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Exhibit 10.3
SECURITIES PURCHASE AGREEMENT
DATED AS OF AUGUST 25, 1999
BY AND BETWEEN
JEM VENTURES EBIZ, LLC
AND
EBIZ ENTERPRISES, INC.
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TABLE OF CONTENTS
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ARTICLE 1 PURCHASE AND SALE OF DEBENTURE AND WARRANT -2-
1.1 Purchase of Debenture and Warrant -2-
1.2 Closing Date -2-
1.3 Form of Payment -2-
ARTICLE 2 BUYER'S REPRESENTATIONS AND WARRANTIES -2-
2.1 Investment Purpose -2-
2.2 Accredited Investor Status -2-
2.3 Reliance on Exemptions -3-
2.4 Information -3-
2.5 No Governmental Review -3-
2.6 Transfer or Resale -3-
2.7 Legends -3-
2.8 Validity; Enforcement -4-
2.9 Residency -4-
2.10 Brokerage Fees -4-
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY -5-
3.1 Organization and Qualification -5-
3.2 Authorization; Enforcement; Validity -5-
3.3 Capitalization -5-
3.4 Issuance of Securities -6-
3.5 No Conflicts -7-
3.6 Financial Statements -7-
3.7 Absence of Certain Changes -8-
3.8 Absence of Litigation -8-
3.9 Acknowledgment Regarding Buyer's Purchase of Securities -8-
3.10 No Undisclosed Events, Liabilities, Developments or
Circumstances -8-
3.11 No General Solicitation -8-
3.12 No Integrated Offering -9-
3.13 Dilutive Effect -9-
3.14 Employee Relations -9-
3.15 Intellectual Property Rights -9-
3.16 Environmental Laws -10-
3.17 Title; Liens -10-
3.18 Insurance -10-
3.19 Regulatory Permits -10-
3.20 Internal Accounting Controls -11-
3.21 No Materially Adverse Contracts, Etc -11-
3.22 Tax Status -11-
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3.23 Transactions With Affiliates -11-
3.24 Application of Takeover Protections -11-
3.25 Rights Agreement -12-
3.26 Foreign Corrupt Practices -12-
3.27 Year 2000 Compliance -12-
3.28 Brokerage Fees -12-
ARTICLE 4 COVENANTS -12-
4.1 Best Efforts -12-
4.2 Form D and Blue Sky -13-
4.3 Reporting Status -13-
4.4 Use of Proceeds -13-
4.5 Financial Information -13-
4.6 Reservation of Shares -13-
4.7 Additional Financing; Right of First Refusal -14-
4.8 Listing -15-
4.9 Expenses -15-
4.10 Transactions With Affiliates -15-
4.11 Limitation on Filing Registration Statements -16-
4.12 Letters of Credit -16-
ARTICLE 5 TRANSFER AGENT INSTRUCTIONS -16-
ARTICLE 6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL -17-
6.1 Delivery of Documents -17-
6.2 Purchase Price -17-
6.3 Representations and Warranties -17-
ARTICLE 7 CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE -18-
7.1 Delivery of Documents -18-
7.2 Trading of Common Stock -18-
7.3 Representations and Warranties -18-
7.4 Opinion -18-
7.5 Debenture/Warrant -18-
7.6 Board Approval -18-
7.7 Reservation of Shares -18-
7.8 Transfer Agent -18-
7.9 Good Standing -19-
7.10 Officer's Certificate -19-
7.11 Securities Laws -19-
7.12 Other -19-
ARTICLE 8 INDEMNIFICATION -19-
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ARTICLE 9 GOVERNING LAW; MISCELLANEOUS -20-
9.1 Governing Law; Jurisdiction; Jury Trial -20-
9.2 Counterparts -20-
9.3 Headings -20-
9.4 Severability -20-
9.5 Entire Agreement; Amendments -21-
9.6 Notices -21-
9.7 Successors and Assigns -22-
9.8 No Third Party Beneficiaries -23-
9.9 Survival -23-
9.10 Publicity -23-
9.11 Further Assurances -23-
9.12 Termination -23-
9.13 Knowledge -24-
9.14 No Strict Construction -24-
9.15 Remedies -24-
9.16 Payment Set Aside -24-
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SCHEDULES
Schedule 3.1 Subsidiaries
Schedule 3.3 Capitalization
Schedule 3.3(i) Preemptive Rights
Schedule 3.3(ii) Debt Securities
Schedule 3.3(iii) Convertible Securities and Warrants Outstanding
Schedule 3.3(iv) Registration Rights
Schedule 3.3(v) Securities Subject to Redemption
Schedule 3.3(vi) Anti-Dilution Triggered
Schedule 3.3(vii) SAR and Phantom Stock Rights
Schedule 3.5 Conflicts
Schedule 3.7 Material Changes
Schedule 3.8 Litigation
Schedule 3.15 Intellectual Property
Schedule 3.17 Title; Liens
Schedule 3.23 Transactions with Affiliates
EXHIBITS
Exhibit A Form of Debenture
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Letter of Credit
Exhibit E Form of Officer's Certificate
Exhibit F Form of Company Counsel Opinion
Exhibit G Form of Irrevocable Transfer Agent Instructions
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GLOSSARY OF DEFINED TERMS
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1933 Act -1-
Affiliate -15-
Agreement -1-
Business Day -2-
By-laws -6-
Certificate of Incorporation -6-
Closing -2-
Closing Date -2-
Common Stock -1-
Company -1-
Control -16-
controls -16-
Conversion Shares -1-
Environmental Laws -10-
Indemnified Liabilities -19-
Indemnitees -19-
Irrevocable Transfer Agent Instructions -16-
Lock-Up Period -14-
Material Adverse Effect -▇-
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ -▇▇-
▇▇▇▇▇▇▇▇ Price -2-
Registration Period -13-
Registration Rights Agreement -1-
Regulation D -1-
Related Party -15-
Rule 144 -3-
SEC -1-
Securities -2-
Subsidiaries -5-
Transaction Documents -5-
Warrant Shares -1-
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 25,
1999, by and between JEM VENTURES EBIZ, LLC, a Delaware limited liability
company (the "BUYER") and EBIZ ENTERPRISES, INC., a Nevada corporation, with its
principal executive office located at ▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇ (the "COMPANY").
RECITALS
WHEREAS, the Company and Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
and the rules and regulations of the SEC promulgated thereunder (the "1933
ACT");
WHEREAS, the Company has authorized the issuance of a $7,100,000 9.0%
Subordinated Convertible Debenture, which shall be convertible into shares of
the Company's common stock, $.001 par value per share (the COMMON STOCK") (as
converted, the CONVERSION SHARES"), in accordance with the terms of the
Subordinated Convertible Debenture, substantially in the form attached hereto as
Exhibit A (the "DEBENTURE");
WHEREAS, the Company has authorized the issuance of stock purchase
warrants, in substantially the form attached hereto as Exhibit B (the WARRANT"),
to purchase an aggregate of 245,000 shares of Common Stock at certain exercise
prices as described therein (as exercised, collectively, the "WARRANT SHARES");
and
WHEREAS, Buyer desires to purchase, and the Company desires to issue and
deliver to Buyer, the Debenture and the Warrant, all upon the terms and
conditions stated in this Agreement;
WHEREAS, upon the closing of the transactions contemplated by this
Agreement, the parties hereto will execute and deliver a Registration Rights
Agreement, in substantially the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and applicable state
securities laws.
NOW THEREFORE, in consideration of the mutual covenants of the parties set
forth in this Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and Buyer hereby
agree as follows:
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ARTICLE 1
PURCHASE AND SALE OF DEBENTURE AND WARRANT
1.1 Purchase of Debenture and Warrant. Subject to the satisfaction (or
waiver) of the conditions set forth in ARTICLE 6 and ARTICLE 7 below, the
Company shall issue and sell to Buyer, and Buyer agrees to purchase from the
Company, the Debenture and the Warrant at the Closing (the "CLOSING"). The
aggregate purchase price (the "PURCHASE PRICE") for the Debenture and the
Warrant at the Closing shall be $7,100,000.
1.2 Closing Date. The date and time of the Closing (the "CLOSING Date")
shall occur, subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in ARTICLE 6 and ARTICLE 7 hereof, on August
25, 1999 or such other date as is mutually agreed to by the Company and the
Buyer. The Closing shall occur on the Closing Date at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
1.3 Form of Payment. On the Closing Date, (i) Buyer shall pay the Purchase
Price to the Company for the Debenture and the Warrant, less costs and expenses
as described in SECTION 4.9, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions, as delivered to the
Buyer within two Business Days prior to the Closing, and (ii) the Company shall
deliver to Buyer, the Debenture and the Warrant hereunder, duly executed on
behalf of the Company and registered in the name of Buyer or its designee.
"BUSINESS DAY" shall mean any day other than a Saturday or Sunday or a day on
which commercial banks in the City of Chicago, Illinois are authorized or
required by law or executive order to remain closed.
ARTICLE 2
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer hereby represents and warrants to the Company that:
2.1 Investment Purpose. Buyer (i) is acquiring the Debenture and the
Warrant, (ii) upon conversion of the Debenture, will acquire the Conversion
Shares then issuable, and (iii) upon exercise of the Warrant, will acquire the
Warrant Shares issuable upon exercise thereof (the Debenture, the Conversion
Shares, the Warrant and the Warrant Shares collectively are referred to herein
as the "SECURITIES"), for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, Buyer does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933 Act.
2.2 Accredited Investor Status. Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D.
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2.3 Reliance on Exemptions. Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of Buyer to acquire such
Securities.
2.4 Information. Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by Buyer. Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by Buyer or its advisors, if any,
or its representatives shall modify, amend or affect Buyer's right to rely on
the Company's representations and warranties as set forth herein. Buyer
understands that its investment in the Securities involves a high degree of
risk. Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
2.5 No Governmental Review. Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
2.6 Transfer or Resale. Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) Buyer shall have delivered to the Company an opinion
of counsel, in a generally acceptable form, to the effect that such Securities
to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (C) Buyer provides the
Company with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or
a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
2.7 Legends. Buyer understands that the certificates or other instruments
representing the Debenture and the Warrant and, until such time as the sale of
the Conversion Shares and the Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144.
2.8 Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of Buyer and is a valid and binding
agreement of Buyer enforceable against Buyer in accordance with its terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
2.9 Residency. Buyer is a resident of Illinois.
2.10 Brokerage Fees. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Buyer directly with
the Company without the intervention of any person on behalf of Buyer in such
manner as to give rise to a valid claim by any person against Buyer, the Company
or any Subsidiary of the Company for a finder's fee, brokerage commission or
similar payment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
3.1 Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authorization to own their properties and to carry
on their
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business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results or operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below). The Company
has no Subsidiaries except as set forth on SCHEDULE 3.1.
3.2 Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Debenture, the Warrant, the Registration Rights Agreement, its
obligations pursuant to the Irrevocable Transfer Agent Instructions (as defined
in ARTICLE 5), and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including, without limitation the
issuance of the Debenture and the Warrant, and the reservation for issuance and
the issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
3.3 Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 70,000,000 shares of Common Stock, of which as of
the date hereof, 7,363,797 shares are issued and outstanding, 1,000,000 shares
are reserved for issuance pursuant to the Company's stock option and purchase
plans and 762,006 shares are issuable and reserved for issuance pursuant to
securities (other than the Debenture and the Warrant) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, of which as of the date hereof, 10,845 shares
designated as Series A 10% Convertible Preferred, which may be converted into
181,583 shares of Common Stock are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed on SCHEDULE 3.3, (i) no shares
of the Company's capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may
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become bound to issue additional shares of capital stock of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement, and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE
OF INCORPORATION"), and the Company's By-laws, as amended and as in effect on
the date hereof (the "BY-LAWS"), and the terms of all securities convertible
into or exercisable for Common Stock and the rights of the holders thereof in
respect thereto.
3.4 Issuance of Securities. Upon issuance, the Debenture and the Warrant
will be, and upon conversion or exercise in accordance with the Debenture or the
Warrant, as the case may be, the Conversion Shares and the Warrant Shares will
be, validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. At least 2,241,887 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in SECTION 4.6 below) have been duly authorized and reserved for issuance upon
conversion of the Debenture and upon exercise of the Warrant. Provided that the
representations and warranties of the Buyer set forth in SECTIONS 2.1 and 2.2
are true and correct when made and as of the Closing, issuance by the Company of
the Securities will be and is exempt from registration under the provisions of
Rule 506 as promulgated under the 1933 Act.
3.5 No Conflicts. Except as disclosed on SCHEDULE 3.5, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or the By-laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed on
SCHEDULE 3.5, neither the Company nor its Subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively. Except as disclosed on SCHEDULE
3.5, neither the Company nor any of its Subsidiaries is in violation of any term
of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to Company or its Subsidiaries. The
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business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance, regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act or applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency or any regulatory
or self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or any other of the
Transaction Documents, in each case in accordance with the terms hereof or
thereof. Except as disclosed on SCHEDULE 3.5, all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
3.6 Financial Statements. The Company's balance sheet and statements of
income and cash flows for the fiscal years ended June 30, 1997 and 1998, and the
Company's balance sheet as of March 31, 1999 and the related statement of income
for the period then ended (all such financial statements being hereinafter
referred to as the "FINANCIAL STATEMENTS") each of which has been previously
delivered to the Buyer, have been prepared in accordance with United States
generally accepted accounting principles, consistently applied ("GAAP"), during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes, may be condensed or
summary statements or may be subject to normal year-end adjustments or accruals
consistent with past practice) and fairly present in all respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments or accruals
consistent with past practice). No other information provided by or on behalf of
the Company to the Buyer which is not included in the Financial Statements,
including, without limitation, information referred to in SECTION 2.4 of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
3.7 Absence of Certain Changes. Except as disclosed on SCHEDULE 3.7, since
June 30, 1998 there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
results of operations or prospects of the Company or its Subsidiaries. The Board
of Directors of the Company has not discussed, and the Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
3.8 Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such,
except as set forth in SCHEDULE 3.8.
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3.9 Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that the Buyer 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 Buyer 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 Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to Buyer's
purchase of the Securities. The Company further represents to Buyer 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.
3.10 No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly announced.
3.11 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the
Securities.
3.12 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 security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings that would
require such registration.
3.13 Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Debenture or Warrant
Shares issuable upon exercise of the Warrant will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Debenture in accordance with this
Agreement and the Debenture and its obligation to issue the Warrant Shares upon
exercise of the Warrant in accordance with this Agreement and the Warrant, is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
3.14 Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any labor dispute nor, to the knowledge of the Company or any of
its Subsidiaries, is any such
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dispute threatened. None of the Company's or its Subsidiaries' employees is a
member of a union, neither the Company nor any of its Subsidiaries is a party to
a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relations with their employees are good. No executive officer (as
defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company. No executive officer, to the best knowledge of the
Company and its Subsidiaries, is, or is now expected to be, in violation of any
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 such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.
3.15 Intellectual Property Rights. To the knowledge of the Company and its
Subsidiaries, the Company and its Subsidiaries own or possess adequate rights or
licenses to use all material trademarks, trade names, service names, service
marks, service ▇▇▇▇ registrations, service names, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted except
as set forth on SCHEDULE 3.15. Except as set forth on SCHEDULE 3.15, none of the
Company's material trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
▇▇▇▇ registrations, trade secret or other similar rights of others, or of any
such development of similar or identical trade secrets or technical information
by others and, except as set forth on SCHEDULE 3.15, there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding trademark,
trade name, patents, patent rights, invention, copyright, license, service
names, service marks, service ▇▇▇▇ registrations, trade secret or other
infringement, and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
3.16 Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
3.17 Title; Liens. The Company and its Subsidiaries have good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3.17 or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
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any of its Subsidiaries. The Company and its Subsidiaries do not own any real
property. Any real property and facilities held under lease by the Company and
any of its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.
3.18 Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
3.19 Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
3.20 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.21 No Materially Adverse Contracts, Etc. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
3.22 Tax Status. The Company and each of its Subsidiaries 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 and each of its Subsidiaries has set aside
on its books reserves 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 reserves reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which
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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.
3.23 Transactions With Affiliates. Except as set forth on SCHEDULE 3.23
and other than the grant of stock options disclosed on SCHEDULE 3.3, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (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 the 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.
3.24 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, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of the Company's incorporation and such other state, to the extent
allowed under such state law, if any, where the Company conducts its principal
operation which is or could become applicable to the Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and Buyer's ownership of the Securities.
3.25 Rights Agreement. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
3.26 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 of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries 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 unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
3.27 Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to, and any date after, December 31,
1999). Based on the foregoing, the Company believes that all of its and its
Subsidiaries' computer applications are reasonably expected to be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000, except to the extent that a failure to do so would not reasonably be
expected to have a Material Adverse Effect.
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3.28 Brokerage Fees. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company directly
with Buyer without the intervention of any person on behalf of the Company in
such manner as to give rise to a valid claim directly by any person against
Buyer, the Company or any Subsidiary of the Company for a finder's fee,
brokerage commission or similar payment.
ARTICLE 4
COVENANTS
4.1 Best Efforts. Each party to this Agreement shall use its best efforts
to timely satisfy each of the conditions to be satisfied by it as provided in
ARTICLE 6 and ARTICLE 7 of this Agreement.
4.2 Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for or to qualify the Securities for sale to the
Buyer at the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Buyer on or prior to the Closing Date. The
Company shall make all filings and reports relating the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States following the Closing Date.
4.3 Reporting Status. Until the earlier of (i) the date which is one year
after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), or (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) no
amounts under the Debenture are due and owing and no Warrants are outstanding
(the "REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act would otherwise permit such termination.
4.4 Use of Proceeds. The Company will use the proceeds from the sale of
the Debenture and the related Warrant for the retirement of amounts owed to Home
National Bank and Aztore Holdings, Inc. as set forth on SCHEDULE 3.3(II) and for
general corporate purposes, as determined by the Company.
4.5 Financial Information. The Company agrees to send the following to
each Buyer (and their permitted transferees, if any) during the Registration
Period: (i) within two (2) days after the filing thereof with the SEC, a notice
of filing its Annual Report on Form 10-KSB (or other required form), its
Quarterly Reports on Form 10-QSB (or other required form), any Current Reports
on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act; provided, that if any such report is
not filed with the SEC through ▇▇▇▇▇ then the Company shall deliver a copy of
such report to Buyer by
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facsimile within two days after such report is filed with the SEC; and (ii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
4.6 Reservation of Shares. At the Closing, the Company shall take all
action necessary to have authorized, and reserved for the purpose of issuance,
no less than 150% of the number of shares of Common Stock needed to provide for
the issuance of the shares of Common Stock upon conversion of the Debenture and
100% of the number of shares of Common Stock needed to provide for the issuance
of the shares of Common Stock upon exercise of the entire Warrant. Following the
Closing Date, the Company shall take all actions necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 130% of the
number of shares of Common Stock needed to provide for the issuance of the
shares of Common Stock upon conversion of the Debenture and 100% of the shares
of Common Stock needed to provide for the issuance of the shares of Common Stock
upon exercise of the entire Warrant.
4.7 Additional Financing; Right of First Refusal.
(a) The Company agrees that during the period beginning on the date hereof
and ending on the date that no amounts are due and owing under the Debenture,
neither the Company nor its Subsidiaries will negotiate or contract with any
party to issue any variable-priced debt financing with an equity component or
issue any securities convertible or exchangeable into or for equity securities
of the Company or any Subsidiary (including debt securities with an equity
component) in any form without the express prior written consent of Buyer.
(b) In addition, subject to the exceptions described below, the Company
agrees that during the two (2) year period beginning on the date hereof (the
"LOCK-UP PERIOD"), the Buyer shall have a right of first refusal with respect to
any equity or debt financings by the Company or any Subsidiary in any form
("FUTURE OFFERINGS"). With respect to each Future Offering, the Company or its
Subsidiaries shall not consummate a transaction with a buyer or investor unless
the Company or such Subsidiary first obtains a legally enforceable written offer
for such transaction (the "OFFER") and gives the Buyer or its designee written
notice of the intent to accept such Offer, which notice shall set forth the name
and address of the proposed buyer or investor and all the terms and conditions
of the Offer, and which notice shall constitute an offer to the Buyer or its
designee to participate (x) in full but not in part in such Future Offering (to
the extent such Future Offering is a debt offering or an equity offering for an
amount not in excess of $5,000,000) or (y) in full or in part (to the extent
such Future Offering is an equity offering in excess of $5,000,000) in such
Future Offering, on the same terms and conditions as those contained in the
notice. The Buyer (or its designee) may exercise its right of first refusal by
giving written notice to the Company of its intention to fund or participate in
such Future Offering within five (5) calendar days following the Buyer's receipt
of such notice, which notice to the Company shall state the quantity of
securities to be purchased by the Buyer in such Future Offering. In the event
the Buyer or its designee fails to exercise its right of first refusal and the
Future Offering is not consummated with such third party within forty-five (45)
calendar days of the date of the notice to the Buyer of the Future Offering, the
Company may not consummate the Future Offering unless the offer from the third
party shall be deemed to be a new offer and the right to participate in such
Future Offering is reoffered to the Buyer in accordance with the foregoing
procedure. The Buyer shall not be required to participate or exercise its right
of first
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refusal with respect to a particular Future Offering in order to exercise its
right of first refusal with respect to later Future Offerings. The right of
first refusal with respect to Future Offerings as described in this SECTION 4.7
shall not apply to (i) any transaction involving the Company's issuances of
securities (A) as consideration in a merger or consolidation, (B) in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, (ii) the issuance of
Common Stock in an underwritten public offering (including a "best efforts"
underwritten public offering), (iii) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof and listed on SCHEDULE 3.3, or (iv) the grant
of additional options or warrants, or the issuance of additional securities,
under any existing Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees or directors, as in
effect on the date hereof without amendment hereafter, the material terms of
which are set forth on SCHEDULE 3.3.
4.8 Listing. The Company shall use its best efforts to promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) on The Nasdaq SmallCap Market or other comparable national
exchange or trading market (the "PRINCIPAL MARKET") (subject to official notice
of issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
promptly solicit stockholder approval of the Company's issuance of all of the
Securities described in this Agreement, if such approval will facilitate prompt
listing of the Registrable Securities on the Principal Market. Upon such listing
on the Principal Market neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall
promptly, and in no event later than the following Business Day, provide to
Buyer copies of any notices it receives from the Principal Market regarding any
continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this SECTION 4.8.
4.9 Expenses. Subject to SECTION 9.17, at the Closing, the Company shall
reimburse the Buyer for the Buyer's unreimbursed expenses (including attorneys'
fees and expenses) in due diligence and negotiating and preparing the
Transaction Documents and consummating the transactions contemplated hereby and
thereby. The parties acknowledge and agree that the $15,000 deposit previously
paid to the Buyer by the Company shall operate as an offset to the payment of
such expenses at the Closing.
4.10 Transactions With Affiliates. So long as (i) any amounts under the
Debenture are outstanding or (ii) Buyer owns Conversion Shares or Warrant Shares
with a market value equal to or greater than $500,000, the Company shall not,
and shall cause each of its subsidiaries not to, enter into, amend, modify or
supplement, or permit any subsidiary to enter into, amend, modify or supplement,
any agreement, transaction, commitment or arrangement with any of its or any
subsidiary's officers, directors, persons who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or
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with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" or "AFFILIATE" for purposes hereof means,
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
4.11 Limitation on Filing Registration Statements. Except in connection
with existing registration obligations set forth on SCHEDULE 3.3(IV) or with
respect to any Future Offering permitted under SECTION 4.7(b), the Company shall
not file a registration statement (other than the Registration Statement (as
defined in the Registration Rights Agreement) or a registration statement on
Form S-8) covering the sale or resale of shares of Common Stock with the SEC
during the period beginning on the date hereof and ending on the date which is
the later of (a) 12 months from the date hereof and (b) 270 days after the
Registration Statement has been declared effective by the SEC.
4.12 Letters of Credit. The Company covenants and agrees that so long as
any amounts are outstanding under the Debenture, it will procure an irrevocable
Letter of Credit in an amount equal to $5,000,000 and maintain an irrevocable
Letter of Credit in an amount equal to the lesser of $5,000,000 or 70.42% of the
outstanding principal balance of the Debenture, as calculated from time to time,
for the benefit of Buyer, and which Letter of Credit has been issued by a bank
satisfactory to Buyer in its sole discretion and in the form attached hereto as
EXHIBIT D. The Company further covenants and agrees that upon any Event of
Default (as defined in the Debenture) under the Debenture, Buyer shall be
permitted to pursue any and all remedies available to Buyer as the beneficiary
of such Letter of Credit, without regard to amounts and penalties which may
otherwise be due and owing to Buyer under the terms of such Debenture, or any
other remedies available to Buyer as a result of such Event of Default, whether
pursuant to such Debenture, this Agreement or otherwise.
ARTICLE 5
TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates, registered in the name
of Buyer or its respective nominee(s), for the Conversion Shares and the Warrant
Shares in such amounts as specified from time to time by the Buyer to the
Company upon conversion of amounts outstanding under the Debenture or exercise
of the Warrant (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior
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to registration of the Conversion Shares and the Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
SECTION 2.7 of this Agreement. Upon such registration of the Common Shares and
the Warrant Shares under the 1933 Act, the Company shall promptly notify the
transfer agent that any Common Shares and Warrant Shares issued and subject to
resale pursuant to the Registration Statement after the effective date of such
Registration Statement shall be issued without such restrictive legend. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this ARTICLE 5, and stop transfer instructions to
give effect to SECTION 2.6 hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the ▇▇▇▇ ▇▇▇) will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this ARTICLE 5 shall affect in any way
the Buyer's obligations and agreements set forth in SECTION 2.7 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act
or the Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by Buyer and without any restrictive legend. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyer 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 ARTICLE 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this ARTICLE 5, that the Buyer shall be entitled,
in addition to all other available remedies, to an order and/or 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.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the Debenture
and the Warrant to the Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing Buyer with prior written
notice thereof:
6.1 Delivery of Documents. The Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
6.2 Purchase Price. The Buyer shall have delivered to the Company the
Purchase Price for the Debenture and the Warrant being purchased by the Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
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6.3 Representations and Warranties. The representations and warranties of
the Buyer shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Buyer on or prior to the Closing Date.
ARTICLE 7
CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE
The obligation of the Buyer hereunder to purchase the Debenture and the
Warrant at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for Buyer's sole benefit and may be waived by the Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
7.1 Delivery of Documents. The Company shall have executed each of the
Transaction Documents and delivered the same to the Buyer.
7.2 Trading of Common Stock. The Common Stock shall be quoted on the
OTC BB.
7.3 Representations and Warranties. The representations and warranties of
the Company shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company on or prior to the Closing Date. The Buyer shall have
received a certificate, executed by each of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
the Buyer including, without limitation, an update as of the Closing Date
regarding the representation contained in SECTION 3.3 above, in the form
attached hereto as EXHIBIT E.
7.4 Opinion. The Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the form of EXHIBIT F attached
hereto.
7.5 Debenture/Warrant. The Company shall have executed and delivered to
the Buyer the Debenture and the Warrant being purchased by the Buyer at the
Closing.
7.6 Board Approval. The Board of Directors of the Company shall have
adopted resolutions consistent with SECTION 3.2 above and in a form reasonably
acceptable to the Buyer.
7.7 Reservation of Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the
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conversion of the Debenture and the exercise of the Warrant, at least 2,241,887
shares of Common Stock.
7.8 Transfer Agent. The Irrevocable Transfer Agent Instructions, in the
form of EXHIBIT G attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
7.9 Good Standing. The Company shall have delivered to the Buyer a
certified copy of the Certificate of Incorporation and a certificate of good
standing of the Company and each Subsidiary, in such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within 10 days of the Closing Date.
7.10 Officer's Certificate. The Company shall have delivered to the Buyer
a secretary's certificate, dated as the Closing Date, as to (i) the resolutions
described in SECTION 7.6, and (ii) the Bylaws, each as in effect at the Closing.
7.11 Securities Laws. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
7.12 Other. The Company shall have delivered to the Buyer such other
documents relating to the transactions contemplated by this Agreement as the
Buyer or its counsel may reasonably request.
ARTICLE 8
INDEMNIFICATION
In consideration of the Buyer's execution and delivery of 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 the Buyer and each other holder of
the Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' 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
document 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 brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any
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other certificate, instrument or document contemplated hereby or thereby,
(d) any transaction financed or to be financed, in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of the Buyer or such other holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
ARTICLE 9
GOVERNING LAW; MISCELLANEOUS
9.1 Governing Law; Jurisdiction; Jury Trial. The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of Illinois, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of Chicago, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
9.2 Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
9.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
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9.4 Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
9.5 Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyer, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
9.6 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
EBIZ Enterprises, Inc.
▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
With a copy to:
▇▇▇▇▇ and Roca, LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
American Securities Transfer and Trust, Inc.
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▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇-▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
If to the Buyer:
JEM Ventures EBIZ, LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & Zavis
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party five days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
9.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Buyer (if Buyer has not assigned all of
its rights hereunder) and Buyer's permitted assigns, if any, including by
merger, consolidation or reorganization, except pursuant to a Special Event,
merger, consolidation or reorganization (as defined in Section 2(b)(ii) of the
Debenture) with respect to which the Company has satisfied its obligations under
Section 2 of the Debenture. Buyer may assign all or any part of its rights
hereunder to any affiliate of Buyer or to any lender used by Buyer to finance
the transactions contemplated hereby, without the consent of the Company;
provided, however, that any such assignment shall not release the Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company
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has consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, Buyer shall be entitled to
pledge the Securities in connection with a bona fide margin account or to any
lender used by Buyer to finance the transactions contemplated hereby.
9.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
9.9 Survival. Unless this Agreement is terminated under SECTION 9.12, the
representations and warranties of the Company and the Buyer contained in
ARTICLES 2 and 3, the agreements and covenants set forth in ARTICLE 9, and the
indemnification provisions set forth in ARTICLE 8 shall survive the Closing for
the period that the Debenture remains outstanding, and the agreements and
covenants set forth in ARTICLES 4 and 5 shall survive the Closing for the longer
of the period that Buyer holds any Securities, or such time as such agreements
and covenants are no longer enforceable under applicable statutes of
limitations.
9.10 Publicity. The Buyer shall have the right to approve before issuance
any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of Buyer, to make any press release or
other public disclosure with respect to such transactions as is required by
applicable law and regulations (although the Buyer shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).
9.11 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9.12 Termination. In the event that the Closing shall not have occurred on
or before ten (10) business days from the date hereof due to the Company's or
the Buyer's failure to satisfy the conditions set forth in ARTICLES 6 and 7
above (and the nonbreaching party's failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, that
if this Agreement is terminated pursuant to this SECTION 9.12, the Company shall
remain obligated to reimburse the nonbreaching Buyer for the expenses described
in SECTION 4.9 above.
9.13 Knowledge. As used herein "knowledge" shall mean, with respect to a
person, information that is possessed, or should have been possessed after due
inquiry, by such person.
9.14 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
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9.15 Remedies. The Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and the Debenture and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
9.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyer hereunder or pursuant to the Debenture or Warrant or the
Buyer enforces or exercises its rights hereunder or thereunder, and such payment
or payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person under
any law (including, without limitation, any bankruptcy law, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
* * * * * *
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IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement
to be duly executed and delivered as of the date first written above.
COMPANY:
EBIZ ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
__________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
BUYER:
JEM VENTURES EBIZ, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
___________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇ , an authorized signatory
___________________________
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EXHIBIT A
FORM OF DEBENTURE
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EXHIBIT B
FORM OF WARRANT
31
33
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
32
34
EXHIBIT D
FORM OF LETTER OF CREDIT
33
35
EXHIBIT E
FORM OF OFFICER'S CERTIFICATE
34
36
EXHIBIT F
FORM OF COMPANY COUNSEL OPINION
35
37
EXHIBIT G
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
36