Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 ("Exchange Act"), the Company shall,
whenever requested by any holder of any shares issued
hereunder, notify such holder in writing whether the Company
has, as of any date specified in such request, complied with
the Exchange Act reporting requirements as to which it is
subject to a period prior to such date as may be specified in
such request. In addition, if the Company has become subject
to such reporting requirements, the Company shall take such
other measures and file such other information, documents and
reports as shall hereafter be required by the SEC as a
condition to the availability of Rule 144 under the Securities
Act (or any corresponding rule hereafter in effect). The
Company covenants that all such information, documents and
reports or any registration statement required by Section 12
of the Exchange Act filed with the SEC shall not contain any
untrue statement of a material fact or fail to state therein a
material fact required to be stated therein or necessary to
make the statements contained therein not misleading, and the
Company agrees to indemnify and hold each holder of any shares
issued hereunder or thereunder and each broker, dealer,
underwriter or other person acting for such holder (and any
controlling person of any of the foregoing) harmless from and
against any and all claims, liabilities, losses, damages or
expenses and judgments arising out of or based upon any breach
of the foregoing covenants, representations or warranties.
XV. ADDITIONAL RIGHTS OF THE INVESTOR
In addition to any rights which the Investor or its assigns might have
as a matter of law, or by reason of its rights as a holder of the
Series C Preferred Stock given it by the Company or by reason of this
Agreement, or by any documents executed pursuant hereto, so long as the
Investor and/or its assigns shall, collectively be holders of the
Warrant or of three percent (3%) or more of the outstanding Common
Stock of the Company the Investor shall have the following additional
rights:
A. If the Principal desires at any time to make a bona fide
transfer of all or any part of his Common Stock to any
third-party purchaser in a single private transaction or a
series of private transactions (other than to members of the
immediate family of the Principal), and (i) at the time of
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such transfer, there shall not be a Qualified Exchange
Listing, and prior to such proposed transaction(s), or as a
result of such transaction(s), Principal shall have sold more
than fifteen percent (15%) of the shares of Common Stock owned
by the Principal as of the Closing Date (taking into account
stock splits, stock dividends, recapitalizations and other
similar events); or (ii) at the time of such transfer, there
shall be a Qualified Exchange Listing, and prior to such
proposed transaction(s), or as a result of such
transaction(s), Principal shall have sold more than thirty
percent (30%) of the shares of Common Stock owned by the
Principal as of the Closing Date (taking into account stock
splits, stock dividends, recapitalizations and other similar
events), the Investor shall have the right to sell a
proportionate number of shares of Common Stock to the
third-party purchaser at the same price and on the same terms
and conditions as those contained in the third-party offer. A
"proportionate number of shares" is the total number of shares
the party wishes to sell, multiplied by a percentage,
determined as follows: the number of shares of Common Stock to
be sold, multiplied by a fraction, the numerator of which is
the number of shares of Common Stock the party wishes to sell,
and the denominator of which is the total number of shares of
Common Stock all parties wish to sell. The Investor may
exercise its option under this Section by giving written
notice to the Principal within 15 days after receipt from the
Principal of notice of the terms of the proposed sale. The
Principal shall not accept any third-party offer which does
not contain a provision requiring the third party to comply
with the terms of this Section.
B. After the Closing Date, and notwithstanding the fact that no
provisions with respect to pre- emptive rights of shareholders
are contained in the Certificate of Incorporation of the
Company, and in the event no other provision of this Agreement
prevents such issuance for any reason including waiver of the
Investor, in no event shall any shares of Common Stock be
offered for sale by the Company to anyone until the Investor
or its assigns shall have had an opportunity to subscribe for
and purchase their proportionate share of such additional
Common Stock so as to prevent any dilution of their interest
in the Company.
C. The Investor shall be entitled, at its sole option, to have
one (1) designee elected to and maintained on the Board of
Directors. The designee of the Investor shall be entitled to
the highest amount of director's fees and other remunerations
as are paid by the Company to its directors and shall be
reimbursed promptly for all out-of-pocket expenses incurred in
connection with such representatives' service to the Company.
The Company shall furnish the Investor, at least 48 hours in
advance, with copies of the agenda for each Board of Directors
and shareholders' meeting and shall furnish copies of the
minutes of all Board of Directors and shareholders' meetings
within 30 days after such meeting. The designee of the
Investor shall be entitled to submit agenda items to meetings
of the Board of Directors and any committees thereof, and the
Investor's designee shall be entitled to be members of any
committees of the Board of Directors that are established.
XVI. REPRESENTATIONS CONTINUING
All covenants, agreements, representations and warranties contained
herein or in any document or writing delivered by the Company to the
Investor in connection with this Agreement are and shall be deemed and
construed to be continuing representations and warranties and
covenants, and the Company agrees that same shall survive the execution
and delivery of this Agreement, the Series C Preferred Stock, and the
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Warrant, and the Warrant Shares and any investigation at any time made
by the Investor, and shall continue in full force and effect, except as
otherwise specifically excepted hereunder.
XVII. BENEFIT
All the terms and provisions hereof shall inure to the benefit of and
be binding upon the successors and assigns of the Investor, and, in
particular, shall inure to the benefit of and be enforceable by the
holder of the Series C Preferred Stock, the Warrant, and the Warrant
Shares.
XVIII. NON-WAIVER
The Investor and its assigns shall not be deemed to have waived any of
their rights or remedies hereunder unless such waiver is made in
writing duly signed by an appropriate officer of the Investor, or its
assigns. No delay or failure on the part of the Investor or its assigns
in exercising any rights, privilege, remedy or option provided for in
this Agreement, or by laws, shall operate as a waiver of such or of any
rights, privilege, remedy or option and no wavier whatever shall be
valid unless in writing as above provided and then only to the extent
therein expressly set forth. The Investor and its assigns shall have
the right to enforce any one or more remedies available to them
successively, alternatively or concurrently.
XIX. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, and all of which together
shall be deemed to constitute one and the same Agreement.
XX. HEADINGS
The headings of the paragraphs of this Agreement are for convenience
and reference only and do not form a part hereof, and in no way modify,
interpret or construe the understanding of the parties hereto.
XXI. MISCELLANEOUS
A. The Company certifies and warrants that all representations,
warranties and agreements made by each herein and all
documents hereto or in connection herewith or attached hereto
are correct as of the Closing Date and shall be deemed to have
been relied upon by the Investor, and shall survive the
delivery to the Investor of the Series C Preferred Stock and
Stock to be purchased hereunder, regardless of any
investigation made by the Investor; and all representations,
warranties and agreements made herein shall bind and inure to
the benefit of the parties hereto and their respective
successors and assigns whether or not so expressed.
B. The Company agrees to pay to Investor, upon invoice, all
reasonable out-of-pocket expenses incurred by the Investor,
including but not limited to expenses for due diligence, legal
counsel (provided that such costs shall be limited to $20,000,
unless the Company shall have given its consent to a greater
amount), consultants, accountants, and other out-of-pocket
expenses relating to investigation of this transaction,
documentation or closing, regardless of whether closing
occurs.
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C. All notices hereunder shall be in writing and will be deemed
to have been given if delivered personally or mailed by
Registered or Certified mail, return receipt requested,
postage prepaid, addressed as respectively indicated:
1. If to the Company, addressed to it at:
Attn: Xxxxxxx Xxxxxxx
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
with a copy to:
Atlas, Xxxxxxxx, Trop & Borkson, P.A.
Attn: Xxxx X. Xxxxxxxxx
000 Xxxx Xxx Xxxx Xxxx., Xxxxx 0000
Xx. Xxxxxxxxxx, XX 00000
2. If to the Investor, addressed to it at:
000 Xxxxxx Xxxxxx S.E.
X.X. Xxx 00000
Xxxxx Xxxxxx, XX 00000-0000
with a copy to:
Xxxxxxx X. XxXxxxxx
Xxxxxxx & Xxxxx PC
0000 Xxxxx Xxxxxx XX
Xxxxx Xxxxxx, XX 00000
D. This Agreement, which shall be construed and enforceable in
accordance with the laws of the State of Iowa (provided,
however, that the terms of the Series C Preferred Stock shall
be governed by, and interpreted in accordance with, the laws
of Delaware), constitutes the entire understanding between the
partes hereto and may not be changed, nor modified orally, but
only by the amendment to this Agreement in writing, signed by
the party against whom enforcement of any change or
modification is sought.
E. The Company agrees that any action or claim in connection with
or related to this Agreement, the Warrant or the Series C
Preferred Stock, may be brought in any state or federal court
sitting in Linn County, Iowa, and the Company consents to
personal jurisdiction and venue in any such court.
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SIGNATURE PAGE FOR INVESTMENT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BRISTOL RETAIL SOLUTIONS, INC.
By: /s/ Xxxxxxx Xxxxxxx
------------------------------------------
Xxxxxxx Xxxxxxx, Chief Financial Officer
XXXXXXX SBIC, LLC
By: XXXXXXX XXXXXX & COMPANY PLANNING, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
------------------------------------------
Xxxxxx X. Xxxxxxxxxx, COO
/s/ Xxxxxxxx Xxxxx
------------------------------------------
Xxxxxxxx Xxxxx, Individually
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LIST OF EXHIBITS AND SCHEDULES
Exhibit I.A Certificate of Designation for Series C Convertible
Preferred Stock
Exhibit I.B Warrant
Exhibit V.A Resolutions of the Board of Directors of the Company
Exhibit V.B Legal Opinion
Exhibit V.D Certificate of the President or Chief Financial
Officer of the Company
Exhibit V.E. Certified copies of the Certificate of Incorporation
and By-Laws of the Company
Exhibit VI Company Disclosure Schedule
Exhibit VI.B Company Balance Sheet
Exhibit VII.L Use of Proceeds
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