VALESC INC.
AMENDED AND RESTATED INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND
ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN
THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT I.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS AMENDED AND RESTATED INVESTMENT AGREEMENT (this "Agreement" or
"Investment Agreement") is made as of the 29TH day of August, 2001, by and
between Valesc Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company"), and the undersigned Investor executing
this Agreement ("Investor") and amends and restates the Investment Agreement
between the parties dated on or about June 30, 2000.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Twenty
Million Dollars ($20,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if
accepted by the Company, the offer and sale of the Common Stock are being made
in reliance upon the provisions of Regulation D ("Regulation D") promulgated
under the Act, Section 4(2) of the Act, and/or upon such other exemption from
the registration requirements of the Act as may be available with respect to any
or all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section
2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section
3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as EXHIBIT D.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(b).
"Business Day" shall mean any day during which the Principal Market
is open for trading.
"Calendar Month" shall mean the period of time beginning on the
numeric day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as EXHIBIT J.
"Change in Control" shall have the meaning set forth within the
definition of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
2
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Period" shall have the meaning set forth in Section
2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section
2.4.1, the form of which is attached hereto as EXHIBIT P.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Valesc Inc., a corporation duly organized and
existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning
set forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning
as set forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
3
"DWAC Put Shares" shall mean Put Shares, in electronic form, without
restriction on resale, that are delivered to the Depository Trust Company DWAC
account specified by the Investor for the Put Shares.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section
6.5.1.
"Evaluation Day" shall have the meaning set forth in Section
2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the
Advance Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section
9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section
2.3.1 (b).
"Ineffective Period" shall have the meaning given to it in the
Registration Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it
in the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in
Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as EXHIBIT B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as
set forth in EXHIBIT M.
"Late Payment Amount" shall have the meaning set forth in Section
2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
4
"Major Transaction" shall mean and shall be deemed to have occurred
at such time upon any of the following events:
(i) a consolidation, merger or other business combination
or event or transaction following which the holders of Common Stock of the
Company immediately preceding such consolidation, merger, combination or event
either (i) no longer hold a majority of the shares of Common Stock of the
Company or (ii) no longer have the ability to elect the board of directors of
the Company (a "Change of Control");
(ii) the sale or transfer of a portion of the Company's
assets not in the ordinary course of business;
(iii) the purchase of assets by the Company not in the
ordinary course of business; or
(iv) a purchase, tender or exchange offer made to the
holders of outstanding shares of Common Stock.
"Market Price" shall equal the average of the two lowest Volume
Weighted Average Prices for the Common Stock on the Principal Market during the
Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section
2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in
the recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York City Time, on any Business Day, and shall expressly exclude
"after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Closing Certificate" shall mean a certificate in the form
of Exhibit Q1 attached hereto, signed by an officer of the Company
"Officer's Put Certificate" shall mean a certificate in the form of
Exhibit Q2 attached hereto, signed by an officer of the Company.
5
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the
terms of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in
any Put Notice for which the Company intends to exercise a Put under Section
2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which
case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section
2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section
2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d),
the form of which is attached hereto as EXHIBIT F.
"Put Opinion of Counsel" shall mean an opinion from Company's
independent counsel, in the form attached as EXHIBIT H, or such other form as
agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section
2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section
2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by
the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
6
"Registration Opinion" shall have the meaning set forth in Section
2.3.7(a), the form of which is attached hereto as EXHIBIT N.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as EXHIBIT A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals
hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.6.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as EXHIBIT I.
"Schedule of Exceptions" shall have the meaning set forth in Section
5, and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in
Section 6.11.
"Supplemental Registration Statement" shall have the meaning set
forth in the Registration Rights Agreement.
"Term" shall have the meaning set forth in Section 6.19..
"Termination Date" shall mean the earlier of (i) the date that is
three (3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the earlier of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has both delivered a Termination Notice to
the Investor and paid the applicable Termination Fee in full, and (c) the date
that both an Automatic Termination has occurred and the Company has paid the
applicable Termination Fee in full.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
7
"Third Party Report" shall have the meaning set forth in Section
3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section
9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions
to its transfer agent, substantially in the form attached as EXHIBIT O, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or
certificates (or electronically delivered shares, as appropriate) (in
denominations as instructed by Investor) representing the shares of Common Stock
to which the Investor is then entitled to receive, registered in the name of
Investor or its nominee (as instructed by Investor) and not containing a
restrictive legend or stop transfer order, including but not limited to the Put
Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as EXHIBIT K.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Volume Weighted Average Price" (or "VWAP") shall mean the daily
"volume weighted average price" for the Company's Common Stock as reported by
Bloomberg, Inc., provided that if such number is not reported by Bloomberg,
Inc., then the "Volume Weighted Average Price" shall be calculated as follows
(using the volumes and prices of all trades that occur on each trading day):
VWAP = (V1)*(P1) + (V2)*(P2) + . . . . . . .(PN)* (VN)
--------------------------------------------------------
V1 + V2 + . . . . . . . Vn
where:
V1 = the volume of the first trade of the trading day
P1 = the price at which trade V1 occurred
V2 = the volume of the second trade of the trading day
P2 = the price at which trade V2 occurred
Vn = the volume of the nth trade of the trading day
Pn = the price at which trade Vn occurred
"Warrant Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as EXHIBIT Q, or such other form as agreed
upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
8
"Warrants" shall mean 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 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 INVESTMENT COMMITMENT CLOSING. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement, the Registration Rights Agreement, the Commitment Warrant and
the Warrant Antidilution Agreement have been duly executed by both Investor and
the Company, and the other Conditions to Investment Commitment Closing set forth
in Section 2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTMENT COMMITMENT CLOSING. As a
prerequisite to the Investment Commitment Closing, all of the following (the
"Conditions to Investment Commitment Closing") shall have been satisfied prior
to or concurrently with the Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered
to the Investor: (i) the Registration Rights
Agreement (executed by the Company and Investor),
(ii) the Commitment Warrant, (iii) the Investment
Commitment Opinion of Counsel (signed by the
Company's counsel), (iv) the Warrant Antidilution
Agreement (executed by the Company and Investor),
, and (v) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's
Certificate of Incorporation, and (C) the
Company's Bylaws;
(b) this Investment Agreement, accepted by the
Company, shall have been received by the
Investor;
(c) [Intentionally Left Blank];
(d) other than continuing losses described in the
Risk Factors set forth in the Disclosure
Documents (provided for in Section 3.2.4), up
through the Investment Commitment Closing there
have been no material adverse changes in the
Company's business prospects or financial
condition since the date of the last balance
sheet included in the Disclosure Documents,
including but not limited to incurring material
liabilities; and
(e) the representations and warranties of the Company
in this Agreement shall be true and correct in
all material respects and the Conditions to
Investment Commitment Closing set forth in this
Section 2.2.2 shall have been satisfied on the
date of such Investment Commitment Closing; and
the Company shall deliver an Officer's Closing
Certificate, signed by an officer of the Company,
to such effect to the Investor.
9
2.3 PUTS OF COMMON SHARES TO THE INVESTOR.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the
Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if
applicable), and the other conditions and limitations set forth in this
Agreement, at any time beginning on the date on which the Registration Statement
is declared effective by the SEC (the "Effective Date"), the Company may, in its
sole and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the preceding
Pricing Period End Date:
(a) DELIVERY OF ADVANCE PUT NOTICE. At least ten (10)
Business Days but not more than twenty (20) Business Days prior to any intended
Put Date, the Company shall deliver advance written notice (the "Advance Put
Notice," the form of which is attached hereto as EXHIBIT D, the date of such
Advance Put Notice being the "Advance Put Notice Date") to Investor stating the
Put Date for which the Company shall, subject to the limitations and
restrictions contained herein, exercise a Put and stating the number of shares
of Common Stock (subject to the Individual Put Limit and the Maximum Put Dollar
Amount) which the Company intends to sell to the Investor for the Put (the
"Intended Put Share Amount").
The Company may, at its option, also designate in any
Advance Put Notice (i) a maximum dollar amount of Common Stock, not to exceed
$2,000,000, which it shall sell to Investor during the Put (the "Company
Designated Maximum Put Dollar Amount") and/or (ii) a minimum purchase price per
Put Share at which the Investor may purchase shares of Common Stock pursuant to
such Put Notice (a "Company Designated Minimum Put Share Price"). The Company
Designated Minimum Put Share Price, if applicable, shall be no greater than the
lesser of (i) 80% of the Closing Bid Price of the Company's common stock on the
Business Day immediately preceding the Advance Put Notice Date, or (ii) the
Closing Bid Price of the Company's common stock on the Business Day immediately
preceding the Advance Put Notice Date minus $0.14. The Company may decrease (but
not increase) the Company Designated Minimum Put Share Price for a Put at any
time by giving the Investor written notice of such decrease not later than 12:00
Noon, New York City time, on the Business Day immediately preceding the Business
Day that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the determination of
Trigger Prices and Excluded Days for days preceding the Business Day that such
decrease takes effect, provided that the Put Share Price for all shares in a Put
shall be calculated using the lowest Company Designated Minimum Put Share Price,
as decreased.
Notwithstanding the above, if, at the time of delivery of
an Advance Put Notice, more than two (2) Calendar Months have passed since the
date of the previous Put Closing, such Advance Put Notice shall provide at least
twenty (20) Business Days notice of the intended Put Date, unless waived in
writing by the Investor. In order to effect delivery of the Advance Put Notice,
the Company shall (i) send the Advance Put Notice by facsimile on such date so
that such notice is received by the Investor by 6:00 p.m., New York, NY time,
and (ii) surrender such notice on such date to a courier for overnight delivery
to the Investor (or two (2) day delivery in the case of an Investor residing
outside of the U.S.).
(b) PUT SHARE AMOUNT. The "Put Share Amount" is the number
of shares of Common Stock that the Investor shall be obligated to purchase in a
given Put, and shall equal the lesser of (i) the Intended Put Share Amount, and
(ii) the Individual Put Limit. The "Individual Put Limit" shall equal the lesser
of (A) 1,500,000 shares, (B) 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades of 20,000 or more shares of Common Stock, for
all Evaluation Days (as defined below) in the Pricing Period, (C) the number of
Put Shares which, when multiplied by their respective Put Share Prices, equals
the Maximum Put Dollar Amount, and (D) the 9.9% Limitation, but in no event
shall the Individual Put Limit exceed 15% of the sum of the aggregate daily
10
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more shares of Common
Stock, for the twenty (20) Business Days immediately preceding the Advance Put
Notice Date (this limitation, together with the limitations in (A) and (B)
immediately above are collectively referred to herein as the "Volume
Limitations"). Company agrees not to trade Common Stock or arrange for Common
Stock to be traded for the purpose of artificially increasing the Volume
Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the
greater of (i) the Company Designated Minimum Put Share
Price, plus $.09, or (ii) the Company Designated Minimum Put Share Price divided
by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price
of the Common Stock is less than the Trigger Price and each Business Day defined
in Section 2.3.4 as an "Excluded Day".
An "Evaluation Day" shall mean each Business Day during a
Pricing Period that is not an Excluded Day.
(c) PUT SHARE PRICE. The purchase price for the Put Shares
(the "Put Share Price") shall equal the lesser of (i) the Market Price for such
Put, minus $.09, or (ii) 91% of the Market Price for such Put, but shall in no
event be less than the Company Designated Minimum Put Share Price for such Put,
if applicable.
(d) DELIVERY OF PUT NOTICE. After delivery of an Advance
Put Notice, on the Put Date specified in the Advance Put Notice the Company
shall deliver written notice (the "Put Notice," the form of which is attached
hereto as EXHIBIT F) to Investor stating (i) the Put Date, (ii) the Intended Put
Share Amount as specified in the Advance Put Notice (such exercise a "Put"),
(iii) the Company Designated Maximum Put Dollar Amount (if applicable), and (iv)
the Company Designated Minimum Put Share Price (if applicable). In order to
effect delivery of the Put Notice, the Company shall (i) send the Put Notice by
facsimile on the Put Date so that such notice is received by the Investor by
6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to
a courier for overnight delivery to the Investor (or two (2) day delivery in the
case of an Investor residing outside of the U.S.).
(e) DELIVERY OF REQUIRED PUT DOCUMENTS. On or before the
Put Date for such Put, the Company shall deliver the Required Put Documents (as
defined in Section 2.3.6 below) to the Investor (or to an agent of Investor, if
Investor so directs). Unless otherwise specifically requested by the Investor,
the Put Shares shall be transmitted electronically pursuant to the Depository
Trust Company DWAC system or such other electronic delivery system as the
Investor shall request. If the Company has not delivered all of the Required Put
Documents to the Investor on or before the Put Date, the Put shall be
automatically cancelled (an "Impermissible Put Cancellation") and the Company
shall pay the Investor $5,000 for its reasonable due diligence expenses incurred
in preparation for the cancelled Put and the Company may deliver an Advance Put
Notice for the subsequent Put no sooner than ten (10) Business Days after the
date that such Put was cancelled. Also, in the event of a Put Interruption
Notice that occurs prior to the Put Date, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
interrupted Put.
11
(f) LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and an Intended Put Share Amount may not
include, an amount of Put Shares, which when added to the number of Put Shares
acquired by the Investor pursuant to this Agreement during the 61 days preceding
the Put Date with respect to which this determination of the permitted Intended
Put Share Amount is being made, would exceed 9.9% of the number of shares of
Common Stock outstanding (on a fully diluted basis, to the extent that inclusion
of unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a Pricing Period
than on the Put Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Shares made pursuant to this Agreement in the 61 calendar days
preceding such date, would have acquired more than 9.9% of the Section 13(d)
Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's right to
initiate subsequent Puts to the Investor shall terminate permanently (each, an
"Automatic Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company or any director or
executive officer of the Company has engaged in a transaction or conduct related
to the Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) on any date after a cumulative time period or series of
time periods, consisting only of Ineffective Periods and Delisting Events, that
lasts for an aggregate of four (4) months;
(c) if at any time the Company has filed for and/or is
subject to any bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors instituted by or against the Company or any subsidiary of the
Company;
(d) after the sooner of (i) the date that is three (3)
years after the Effective Date, or (ii) the Put Closing Date on which the
aggregate of the Put Dollar Amounts for all Puts equal the Maximum Offering
Amount (the "Commitment Period");
(e) the Company has materially breached any covenant in
Section 6 (excluding Section 6.6, 6.12 and 6.14) or Section 9 hereof, provided
that if such breach is curable, no Automatic Termination shall occur if the
Company has cured such breach within fifteen (15) days of the first date the
Company becomes aware of such breach, provided that the Company shall not be
entitled to initiate any Puts prior to such cure; or
(f) if no Registration Statement has been declared
effective by the date that is one (1) year after the date of this Agreement, the
Automatic Termination shall occur on the date that is one (1) year after the
date of this Agreement.
2.3.3 MAXIMUM OFFERING AMOUNT. The Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount.
12
2.3.4 PUT INTERRUPTION. Once the Company delivers an
Advance Put Notice to the Investor, the Company may not cancel the Put. In the
event of a "Put Interruption Event" (as defined below) during any Pricing
Period, then (A) the Company shall notify the Investor in writing (a "Put
Interruption Notice") as soon as possible by facsimile and overnight courier,
but no later than the end of the Business Day in which the Company becomes aware
of such facts, (B) the Pricing Period shall be extended or shortened, as
applicable, such that the Pricing Period End Date is the tenth (10th) Business
Day after the date of such Put Interruption Notice from the Company (the "Put
Interruption Date"), (C) each Business Day from and including the Put
Interruption Date through and including the Pricing Period End Date for the
applicable Put (as extended or shortened, if applicable), shall be considered to
be an "Excluded Day," as that term is used in this Agreement, and (D) the
Company Designated Minimum Put Share Price, if any, shall not apply to the
affected Put. In the event that a Put Interruption Event occurs after an Advance
Put Notice Date, but before the applicable Put Date, that Put shall be deemed to
be terminated, and the Company may deliver an Advance Put Notice for a new Put
anytime beginning on the following Business Day, if otherwise allowed under this
Agreement. A "Put Interruption Event" shall mean any of the following: (i) an
Automatic Termination, (ii) the failure of one of the items specified in Section
2.3.5 below to be true and correct on any day during and Extended Pricing
Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a subdivision or combination,
including a reverse split, of its Common Stock or has subdivided or combined its
Common Stock;
(b) the Company has paid a dividend of its Common Stock or
has made any other distribution of its Common Stock;
(c) the Company has made a distribution of all or any
portion of its assets or evidences of indebtedness to the holders of its Common
Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of Material Facts
or any Ineffective Period or Delisting Event occurs.
2.3.5 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO
DELIVER AN ADVANCE PUT NOTICE OR A PUT NOTICE. The right of the Company to
deliver an Advance Put Notice or a Put Notice is subject to the satisfaction, on
the date of delivery of such Advance Put Notice or Put Notice, of each of the
following conditions:
(a) the Company's Common Stock shall be listed for
and 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 and the Put Shares
shall be so listed, and to the Company's
knowledge there is no notice of any suspension or
delisting with respect to the trading of the
shares of Common Stock on such market or
exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the
filing of the Registration Statement with the SEC
with respect to the resale of all Registrable
Securities and the requirement that the
Registration Statement shall have been declared
effective by the SEC for the resale of all
Registrable Securities and the Company shall have
satisfied and shall be in compliance with any and
all obligations pursuant to this Agreement and
the Warrants;
13
(c) the representations and warranties of the Company
in Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.10, 5.13,
5.14, 5.15, 5.16, 5.18, 5.19, 5.21, and 5.25
hereof are true and correct in all material
respects as if made on such date, the Company has
satisfied its obligations under Section 2.6
hereof and the conditions to Investor's
obligations set forth in this Section 2.3.5 are
satisfied as of such Closing, and the Company
shall deliver an Officer's Put Certificate
certificate, signed by an officer of the Company,
to such effect to the Investor;
(d) the Company shall have authorized and reserved
for issuance a sufficient number of Common Shares
for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares
pursuant to any Put and to effect exercise of the
Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration
Rights Agreement, the prospectus included therein
is current and deliverable, and to the Company's
knowledge there is no notice of any investigation
or inquiry concerning any stop order with respect
to the Registration Statement;
(f) if the Aggregate Issued Shares after the Closing
of the Put would exceed the Cap Amount, the
Company shall have obtained the Stockholder 20%
Approval as specified in Section 6.11, if the
Company's Common Stock is listed on the NASDAQ
Small Cap Market or the NASDAQ National Market
System (the "NMS"), and such approval is required
by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event
that, in the Company's opinion, is more likely
than not to have the effect of causing any
Registration Statement to be suspended or
otherwise ineffective (which event is more likely
than not to occur within the thirty Business Days
following the date on which such Advance Put
Notice and Put Notice is deemed delivered);
(h) there is not then in effect any law, rule or
regulation prohibiting or restricting the
transactions contemplated hereby, or requiring
any consent or approval which shall not have been
obtained, nor is there any pending or threatened
proceeding or investigation which may have the
effect of prohibiting or adversely affecting any
of the transactions contemplated by this
Agreement;
(i) no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been
enacted, entered, promulgated or adopted by any
court or governmental authority of competent
jurisdiction that prohibits the transactions
contemplated by this Agreement, and no actions,
suits or proceedings shall be in progress,
pending or threatened by any person (other than
the Investor or any affiliate of the Investor),
that seek to enjoin or prohibit the transactions
contemplated by this Agreement. For purposes of
this paragraph (i), no proceeding shall be deemed
pending or threatened unless one of the parties
has received written or oral notification thereof
prior to the applicable Closing Date;
14
(j) the Put Shares delivered to the Investor are DTC
eligible and can be immediately converted into
electronic form;
(k) the Company shall have obtained all permits and
qualifications (if any) required by any state
securities laws or Blue Sky laws for the offer
and sale of the Common Stock to the Investor and
by the Investor or shall have the availability of
exemptions therefrom; and
(l) the Put Shares shall have been delivered to the
Depository Trust Company DWAC account specified
by the Investor for the Put Shares.
(m) the Transfer Agent Insructions have been duly
executed by both the Company and the Transfer
Agent.
2.3.6 DOCUMENTS REQUIRED TO BE DELIVERED ON THE PUT DATE AS
CONDITIONS TO CLOSING OF ANY PUT. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
(a) a number of DWAC Put Shares equal to the Intended Put
Share Amount shall have been delivered to the Depository Trust Company DWAC
account specified by the Investor for the Put Shares (unless the Investor has
requested physical stock certificates, in writing, in which case the Company
shall have delivered to the Investor a number of physical Unlegended Share
Certificates equal to the Intended Put Share Amount, in denominations of not
more than 50,000 shares per certificate);
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, Registration Opinion, and any report or
disclosure required under Section 2.3.7 or Section 2.5; and
(c) 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.
The Company shall be required to deliver a Put Opinion and a Bring Down Cold
Comfort Letter with respect to the first Put. Notwithstanding the above, the
Company shall not be required to deliver a Bring Down Cold Comfort Letter with
respect to a given Put after the first Put if the Company has filed an annual
report on Form 10-K or a quarterly report on Form 10-Q within the thirty (30)
day period immediately preceding the Put Date for such Put.
2.3.7 ACCOUNTANT'S LETTER AND REGISTRATION OPINION.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.7(b) or by Section 2.5.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of EXHIBIT N (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any Supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
15
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Interruption Notice to the Investor pursuant to Section 2.3.4 by facsimile
and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent auditors
to perform the procedures in accordance with the provisions of Statement on
Auditing Standards No. 71, as amended, as agreed to by the parties hereto, and
reports thereon (the "Bring Down Cold Comfort Letters") as shall have been
reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on the date that is three
(3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have requested
delivery of an Agreed Upon Procedures Report pursuant to Section 2.5.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor. In the event that the report required by this Section 2.3.7(b) cannot
be delivered by the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the Company shall not
deliver a Put Notice until such report is delivered.
2.3.8 INVESTOR'S OBLIGATION AND RIGHT TO PURCHASE SHARES.
Subject to the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required to
purchase (each a "Purchase") from the Company a number of Put Shares equal to
the Put Share Amount, in the manner described below.
2.3.9 MECHANICS OF PUT CLOSING. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in this Section 2, the closing of the purchase by the Investor of Shares
shall occur by 5:00 PM, New York City Time, on the date which is five (5)
Business Days following the applicable Pricing Period End Date (the "Payment Due
Date") at the offices of Investor. On each or before each Payment Due Date, the
Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid, less any Non-Usage Fees that are due and unpaid by the Company. The
closing (each a "Put Closing") for each Put shall occur on the date that both
(i) the Company has delivered to the Investor all Required Put Documents, and
(ii) the Investor has delivered to the Company such Put Dollar Amount and any
Late Payment Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put
Dollar Amount for such Put Closing on or before the
Payment Due Date, then the Investor shall pay to the Company, in addition to the
Put Dollar Amount, an amount (the "Late Payment Amount") at a rate of X% per
month, accruing daily, multiplied by such Put Dollar Amount, where "X" equals
one percent (1%) for the first month following the date in question, and
increases by an additional one percent (1%) for each month that passes after the
date in question, up to a maximum of five percent (5%) per month; provided,
however, that in no event shall the amount of interest that shall become due and
payable hereunder exceed the maximum amount permissible under applicable law.
16
2.3.10 LIMITATION ON SHORT SALES. The Investor and its
affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or any
short sale or other hedging or similar arrangement it deems appropriate with
respect to Put Shares after it receives a Put Notice with respect to such Put
Shares so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.11 CAP AMOUNT. If the Company becomes listed on the
Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the Company
has obtained Stockholder 20% Approval as set forth in Section 6.11 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares
exceed the maximum number of shares of Common Stock (the "Cap Amount") that the
Company can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.12 INVESTMENT AGREEMENT TERMINATION. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period.
Following either a Company Termination or an Automatic Termination: (i) the
Termination Fee, and any accrued but unpaid Non-Usage Fees, shall become due and
payable as further described in Section 2.6 below, (ii) following payment of the
Termination Fee and any accrued but unpaid Non-Usage Fees in full, no additional
Non-Usage Fees shall accrue, and (iii) such termination shall have no effect on
the parties' other rights and obligations under this Agreement or any of the
agreements referenced in this Agreement, including but not limited to the
Registration Rights Agreement, the Warrants or the Warrant Antidilution
Agreement (collectively, the "Related Agreements"). Notwithstanding a
Termination or Automatic Termination, the Related Agreements between the parties
shall not terminate and shall remain in full force and effect in accordance with
their respective terms. Notwithstanding the above, any Put Interruption Notice
occurring during an Extended Put Period is governed by Section 2.3.4.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the event that
the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 WARRANTS.
--------
2.4.1 COMMITMENT WARRANTS. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about April 24,
2001 between the Company and the Investor, the Company issued and delivered to
Investor warrants (the "Commitment Warrants") in the form attached hereto as
EXHIBIT P, or such other form as agreed upon by the parties, to purchase 780,000
shares of Common Stock. Each Commitment Warrant shall be immediately exercisable
in accordance with its terms, and shall have a term beginning on the date of
issuance and ending on date that is five (5) years thereafter. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement. The Investment Commitment Opinion of Counsel shall cover the issuance
of the Commitment Warrant and the issuance of the common stock upon exercise of
the Commitment Warrant.
17
Notwithstanding any Termination or Automatic Termination of
this Agreement, regardless of whether or not the Registration Statement is or is
not filed, and regardless of whether or not the Registration Statement is or is
not declared effective by the SEC, the Investor shall retain full ownership of
the Commitment Warrant as partial consideration for its commitment hereunder.
2.4.2 [Intentionally Left Blank]
2.5 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 filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The Company shall
not disclose nonpublic information to the Investor or to its advisors or
representatives 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 2.5 shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not
obtain nonpublic information in the course of conducting due diligence in
accordance with the terms of this Agreement; provided, however, that in no event
shall the Investor's advisors or representatives disclose to the Investor the
nature of the specific event or circumstances constituting any nonpublic
information discovered by such advisors or representatives in the course of
their due diligence without the written consent of the Investor prior to
disclosure of such information.
18
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the opinion
that the Registration Statement contains an untrue statement of a material fact
or omits a material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in the light of the
circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's independent
counsel in order to address the concern raised as to the existence of a material
misstatement or omission and to discuss appropriate disclosure with respect
thereto; provided, however, that such consultation shall not constitute the
advice of the Company's independent counsel to the Investor as to the accuracy
of the Registration Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED
TO BE UNTRUE OR ARE OMITTED. In the event after such consultation the Investor
or the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file with the SEC an amendment to the
Registration Statement responsive to such alleged untrue statement or omission
and provide the Investor, as promptly as practicable, with copies of the
Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company's independent auditors shall provide to
the Company a letter ("Agreed Upon Procedures Report") outlining the performance
of such "agreed upon procedures" as shall be reasonably requested by the
Investor and the Company shall provide the Investor with a copy of such letter.
2.6 COMMITMENT PAYMENTS AND TERMINATION FEE.
---------------------------------------
On the last Business Day of each twelve (12) Calendar Month
period beginning on the date that is one (1) year after the Effective Date (each
such period a "Commitment Evaluation Period"), if the Company has not sold at
least $1,000,000 in aggregate Put Dollar Amount worth of Put Shares during that
Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Non-Usage Fee") equal to the difference of
(i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount of the Put
Shares purchased by the Investor during that Commitment Evaluation Period. In
the event that the Company delivers a Termination Notice to the Investor or an
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Non-Usage Fee for the applicable
Commitment Evaluation Period, or (ii) the difference of (x) $200,000, minus (y)
10% of the aggregate Put Dollar Amount of the Put Shares purchased by the
Investor during all Puts to date, and the Company shall not be required to pay
the Non-Usage Fee thereafter.
19
Each Non-Usage Fee or Termination Fee is payable, in cash
or Common Stock (in the manner described below), at
the Company's option, within five (5) business days of the date it accrued. If
such payment is made in restricted and unregistered Common Stock, the Company
shall deliver to the Investor a number of shares of Common Stock equal to 150%
of the amount of the Non-Usage Fee or Termination Fee that is then payable,
divided by the lowest closing price of the Company's Common Stock for the five
(5) Business Days immediately preceding the date of delivery of such shares to
the Investor. The Company shall not be required to deliver any payments to
Investor under this subsection until Investor has paid all Put Dollar Amounts
that are then due.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR.
Investor hereby represents and warrants to and agrees with the Company as
follows:
3.1 ACCREDITED INVESTOR. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
3.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
3.2.1 ACCESS TO INFORMATION. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional information
which Investor or Investor's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
3.2.2 RELIANCE ON OWN ADVISORS. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not
limit or modify Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 CAPABILITY TO EVALUATE. Investor has such knowledge
and experience in financial and business matters so as to enable such Investor
to utilize the information made available to it in connection with the Offering
in order to evaluate the merits and risks of the prospective investment, which
are substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 DISCLOSURE DOCUMENTS. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the year ended _____________,
(ii) the Company's quarterly report on Form 10-QSB for the quarters ended
___________, and _____________, (iii) the Risk Factors, attached as EXHIBIT I,
(the "Risk Factors") (iv) the Capitalization Schedule, attached as EXHIBIT J,
(the "Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached
as EXHIBIT K, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
20
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
The foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in Sections 5 and 6 of
this Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Investor has
substantial experience in investing in securities and it has made investments in
securities other than those of the Company. Investor acknowledges that Investor
is able to fend for Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic risk of Investor's
investment pursuant to this Agreement and that Investor is an "Accredited
Investor" by virtue of the fact that Investor meets the investor qualification
standards set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such investment
is consistent with Investor's purposes.
3.3 EXEMPT OFFERING UNDER REGULATION D.
3.3.1 NO GENERAL SOLICITATION. The Investment Agreement was
not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 RESTRICTED SECURITIES. Investor understands that the
Investment Agreement is, the Common Stock issued at each Put Closing will be,
and the Warrant Shares will be, characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction exempt from the registration requirements of the federal
securities laws and that under such laws and applicable regulations such
securities may not be transferred or resold without registration under the Act
or pursuant to an exemption therefrom. In this connection, Investor represents
that Investor is familiar with Rule 144 under the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under
the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements; or
21
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of the Securities under the Act
or state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own
account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
3.4 DUE AUTHORIZATION.
-----------------
3.4.1 AUTHORITY. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing this
Agreement. Investor has reached the age of majority (if an individual) according
to the laws of the state in which he or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and validly
organized, validly existing and in good standing as a limited liability company
under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 PARTNERSHIPS. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is itself
a partnership, all persons holding an interest in such partnership, directly or
indirectly, including through one or more partnerships), and the person
executing this Agreement has made due inquiry to determine the truthfulness of
the representations and warranties made hereby.
3.4.4 [INTENTIONALLY LEFT BLANK].
22
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 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the
date of this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to
sell, transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 NO ASSURANCES OF REGISTRATION. There can be no
assurance that any registration statement will become effective at the scheduled
time, or ever, or remain effective when required, and Investor acknowledges that
it may be required to bear the economic risk of Investor's investment for an
indefinite period of time;
4.6 EXEMPT TRANSACTION. Investor understands that the
Securities are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings set
forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire such
Securities.
4.7 LEGENDS. The certificates representing the Put Shares
shall not bear a legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
23
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
specified hereunder) and agrees with Investor that, except as set forth in the
"Schedule of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of 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, in the
Company's opinion, have a material adverse effect on the business or properties
of the Company and its subsidiaries taken as a whole. The Company is not the
subject of any pending, threatened or, to its knowledge, contemplated
investigation or administrative or legal proceeding (a "Proceeding") by the
Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or any
state securities commission, or any other governmental entity, which have not
been disclosed in the Disclosure Documents. None of the disclosed Proceedings,
if any, will, in the Company's opinion, have a material adverse effect upon the
Company. The Company has the following subsidiaries:
5.2 CORPORATE CONDITION. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects from the dates of such Disclosure
Documents through the date of the Investment Commitment Closing. The financial
statements as contained in the 10-KSB and 10-QSB have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act, or
Generally Accepted Accounting Principles, as applicable), subject, in the case
of unaudited interim financial statements, to customary year end adjustments and
the absence of certain footnotes, and fairly present the financial condition of
the Company as of the dates of the balance sheets included therein and the
consolidated results of its operations and cash flows for the periods then
ended. Without limiting the foregoing, there are no material liabilities,
contingent or actual, that are not disclosed in the Disclosure Documents (other
than liabilities incurred by the Company in the ordinary course of its business,
consistent with its past practice, after the period covered by the Disclosure
Documents). The Company has paid all material taxes that are due, except for
taxes that it reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure Documents.
This Agreement and the Disclosure Documents do not contain any untrue statement
of a material fact and do not omit to state any material fact required to be
stated therein or herein necessary to make the statements contained therein or
herein not misleading in the light of the circumstances under which they were
made. No event or circumstance exists relating to the Company which, under
applicable law, requires public disclosure but which has not been so publicly
announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
24
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and
the Warrants, when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein, will be validly issued, fully
paid and nonassessable and, based in part upon the representations of Investor
in this Agreement, will be issued in compliance with all applicable U.S. federal
and state securities laws. The Warrant Shares, when issued in accordance with
the terms of the Warrants, shall be duly and validly issued and outstanding,
fully paid and nonassessable, and based in part on the representations and
warranties of Investor, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Put Shares, the Warrants and the Warrant
Shares will be issued free of any preemptive rights.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would, in the Company's opinion, have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement or the Registration Rights
Agreement. The execution, delivery and performance of this Agreement and the
other agreements entered into in conjunction with 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,
in the Company's opinion, have a material adverse effect on the Company's
business or prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would, in the
Company's opinion, have a material adverse effect on the Company's business or
prospects.
5.6 REPORTING COMPANY. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed or approved for quotation
on the O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 CAPITALIZATION. The capitalization of the Company as of
the date hereof subject to exercise of any outstanding warrants and/or exercise
of any outstanding stock options, and after taking into account the offering of
the Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, is as set forth in the Capitalization Schedule
as set forth in EXHIBIT J. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities. Except as disclosed in the Capitalization Schedule, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
25
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 INTELLECTUAL PROPERTY. The Company has valid,
unrestricted and exclusive ownership of or rights to use the patents,
trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business. EXHIBIT L lists all patents, trademarks, trademark registrations,
trade names and copyrights of the Company. The Company has granted such licenses
or has assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth in EXHIBIT L. The Company
has been granted licenses, know-how, technology and/or other intellectual
property necessary to the conduct of its business as set forth in EXHIBIT L. To
the best of the Company's knowledge after due inquiry, the Company is not
infringing on the intellectual property rights of any third party, nor is any
third party infringing on the Company's intellectual property rights. There are
no restrictions in any agreements, licenses, franchises, or other instruments
that preclude the Company from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as EXHIBIT K hereto. These purposes and amounts are estimates
and are subject to change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby
acknowledges that Investor may elect to hold the Securities for various periods
of time, as permitted by the terms of this Agreement, the Warrants, and other
agreements contemplated hereby, and the Company further acknowledges that
Investor has made no representations or warranties, either written or oral, as
to how long the Securities will be held by Investor or regarding Investor's
trading history or investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company
acknowledges that this Investment Agreement, the transaction contemplated hereby
and the Registration Statement contemplated hereby have not been approved by the
SEC, or any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The
Company is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with this Offering.
26
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The
Company is currently eligible and agrees to maintain its eligibility to register
the resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor
any of its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
5.17 KEY EMPLOYEES. As of the date of this Agreement, each
"Key Employee" (as defined in EXHIBIT M) is currently serving the Company in the
capacity disclosed in EXHIBIT M. No Key Employee, to the best knowledge of the
Company and its subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee has,
to the best knowledge of the Company and its subsidiaries, any intention to
terminate his employment with, or services to, the Company or any of its
subsidiaries.
5.18 REPRESENTATIONS CORRECT. The foregoing
representations, warranties and agreements are true, correct and complete in all
material respects, and shall survive any Put Closing and the issuance of the
shares of Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
27
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in
the Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 APPLICATION OF TAKEOVER PROTECTIONS. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under 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.
28
5.22 [INTENTIONALLY LEFT BLANK].
5.23 MAJOR TRANSACTIONS. As of the date of this Agreement,
there are no other Major Transactions currently pending or contemplated by the
Company.
5.24 FINANCINGS. As of the date of this Agreement, there
are no other financings currently pending or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its
next annual shareholder meeting following its listing on either the Nasdaq Small
Cap Market or the Nasdaq National Market, or at a special meeting to be held as
soon as practicable thereafter, use its 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) increase the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 25,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval and
the Share Authorization Increase Approval, the Company agrees to use its best
efforts to reserve 25,000,000 shares of Common Stock for issuance under this
Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The
Company understands and acknowledges that the amounts available under this
Investment Agreement are limited, among other things, based upon the liquidity
of the Company's Common Stock traded on its Principal Market.
5.27 DILUTION. The number of shares of Common Stock
issuable as Put Shares may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines during the period between the Effective Date
and the end of the Commitment Period. The Company's executive officers and
directors fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that, whenever the Company elects to initiate a Put,
its obligation to issue the Put Shares is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
29
6. COVENANTS OF THE COMPANY.
6.1 INDEPENDENT AUDITORS. The Company shall, until at least
the Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 CORPORATE EXISTENCE AND TAXES; CHANGE IN CORPORATE
ENTITY. The Company shall, until at least the Termination Date, maintain its
corporate existence in good standing and, once it becomes a "Reporting Issuer"
(defined as a Company which files periodic reports under the Exchange Act),
remain a Reporting Issuer and shall pay all its taxes when due except for taxes
which the Company disputes. The Company shall not, at any time after the date
hereof, enter into any merger, consolidation or corporate reorganization of the
Company with or into, or transfer all or substantially all of the assets of the
Company to, another entity unless the resulting successor or acquiring entity in
such transaction, if not the Company (the "Surviving Entity"), (i) has Common
Stock listed for trading on Nasdaq or on another national stock exchange and is
a Reporting Issuer, (ii) assumes by written instrument the Company's obligations
with respect to this Investment Agreement, the Registration Rights Agreement,
the Transfer Agent Instructions, the Warrant Antidilution Agreement, the
Warrants and the other agreements referred to herein, including but not limited
to the obligations to deliver to the Investor shares of Common Stock and/or
securities that Investor is entitled to receive pursuant to this Investment
Agreement and upon exercise of the Warrants and agrees by written instrument to
reissue, in the name of the Surviving Entity, any Warrants (each in the same
terms, including but not limited to the same reset provisions, as the applicable
Warrant originally issued or required to be issued by the Company) that are
outstanding immediately prior to such transaction, making appropriate
proportional adjustments to the number of shares represented by such Warrants
and the exercise prices of such Warrants to accurately reflect the exchange
represented by the transaction.
6.3 REGISTRATION RIGHTS. Concurrently herewith, the Company
will enter into a registration rights agreement covering the resale of the
Common Shares and the Warrant Shares substantially in the form of the
Registration Rights Agreement attached as EXHIBIT A.
6.4 ASSET TRANSFERS. The Company shall not (i) transfer,
sell, convey or otherwise dispose of any of its material assets to any
subsidiary except for a cash or cash equivalent consideration and for a proper
business purpose or (ii) transfer, sell, convey or otherwise dispose of any of
its material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 CAPITAL RAISING LIMITATIONS.
---------------------------
6.5.1 CAPITAL RAISING LIMITATIONS. During the period from
the date of this Agreement until the date that is sixty (60) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor of the
Offering (the limitations referred to in this subsection 6.5.1 are collectively
referred to as the "Capital Raising Limitations"). For purposes hereof, the
following shall be collectively referred to herein as, the "Equity Securities":
(i) Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering.
30
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL. For any private
capital raising transactions of Equity Securities which close after the date
hereof and on or prior to the date that is sixty (60) days 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 (the "Right of First
Refusal") 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.
6.5.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND RIGHTS
OF FIRST REFUSAL. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to (a) any transaction
involving issuances of securities by the Company to a company being acquired by
the Company, as payment to such company for such acquisition, or in connection
with the exercise of options by employees or directors of the Company, or a
primary underwritten offering of the Company's Common Stock, (b) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (c) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan for the benefit of the
Company's employees or directors, (d) the issuance of debt securities, with no
equity feature, incurred solely for working capital purposes, (e) the issuance
of straight common stock, at a discount of less than 30% to average closing
price of the Company's Common Stock for the five (5) trading days immediately
preceding the date of issuance of such stock, so long as such issuance carries
with it no future conversion or reset rights or any rights to receive additional
shares based upon a market price at any time in the future, or (f) the issuance
of up to $600,000 of straight debt securities, which may be accompanied by
warrants to purchase up to a total aggregate of 600,000 shares of the Company's
Common Stock at a price of $0.10 or more.
6.6 FINANCIAL ▇▇-▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ETC. AND CURRENT REPORTS
ON FORM 8-K. The Company shall deliver to the Investor copies of its annual
reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver
to the Investor current reports on Form 8-K within two (2) days of filing for
the Term of this Agreement.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as EXHIBIT B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as EXHIBIT H or in
such form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
31
6.9 LISTING. Subject to the remainder of this Section 6.9,
the Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The
Company will instruct the Transfer Agent of the Common Stock (the "Transfer
Agent"), by delivering instructions in the form of EXHIBIT O hereto, to issue
certificates, registered in the name of 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 6.8 hereof and the Company shall cause the
Transfer Agent to issue such certificates without a Legend. Nothing in this
Section shall affect in any way Investor's obligations and agreement set forth
in Sections 3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection with
such sale or in compliance with an exemption from the registration requirements
of applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor transfers
Securities, pursuant to Rule 144, to a transferee which is an accredited
investor, the Company shall permit the transfer, and, in the case of Put Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.10 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.10, that an
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any
Put that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed on
NASDAQ, the Company shall obtain approval of its stockholders to authorize the
issuance of the full number of shares of Common Stock which would be issuable
pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "Stockholder 20% Approval").
6.12 PRESS RELEASE. Any public announcement relating to
this financing (a "Press Release") shall be submitted to the Investor for review
at least two (2) business days prior to the planned release. The Company shall
not disclose the Investor's name in any press release or other public
announcement without the Investor's prior written approval. The Company shall
obtain the Investor's written approval of the Press Release prior to issuance by
the Company.
32
6.13 CHANGE IN LAW OR POLICY. In the event of a change in
law, or policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its commitment
hereunder.
6.14. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall immediately notify the
Investor, but in no event later than two (2) business days by facsimile and by
overnight courier, upon the occurrence of any of the following events in respect
of a Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
6.15 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE
SECURITIES. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by the Investor or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Investor's purchase of the
Securities. The Company further represents to the Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives and advisors.
33
6.16. LIQUIDATED DAMAGES. The parties hereto acknowledge
and agree that the sums payable as Non-Usage Fees, Termination Fees and
Ineffective Registration Payments shall each give rise to liquidated damages and
not penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred by the Investor is incapable or is difficult to
precisely estimate, (b) the amounts specified bear a reasonable proportion and
are not plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investor, and (c) the parties are sophisticated business parties
and have been represented by sophisticated and able legal and financial counsel
and negotiated this Agreement at arm's length.
6.17. COPIES OF FINANCIAL STATEMENTS, REPORTS AND PROXY
STATEMENTS. Promptly upon the mailing thereof to the shareholders of the Company
generally, the Company shall deliver to the Investor copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders.
6.18. NOTICE OF CERTAIN LITIGATION. Promptly following the
commencement thereof, the Company shall provide the Investor written notice and
a description in reasonable detail of any litigation or proceeding to which the
Company or any subsidiary of the Company is a party, in which the amount
involved is $250,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought.
6.19. TERM. The term ("Term") of this Agreement shall be a
period of time beginning on the date of this Agreement and ending on the
Termination Date, provided that notwithstanding the expiration of the Term and
notwithstanding any Termination or Automatic Termination, (A) the Company's
covenants in Sections 4.7, 5.1, 5.4, 6.1, 6.2, 6.3, 6.4, 6.8, 6.9,6.10, 6.13 and
7.9 hereof shall survive and remain in full force and effect until sixty (60)
days following the later of (i) the Termination Date or (ii) the date that all
of the Warrants have been exercised, (B) the Company's covenants under Section
7.8 and Section 9 hereof shall survive and remain in full force and effect for
the full period of time that a suit could be brought against the Investor with
respect to this Agreement, the Related Agreements or with respect to the
Registration Statement and related prospectus under any applicable statutes of
limitations, and (C) notwithstanding a Termination or Automatic Termination, the
Related Agreements between the parties shall not terminate and shall remain in
full force and effect in accordance with their respective terms.
7. MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING;
SEVERABILITY. Investor's and the Company's representations and warranties shall
survive the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable by either party.
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may
be executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
34
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. The use in this
Agreement of a masculine, feminine or neuter pronoun shall be deemed to include
a reference to the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to the
terms of this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile or upon receipt if by overnight or two (2)
day courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing;
provided, however, that in order for any notice to be effective as to the
Investor such notice shall be delivered and sent, as specified herein, to all
the addresses and facsimile telephone numbers of the Investor set forth at the
end of this Agreement or such other address and/or facsimile telephone number as
Investor may request in writing.
7.6 EXPENSES. Except as set forth in the Registration
Rights Agreement, each of the Company and Investor shall pay all costs and
expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 ARBITRATION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia applicable to
agreements made in and wholly to be performed in that jurisdiction, except for
matters arising under the Act or the Securities Exchange Act of 1934, which
matters shall be construed and interpreted in accordance with such laws. Any
controversy or claim arising out of or related to the Transaction Documents or
the breach thereof, shall be settled by binding arbitration in Atlanta, Georgia
in accordance with the Expedited Procedures (Rules 53-57) of the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). A proceeding
shall be commenced upon written demand by Company or any Investor to the other.
The arbitrator(s) shall enter a judgment by default against any party, which
fails or refuses to appear in any properly noticed arbitration proceeding. The
proceeding shall be conducted by one (1) arbitrator, unless the amount alleged
to be in dispute exceeds two hundred fifty thousand dollars ($250,000), in which
case three (3) arbitrators shall preside. The arbitrator(s) will be chosen by
the parties from a list provided by the AAA, and if they are unable to agree
within ten (10) days, the AAA shall select the arbitrator(s). The arbitrators
must be experts in securities law and financial transactions. The arbitrators
shall assess costs and expenses of the arbitration, including all attorneys' and
experts' fees, as the arbitrators believe is appropriate in light of the merits
of the parties' respective positions in the issues in dispute. Each party
submits irrevocably to the jurisdiction of any state court sitting in Atlanta,
Georgia or to the United States District Court sitting in Georgia for purposes
of enforcement of any discovery order, judgment or award in connection with such
arbitration. The award of the arbitrator(s) shall be final and binding upon the
parties and may be enforced in any court having jurisdiction. The arbitration
shall be held in such place as set by the arbitrator(s) in accordance with Rule
55.
35
Although the parties, as expressed above, agree that all
claims, including claims that are equitable in nature,
for example specific performance, shall initially be prosecuted in the binding
arbitration procedure outlined above, if the arbitration panel dismisses or
otherwise fails to entertain any or all of the equitable claims asserted by
reason of the fact that it lacks jurisdiction, power and/or authority to
consider such claims and/or direct the remedy requested, then, in only that
event, will the parties have the right to initiate litigation respecting such
equitable claims or remedies. The forum for such equitable relief shall be in
either a state or federal court sitting in Atlanta, Georgia. Each party waives
any right to a trial by jury, assuming such right exists in an equitable
proceeding, and irrevocably submits to the jurisdiction of said Georgia court.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole.
7.9 REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg L.P. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor
shall deliver Put Dollar Amounts (as payment
towards any Put Share Price) by wire transfer, to
the Company pursuant to a wire instruction letter
to be provided by the Company, and signed by the
Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby
acknowledges and agrees, subject to the
provisions of any applicable laws providing for
the refund of subscription amounts submitted by
Investor, that this Agreement is irrevocable and
that Investor is not entitled to cancel,
terminate or revoke this Agreement or any other
agreements executed by such Investor and
delivered pursuant hereto, and that this
Agreement and such other agreements shall survive
the death or disability of such Investor and
shall be binding upon and inure to the benefit of
the parties and their heirs, executors,
administrators, successors, legal representatives
and assigns. If the Securities subscribed for are
to be owned by more than one person, the
obligations of all such owners under this
Agreement shall be joint and several, and the
agreements, representations, warranties and
acknowledgments herein contained shall be deemed
to be made by and be binding upon each such
person and his heirs, executors, administrators,
successors, legal representatives and assigns.
9. INDEMNIFICATION AND REIMBURSEMENT.
(a) INDEMNIFICATION. In consideration of the Investor's
execution and delivery of the Investment Agreement, the Registration Rights
Agreement and the Warrants (the "Transaction Documents") and acquiring the
Securities thereunder and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless Investor and all of its stockholders, officers, directors,
employees and direct or indirect investors and any of the foregoing person's
agents, members, partners or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
36
hereunder is sought), and including reasonable attorney's fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim,
derivative or otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors of their
fiduciary or other obligations to the stockholders of the Company, or (d) claims
made by third parties against any of the Indemnitees based on a violation of
Section 5 of the Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to the
Registration Statement.
To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which it would be required to make if such foregoing undertaking was
enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of
the commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made against
the other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
(b) REIMBURSEMENT. If (i) the Investor, other than by
reason of its gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by any stockholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Investor is
impleaded in any such action, proceeding or investigation by any person or
entity, or (ii) the Investor, other than by reason of its gross negligence or
willful misconduct, becomes involved in any capacity in any action, proceeding
or investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, then in
any such case, the Company will reimburse the Investor for its reasonable legal
and other expenses (including the cost of any investigation and preparation )
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which the Investor is a named party,
the Company will pay the Investor the charges, as reasonably determined by the
Investor, for the time of any officers or employees of the Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearing, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor and any such Affiliate and any such
person or entity. The Company also agrees that neither the Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Investor or any inaccuracy in any representation or
warranty of the Investor contained herein or any breach by the Investor of any
of the provisions hereof.
37
[INTENTIONALLY LEFT BLANK]
38
10. ACCREDITED INVESTOR. Investor is an "accredited
investor" because (check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership
not formed for the specific purpose of acquiring
the securities offered, with total assets in
excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose
of acquiring the securities offered, whose
purchase is directed by a sophisticated person
who has such knowledge and experience in
financial and business matters that he is capable
of evaluating the merits and risks of the
prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general
partner of the issuer of the securities being
offered or sold or a director, executive officer
or general partner of a general partner of that
issuer.
[ ] has an individual net worth, or joint net
worth with that person's spouse, at the time
of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000
in each of the two most recent years or joint
income with that person's spouse in excess of
$300,000 in each of those years and has a
reasonable expectation of reaching the same
income level in the current year.
(d) [ ] an entity each equity owner of which is an
entity described in a - b above or is an
individual who could check one (1) of the last
three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify] ________________________________.
39
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Investor by the following signature(s) executed this Agreement.
Dated this 29TH day of August 2001.
▇▇▇▇▇▇ PRIVATE EQUITY, LLC
By: ____________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇, Manager
SECURITY DELIVERY INSTRUCTIONS:
▇▇▇▇▇▇ Private Equity, LLC
c/o ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 29TH DAY OF AUGUST, 2001.
VALESC INC.
By:
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
40
EXHIBIT F
41
EXHIBIT D
ADVANCE PUT NOTICE
Valesc Inc. (the "Company") hereby intends, subject to the Individual Put Limit
(as defined in the Investment Agreement), to elect to exercise a Put to sell the
number of shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and ▇▇▇▇▇▇ Private Equity, LLC dated on
or about August 29, 2001.
Date of Advance Put Notice: ___________________
Intended Put Date: ___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
VALESC INC.
By:
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
42
EXHIBIT F
PUT NOTICE
Valesc Inc. (the "Company") hereby elects to exercise a Put to sell shares of
common stock ("Common Stock") of the Company to _____________________________,
the Investor, as of the Put Date, at the Put Share Price and for the number of
Put Shares written below, all pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the Company and ▇▇▇▇▇▇ Private Equity,
LLC dated on or about August 29, 2001.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
VALESC INC.
By:
---------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
43
EXHIBIT Q1
COMPANY NAME
A STATE CORPORATION
OFFICER'S CLOSING CERTIFICATE
I, OFFICER'S NAME, TITLE of COMPANY NAME, a STATE corporation (the
"Company"), in accordance with Section 2.2.2 of the Investment Agreement dated
MONTH DAY, 2001 ("Investment Agreement"), by and between the Company and ▇▇▇▇▇▇
Private Equity, LLC, DO HEREBY CERTIFY:
1. Each of the representations and warranties made by the Company in the
Investment Agreement, as modified by the Schedules attached to the
Investment Agreement, is true and correct in all material respects as
of the date hereof.
2. Each of the conditions required to be satisfied by the Company
pursuant to Section 2.2 of the Investment Agreement have been
satisfied as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as of the NTH day of
MONTH, 2001.
COMPANY NAME
By: SIGNATURE OF COMPANY OFFICER
PRINTED NAME OF COMPANY OFFICER BELOW LINE
44
EXHIBIT Q2
COMPANY NAME
A STATE CORPORATION
OFFICER'S PUT CERTIFICATE
I, OFFICER'S NAME, TITLE of COMPANY NAME, a STATE corporation (the
"Company"), in accordance with Section 2.3.5(c) of the Investment Agreement
dated MONTH DAY, 2001 ("Investment Agreement"), by and between the Company and
▇▇▇▇▇▇ Private Equity, LLC, DO HEREBY CERTIFY:
1. Each of the representations and warranties made by the Company in the
Investment Agreement, as modified by the Schedules attached to the
Investment Agreement, is true and correct in all material respects as
of the date hereof.
2. Each of the conditions required to be satisfied by the Company
pursuant to Section 2.3 of the Investment Agreement have been
satisfied as of the date hereof.
3. The Registration Statement has become effective under the Securities
Act, and to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending
before, or are threatened by the Securities and Exchange Commission.
4 I have participated in the preparation of the Registration Statement
and related Prospectus and after due inquiry nothing has come to my
attention to cause me to have reason to believe that the Registration
Statement, the related Prospectus, or any Amendment or Supplement
thereto, at the time it became effective or as of the date hereof,
contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any Supplement thereto
contained any untrue statement of a material fact or omitted to state
a material fact necessary in order to make statements therein, in
light of the circumstances under which they were made, not
misleading.
IN WITNESS WHEREOF, I have hereunto set my hand as of the NTH day of
MONTH, 2001.
COMPANY NAME
By: SIGNATURE OF COMPANY OFFICER
PRINTED NAME OF COMPANY OFFICER BELOW LINE
45