INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of March 22, 2001 by
and among ▇▇▇▇▇▇▇▇.▇▇▇, INC., a Nevada corporation with offices located at ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "COMPANY"), and Cornell Capital Partners,
L.P., a New York limited partnership (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $10,000,000 to
purchase the Company's common stock, $.00042 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as may be amended (the "1933
ACT"), Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREED UPON PROECEDURES REPORT" shall have the meaning specified in Section
2(l).
"AGREEMENT" shall mean this Investment Agreement.
"BUY-IN" shall have the meaning specified in Section 6.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
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"CLOSING" shall have the meaning specified in Section 2(g).
"CLOSING DATE" shall mean, as defined in Section 2(g), the date which is three
(3) Trading Days following the expiration of the related Purchase Period (or
such other time or later date as is mutually agreed to by the Company and the
Investor).
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"DOLLAR AMOUNT" shall mean the Dollar Amount of shares of common stock the
Company requests Investor to purchase.
"EFFECTIVE DATE" shall mean the date the SEC declares effective the Registration
Statement covering the transactions described in the Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(o).
"ESCROW AGENT" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP and First Union National Bank
"ESCROW AGREEMENT" shall mean the Escrow Agreement entered into among the
Company, the Investor and the Escrow Agent in the form attached hereto as
Exhibit "B".
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"FLOOR PRICE" shall mean the price that is the lowest price at which the
Investor shall be permitted to sell Shares during an applicable Purchase Period
and shall be equal to 75% of the lowest closing bid price of the Common Stock
during the fifteen (15) trading days immediately preceding the date upon which
the Put Notice is delivered by the Company.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the
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Registration Rights Agreement.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(f).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
"MATERIAL FACTS" shall have the meaning specified in Section 2(k).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(h).
"MAXIMUM PUT AMOUNT" shall mean the maximum Dollar Amount of a Put Notice
calculated by multiplying the average of the Volume Weighted Average Price for
the forty (40) Trading Days immediately preceding a Put Notice Date, by one and
one-half (1.5).
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier of (i) the
date which is thirty-six (36) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(m).
"PRINCIPAL MARKET" shall have the meaning specified in Section 2(e).
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the amount being paid by Investor on a particular
Closing Date to purchase the Shares.
"PURCHASE PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date.
"PURCHASE PRICE" shall mean 91% of the average of the lowest three closing bid
prices of the Company's common stock during the specified Purchase Period.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Dollar Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of the
Company's Shares issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered
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on (x) the Trading Day it is received by facsimile or otherwise by the Investor
if such notice is received prior to 12:00 noon Eastern Time (receipt being
deemed to occur if the Company possess a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on
a Trading Day (receipt being documented as described in (x) above). No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"REGISTRABLE SECURITIES" shall have the meaning set forth in the Registration
Rights Agreement.
"REGISTRATION OPINION" shall have the meaning specified in Section 2(k).
"REGISTRATION OPINION DEADLINE" shall mean the date that is between three (3)
and five (5) Trading Days prior to each Put Notice Date.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of this transaction.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering this transaction.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"REPURCHASE EVENT" shall have the meaning specified in Section 2(m).
"REPURCHASE OPTION" shall have the meaning specified in Section 2(m).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of common stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having a par value
of $.00042 per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
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"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading.
"TRANSACTION DOCUMENTS" shall mean the Agreement, Registration Rights Agreement,
and each of the other agreements entered into by the parties hereto in
connection with the Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
"VOLUME WEIGHTED AVERAGE PRICE" shall mean the product of (i) the daily trading
volume and (ii) the average trade price of the Company's common stock on the
Principal Market, which volume and average trade price shall be as reported by
Bloomberg Financial Markets ("BLOOMBERG"), or if not available through Bloomberg
because of delisting, then the average of the bid prices of any market makers
for the Company's Common Stock as reported in the "pink sheets" by the National
Quotation Bureau, Inc.
2. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $10,000,000.
b. Delivery of Put Notices. Subject to the terms and conditions of the
Transaction Documents, and from time to time during the Open Period the Company
may, in its sole discretion, deliver a Put Notice in substantially the same form
as Exhibit "C" attached hereto to the Investor which states the Dollar Amount of
Shares which the Company intends to sell to the Investor during the Purchase
Period. In addition, the Dollar Amount designated by the Company in a Put Notice
shall be in increments of not less than $75,000 and not more $5,000,000 subject
to a waiver of such minimum and maximum amounts in the Investor's sole
discretion. Once the Put Notice is received by the Investor the Put Notice shall
not be, terminated, withdrawn or otherwise revoked by the Company. During the
Open Period, the Company shall not be entitled to submit a Put Notice during the
three (3) Trading Day period following a Closing Date and a Put Notice may not
be given during a Purchase Period. The Company shall not be entitled to issue a
Put Notice to Investor for more than the Maximum Put Amount. The average Volume
Weighted Average Price for the ten (10) Trading Days immediately preceding both
the Put Notice Date and the expiration of a Purchase Period must be at least
$50,000, unless the Investor in its sole discretion reduces such amount. The
Purchase Price shall be 91% of the average of the lowest three (3) closing bid
prices of the Common Stock during the Purchase Period.
The Floor Price shall be stated in each Put Notice. In the event that
the
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Shares are trading at or below the Floor Price during the Purchase Period
immediately preceding the applicable Closing Date, the Investor, in its sole
discretion, shall have the right to decrease the Dollar Amount set forth in that
Put Notice by a pro rata percentage equal to ten percent (10%) for every day
during the ten (10) Trading Day Purchase Period that the average trading price
as reported by Bloomberg is at or below the Floor Price.
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Dollar
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company's
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. Stock Payment. On the Execution Date, the Company shall issue to
Yorkeville Advisors Management, LLC ("Yorkeville") 250,000 shares of Common
Stock with the restrictive legend set forth in Section 3(g) hereof; provided
however, that such shares shall be subject to a lock up agreement in the form
attached hereto as Exhibit "D".
d. Investor's Obligation 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 from the
Company during the related Purchase Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Dollar Amount set forth
in the Put Notice (subject to reduction during the Purchase Period as may be
provided pursuant to the terms of this Agreement), and (ii) 20% of the aggregate
Volume Weighted Average Price during the applicable Purchase Period, but only if
said Shares bear no restrictive legend and are not subject to stop transfer
instructions.
e. Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and require the Investor to purchase any
Shares at a Closing (as defined in Section 2(g)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared effective
and shall remain effective and available for the resale of all
the Registrable Securities (as defined in the Registration Rights
Agreement) at all times during the Purchase Period;
(ii) at all times during the period beginning on the related Put
Notice Date and ending on and including the related Closing Date,
the Common Stock shall have been listed on The American Stock
Exchange, Inc. ("AMEX")
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or The New York Stock Exchange, Inc. or designated on the Nasdaq
National Market, The Nasdaq SmallCap Market or the National
Association of Securities Dealer's, Inc. OTC electronic bulletin
board (the "PRINCIPAL MARKET") and shall not have been suspended
from trading thereon for a period of five (5) consecutive Trading
Days during the Open Period and the Company shall not have been
notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock;
(iii) during the period beginning on the Put Notice Date and
ending on and including the applicable Closing Date, there shall
not have occurred a Major Transaction (as defined in Section
2(f)) or the public announcement of a pending Major Transaction
which has not been abandoned or terminated;
(iv) the Company has complied with its obligations and is
otherwise not in breach of a material provision, or in default
under, this Agreement, the Registration Rights Agreement or any
other agreement executed in connection herewith which has not
been corrected prior to delivery of the Put Notice Date;
(v) no Material Adverse Effect (as defined in Section 4(a)) has
occurred since the Execution Date;
(vi) no injunction shall have been issued, or action commenced by
a governmental authority, prohibiting the purchase or the
issuance of the Common Stock; and
(vii) the issuance of the Common Stock will not violate the
shareholder approval requirements of AMEX.
If any of the events described in clauses (i) through (vii) above
occurs during a Purchase Period, then the Investor shall have no
obligation to purchase the Dollar Amount of Common Stock set
forth in the applicable Put Notice.
f. Major Transaction. For purposes of this Agreement, a "MAJOR
TRANSACTION" shall be deemed to have occurred at the closing of any of the
following events: (i) the consolidation, merger or other business combination of
the Company with or into another person (other than pursuant to a migratory
merger effected solely for the purposes of changing the jurisdiction of
incorporation of the Company) (ii) the sale or transfer of all or substantially
all of the Company's assets; or (iii) the consummation of a purchase, tender or
exchange offer made to, and accepted by, the holders of more than 30% of the
economic interest in, or the combined voting power of all classes of voting
stock of, the Company. Notwithstanding the above, Major Transaction shall not
include
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the proposed acquisition by the Company of Campus Custom Publishing, Inc.
g. Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(e), 7 and 8, the closing
of the purchase by the Investor of Shares (a "CLOSING") shall occur on the date
which is three (3) Trading Days following the expiration of the related Purchase
Period (or such other time or later date as is mutually agreed to by the Company
and the Investor) (a "CLOSING DATE"). On or before the Trading Day immediately
preceding each Closing Date, (i) the Company shall deliver to the Escrow Agent
pursuant to the Escrow Agreement certificates representing the Shares to be
issued to the Investor on such date and registered in the name of the Investor,
or in street name as may be requested by Investor, or deposit such Shares into
the account(s) (with the Investor receiving confirmation that the Shares are in
such account(s)) designated by the Investor for the benefit of the Investor and
(ii) the Investor shall deliver to the Escrow Agent the Purchase Price to be
paid for such Shares (after receipt of confirmation of delivery of such Shares),
determined as aforesaid, by wire transfer. In the alternative to physical
delivery of certificates for Common Stock to the Investor, if delivery of the
Shares may be effectuated by electronic book-entry through The Depository Trust
Company ("DTC"), then delivery of the Shares pursuant to such purchase shall,
unless requested otherwise by such Investor (or holder of such Shares), settle
by book-entry transfer through DTC on the Closing Date. The parties agree to
coordinate with DTC to accomplish this objective. The Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
by either of them to the Escrow Agent pursuant to this Agreement or the Escrow
Agreement.
h. Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, if the Company is listed on the AMEX, the
number of Shares issuable by the Company and purchasable by the Investor
including the shares of Common Stock issuable pursuant to Section 2(c) hereof,
shall not exceed 19.99% of the shares of Common Stock outstanding as of the date
of the applicable Put Notice, subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalization
affecting the Common Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the
issuance of Shares in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and the
By-laws and Articles of Incorporation of the Company, if such issuance of shares
of Common Stock could cause a delisting on the Principal Market. Without
limiting the generality of the foregoing, such shareholders' approval must duly
authorize the issuance by the Company of shares of Common Stock totaling 19.99%
or more of the shares of Common Stock outstanding on the date hereof. The
parties understand and agree that the Company's failure to seek or obtain such
shareholder approval shall in no way adversely affect the validity and due
authorization of the issuance and sale of Shares hereunder or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(h).
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i. Valuation Event. For purposes of this Agreement, "VALUATION EVENT"
shall mean an event in which the Company at any time during a "Purchase Period"
takes any of the following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for dividends paid
with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for or
purchase Common Stock and the price per share for which
Common Stock may at any time thereafter be issuable
pursuant to such options or other rights shall be less than
the Bid Price in effect immediately prior to such issuance;
(iv) issues any securities convertible into or exchangeable for
Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(v) issues shares of Common Stock otherwise than as provided in
the foregoing subsections (i) through (iv), at a price per
share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or
without consideration;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend
in liquidation or by way of return of capital or other than
as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing
subsections (i) through (v); or
(vii) takes any action affecting the number of shares of Common
Stock outstanding, other than an action described in any of
the foregoing subsections (i) through (vi) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a
materially adverse effect upon the rights of Investor at
the time of a Put Notice is delivered to Investor.
j. If a Valuation Event occurs during a Purchase Period, the Investor,
at its sole option, may either (i) choose a new Purchase Period beginning on the
Trading Day immediately following the occurrence of such Valuation Event, (ii)
use the Purchase Period during which the Valuation Event occurred or (iii)
decline the Put Notice.
k. Registration Opinion. The Company shall cause its independent
counsel to deliver to the Investor, on each Registration Opinion Deadline, an
opinion, (the
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"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, 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 Closing Date, the Company acquires knowledge of such Material
Facts or any Ineffective Period occurs, the Company shall promptly notify the
Investor and Investor, at Investor's sole option, shall be entitled to cancel
that entire Put Notice by facsimile notice to the Company on or before the
related Closing Period.
l. Procedure if Material Facts are Reasonably believed to be untrue or
are omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) 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 (ii) if the Company disputes
the existence of any such material misstatement or omission, (x) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (y) 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.
m. Delisting; Suspension. If at any time during the Open Period or
within thirty (30) calendar days after the end of the Open Period, (i) the
Registration Statement, after it has been declared effective, shall not remain
effective and available for sale of all the Registrable Securities, (ii) the
Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
trading day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock, (iii) there shall have occurred a Major
Transaction (as defined in Section 2(f)) or the public announcement of a pending
Major
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Transaction which has not been abandoned or terminated, or (iv) the Registration
Statement is no longer effective or stale for a period of more than five (5)
Trading Days as a result of the Company to timely file its financials, the
Investor shall have the right (the "REPURCHASE OPTION"), as partial relief for
the damages to the Investor by reason of the occurrence of the events listed in
clauses (i), (ii), (iii) or (iv)above (which remedy shall not be exclusive of
any other remedies available at law or equity), in its sole discretion, which
right shall be exercised within thirty (30) calendar days of such event or
occurrence (a "REPURCHASE EVENT"), to sell to the Company, and the Company
agrees to buy, promptly upon the exercise of such right by the Investor, but in
any event within ten (10) calendar days of the exercise of such right, and
subject to the limitations imposed by applicable federal and state law, all or
any part of the Shares issued to the Investor within the sixty (60) Trading Days
preceding the Investor's exercise of the Repurchase Option and then held by the
Investor at a price per Share equal to the highest closing price during the
period beginning on the date of the Repurchase Event and ending on and including
the date on which the Investor exercises its Repurchase Option (the "PAYMENT
AMOUNT"). If the Company fails to pay to the Investor the full aggregate Payment
Amount within ten (10) calendar days of the Investor's exercise of the
Repurchase Option hereunder, the Company shall pay to the Investor, on the first
Trading Day following such tenth (10th) calendar day, in addition to and not in
lieu of the Payment Amount payable by the Company to the Investor upon exercise
of the Repurchase Option, an amount equal to 2% of the aggregate Payment Amount
then due and payable to the Investor, in cash by wire transfer, plus compounded
annual interest of 8% on such Payment Amount during the period, beginning on the
day following such tenth calendar day, during which such Payment Amount, or any
portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor and Yorkeville jointly and severally represent and warrant
to the Company that:
a. Investment Purpose. Each of the Investor and Yorkeville is acquiring
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, the Investor 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.
b. Accredited Investor Status; Sophisticated Investor. Each of the
Investor and Yorkeville is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D under the 1933 Act. The Investor and Yorkeville have
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities.
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c. Reliance on Exemptions. The Investor and Yorkeville understand 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 the Investor's and Yorkeville's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor and Yorkeville set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor and
Yorkeville to acquire such Securities.
d. Information. Each of the Investor and Yorkeville and its advisors,
if any, have been furnished with or have had access to 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 the Investor
and Yorkeville. The Investor and Yorkeville 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 the Investor, Yorkeville
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor's or Yorkeville's right to rely on the Company's representations
and warranties contained in Section 4 below. The Investor and Yorkeville
understand that its investment in the Securities involves a high degree of risk.
The Investor and Yorkeville have 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.
e. No Governmental Review. The Investor and Yorkeville understand 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.
f. Transfer or Resale. The Investor and Yorkeville understand 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 for resale thereunder and sold, assigned or transferred
in accordance with an effective registration statement, (B) the Investor or
Yorkeville, as the case may be, shall have delivered to the Company an opinion
of counsel, in a reasonably 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) the Investor or
Yorkeville, as the case may be, provides the Company with assurance reasonably
acceptable to the Company that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act (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
12
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. The Investor and Yorkeville agree that the sale of the
Securities will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of the
Principal Market, if applicable.
g. Legends. The Investor and Yorkeville understand that, until such
time as the Securities have been transferred to a person who may trade the
Shares without restriction under the 1933 Act as contemplated by the
Registration Rights Agreement, the certificates representing the Securities,
except as set forth below and in Section 8(r), shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A REASONABLY 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 resale 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 such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with assurances reasonably acceptable
to the Company that such Securities can be sold pursuant to Rule 144 without any
restriction as to (A) the number of securities acquired as of a particular date
that can then be immediately sold or (B) manner of sale. Each of the Investor
and Yorkeville covenants that, in connection with any transfer of Securities by
it pursuant to an effective registration statement under the 1933 Act, it will
(i) comply with the applicable prospectus delivery requirements of the 1933 Act,
provided that copies of a current prospectus relating to such effective
registration statement are or have been supplied to the Investor and Yorkeville,
and (ii) comply with the "Plan of Distribution" section of the current
prospectus relating to such effective registration statement.
13
h. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor 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.
i. Section 9 of the 1934 Act. During the Open Period, the Investor and
Yorkeville will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the Common
Stock.
j. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation or the By-laws or (ii) conflict with,
or constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. 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 a controlling interest) (a complete list of which
is set forth in Schedule 4(a)) are corporations duly organized and validly
existing in good standing under the laws of the State of Nevada, and have the
requisite corporate power and authorization to own their properties and to carry
on their 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 of operations, financial condition or prospects of
the Company and its Subsidiaries, if any,
14
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 in Section 1 and 4(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, 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 Shares 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 reservation for issuance and the
issuance of the Shares pursuant to this Agreement, have been duly and validly
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
shareholders, except for any approval required pursuant to the rules and
regulations of the AMEX (iii) the Transaction Documents have been duly and
validly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations 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.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 54,523,810 shares of Common Stock, of which as of
the date hereof, 18,566,667 shares are issued and outstanding, 5,000,000 shares
of Preferred Stock, of which as of the date hereof 3,235,301 shares are issued
and outstanding, and 2,779,737 shares of Common Stock are issuable upon the
exercise of options, Warrants and conversion rights. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 4(c) or in SEC Documents (as
defined in Section 4(f) below), (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 shares of capital stock,
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 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
15
securities 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, (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (viii) there is no dispute as to the class of any
shares of the Company's capital stock. The Company has furnished to the
Investor, or the Investor has had access through ▇▇▇▇▇ to, true and correct
copies of the Company's Articles of Incorporation, as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, 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 material rights of the
holders thereof in respect thereto.
d. Issuance of Shares. At least 16,000,000 Shares issuable pursuant to
this Agreement have been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement, subject to approval by the Company's stockholders.
Upon issuance in accordance with this Agreement, the Securities will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register
16,000,000 Shares, due to the remaining number of authorized shares of Common
Stock being insufficient, the Company will use its best efforts to register the
maximum number of shares it can based on the remaining balance of authorized
shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. No Conflicts. 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 will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness 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 United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) 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 in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or
16
by-laws, respectively, or any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for possible
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations that would not individually or in the aggregate have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization, permit or order of, or make any filing or registration
(except the filing of a registration statement) with, any court, governmental
authority or agency, regulatory or self-regulatory agency or other third party
in order for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, 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 and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since February 1999, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1933 Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has delivered to the Investor or its
representatives, or they have had access through ▇▇▇▇▇, true and complete copies
of the SEC Documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1933 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, 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
17
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material 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). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule 4(g) or
the SEC Documents filed at least five (5) days prior to the date hereof, since
June 1, 2000, there has been no change or development in the business,
properties, assets, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries which has had or reasonably could
have a Material Adverse Effect. 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 its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. Except as set forth in Schedule 4(h), 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 executive officers of 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, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding Investor's Purchase of Shares. 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 respective 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.
j. No Undisclosed Events, Liabilities, Developments or Circumstances.
Except for the proposed acquisition of Campus Custom Publishing, Inc., no event,
liability, development or circumstance has occurred or exists, or to its
knowledge is
18
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, assets, 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.
k. 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.
l. No Integrated Offering. To its knowledge, 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 under the 1933 Act of the Company's sale and issuance of the
Securities to the Investor or cause this offering of Shares to the Investor to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration under the 1933 Act of the Company's sale and issuance of
the Securities to the Investor or cause the offering of the Securities to be
integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that 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's employ or
otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, 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 4(n), none of the
Company's 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 necessary to conduct its business as now or as proposed to be
conducted 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 ▇▇▇▇
19
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 4(n), 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.
o. 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.
p. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and 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 4(p) 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 or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or 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.
q. 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 have a Material Adverse Effect.
r. Regulatory Permits. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and
20
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, approval, authorization or permit, except
for such certificates, approvals, authorizations or permits which if not
obtained, or such revocations or modifications which, would not have a Material
Adverse Effect.
s. 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 generally accepted accounting principles 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.
t. 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.
u. Tax Status. The Company and each of its Subsidiaries has made or
filed all United States 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 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.
v. Certain Transactions. Except as set forth on Schedule 4(v) and in
the SEC Documents filed at least five (5) days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 4(c), 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 rental of real
or personal property to or from,
21
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.
w. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances. The Company's executive
officers and directors have studied and 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, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
5. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Section 8 of
this Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as specified by Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to the Closing
Date. The Company shall, at its sole cost and expense, make all filings and
reports relating to the offer and sale of the Securities required under the
applicable securities or "Blue Sky" laws of such states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities acquired pursuant to this Agreement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Holders shall have sold all the
Securities issuable hereunder and (B) this Agreement has been terminated
pursuant to Section 9 (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 a reporting company under the 1933
Act.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for legal fees, finder's fees
and escrow
22
fees) for general corporate and working capital purposes.
e. Financial Information. The Company agrees to make available to the
Investor via ▇▇▇▇▇ or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, INC.
f. Reservation of Shares. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 16,000,000 shares of Common
Stock to provide for the issuance of the Securities hereunder. In the event that
the Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as described
in this Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder approval for
the authorization of such additional shares.
g. Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(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 maintain the Common Stock's authorization for
quotation on the Principal Market, unless the Investor and the Company agree
otherwise. 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 (excluding suspensions of not more than
one trading day resulting from business announcements by the Company). The
Company shall promptly provide to the Investor copies of any notices it receives
from the Principal Market regarding the 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 5(g).
h. Transactions With Affiliates. 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
23
who were officers or directors at any time during the previous two years,
shareholders 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 with any entity in which any such entity or individual owns a 5%
or more beneficial interest (each a "RELATED PARTY"), except for (i) customary
employment arrangements and benefit programs on reasonable terms, (ii) 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 (iii) 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" 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.
i. Filing of Form 8-K. On or before the date which is fifteen (15)
calendar days after the Execution Date, the Company shall file a Current Report
on Form 8-K with the SEC describing the terms of the transaction contemplated by
the Transaction Documents in the form required by the 1934 Act, if such filing
is required.
j. Corporate Existence. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration; Suspension of Right
to Make a Put. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (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 any Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in 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,
24
and that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to Investor any Put Notice during the continuation of any of
the foregoing events.
l. Reimbursement. If (i) 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 shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, 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 Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse 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. The reimbursement obligations of the
Company under this section 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 Investor that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
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, Investor and any such affiliate and any such person.
m. Dilution. The number of Shares issuable pursuant to a Put Notice 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 Open
Period. The Company's executive officers and directors have studied and 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 its obligation to issue the Shares upon issuance of a Put
Notice 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.
6. COVER. If the number of Shares represented by any Put Notices become
25
restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor, in lieu of the Repurchase Option, the Buy-In Adjustment Amount (as
defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (a) the Investor's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (b) the net proceeds (after
brokerage commissions, if any) received by the Investor from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Investor
in immediately available funds immediately upon demand by the Investor. By way
of illustration and not in limitation of the foregoing, if the Investor
purchases Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to the Common Stock it
sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company
will be required to pay to the Investor will be $1,000.
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Shares to
the Investor is further subject to the satisfaction, at or before each Closing
Date, of each of the following conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
a. The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company on or prior
to the Execution Date.
b. The Investor shall have delivered to the Company the Purchase Price
for the Shares being purchased by the Investor at the Closing (after receipt of
confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
c. The representations and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Investor 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 Investor at or
prior to such Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental
26
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since the applicable Put
Notice Date.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject
to the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below. These conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion.
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Investor on or prior to the Execution Date.
b. The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for (i) representations and warranties that speak as
of a specific date and (ii) with respect to the representations made in Sections
4(g), (h) and (j) and the third sentence of Section 4(m) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten (10) Trading Days prior to the applicable Put
Notice 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 before such
Closing Date. The Investor shall have received a certificate, executed by the
Chief Executive Officer and Chief Financial Officer of the Company, dated as of
the applicable Closing Date, in the form of Exhibit "E" attached hereto, to the
foregoing effect and as to such other matters as may be reasonably requested by
the Investor including, without limitation, an update as of such Closing Date
regarding the representation contained in Section 4(c) above.
d. Investor shall have received an opinion letter of the Company's
counsel on or before the Execution Date, or a blanket opinion letter covering
all Shares to be issued pursuant to the terms of this Agreement, in the form of
Exhibit "F" attached hereto and if required by the Company's transfer agent any
additional opinion letters after the Effective Date so as to allow for the
issuance of Securities to Investor as may be required pursuant to the
Transaction Documents.
27
e. The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer of,
the Shares (in such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above and in a form reasonably acceptable to
the Investor (the "RESOLUTIONS") and such Resolutions shall not have been
amended or rescinded prior to such Closing Date.
g. If requested by the Investor, the Investor shall receive a letter of
the type, in the form and with the substance of the letter described in Section
4(s) of the Registration Rights Agreement from the Company's auditors.
h. The Company shall have delivered to the Investor or the Investor has
had access through ▇▇▇▇▇ to a copy of its Articles of Incorporation, as amended
and in effect on such Closing Date, certified by the Secretary of State of the
Company's state of incorporation within ten (10) days of such Closing Date.
i. The Company shall have delivered to the Investor a secretary's
certificate, dated as of such Closing Date, in the form of Exhibit "G" attached
hereto, as to (i) the Resolutions described in Section 8(f), (ii) the Articles
of Incorporation and (iii) the Bylaws, each as in effect on such Closing Date.
j. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
k. The Registration Statement shall be effective on each Closing Date
and no stop order suspending the effectiveness of the Registration Statement
shall be in effect or shall be pending or threatened. Furthermore, on each
Closing Date (i) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action),and (ii) no other suspension of the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
l. At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to
28
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
m. There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
n. If applicable, the shareholders of the Company shall have approved
the issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(h).
o. The conditions to such Closing set forth in Section 2(e) shall have
been satisfied on or before such Closing Date.
p. The Company shall have certified to the Investor the number of
shares of Common Stock outstanding as of a date within five (5) Trading Days
prior to such Closing Date.
q. The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request upon reasonable advance notice.
9. TERMINATION.
a. Optional Termination. This Agreement may be terminated (i) at any
time by the mutual written consent of the Company and the Investor and (ii) by
either party upon eighteen (18) months' prior written notice to the other party.
The representations, warranties and covenants contained in or incorporated into
this Agreement, insofar as applicable to the transactions consummated hereunder
prior to such termination, shall survive its termination for the period of any
applicable statute of limitations.
b. Termination. In the Investor's sole discretion, this Agreement shall
terminate upon written notice sent by facsimile transmission or overnight
delivery by the Investor to the Company of any of the following events:
(i) when the Investor has purchased an aggregate of $10,000,000 in the
Common Stock of the Company pursuant to this Agreement; provided that
the representations, warranties and covenants contained in this
Agreement insofar as applicable to the transactions consummated
hereunder prior to such termination, shall survive the termination of
this
29
Agreement for the period of any applicable statute of limitations,
(ii) on the date which is thirty-six (36) months after the Effective
Date;
(iii) if the Company shall file or consent by answer or otherwise to
the entry of an order for relief or approving a petition for relief,
reorganization or arrangement or any other petition in bankruptcy for
liquidation or to take advantage of any bankruptcy or insolvency law of
any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or of
any substantial part of its property, or shall be adjudicated a
bankrupt or insolvent, or shall take corporate action for the purpose
of any of the foregoing, or if a court or governmental authority of
competent jurisdiction shall enter an order appointing a custodian,
receiver, trustee or other officer with similar powers with respect to
the Company or any substantial part of its property or an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of
any bankruptcy or insolvency law, or an order for the dissolution,
winding up or liquidation of the Company, or if any such petition shall
be filed against the Company;
(iv) if the Company shall issue or sell any equity securities or
securities convertible into, or exchangeable for, equity securities or
enter into an equity financing facility without the prior written
consent of the Investor (which consent shall not be unreasonably
withheld), except that no such consent shall be required in connection
with (A) the issuance or sale of such securities in connection with the
acquisition of Campus Custom Publishing, Inc., (B) shares issued under
the Company's stock option plan, (C) shares issued to employees,
consultants, advisors or independent contractors in an aggregate amount
of up to 750,000 during any three (3) month period, and (D) the
issuance and sale of such securities pursuant to the terms of a merger,
acquisition, share exchange, strategic alliance or other similar
transaction;
(v) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five (5) consecutive
Trading Days;
(vi) the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the Registrable
Securities in accordance with the terms of the initial Registration
Rights Agreement within sixty (60) calendar days of the date hereof or
the Registration Statement has not been declared effective within one
hundred eighty (180) calendar days of the date hereof; or
30
(vii) the Common Stock ceases to be registered under the 1933 Act.
(viii) The occurrence of a Material Adverse Effect;
(ix) The Commission or the NASD shall have suspended trading in the
Common Stock for a period of five (5) consecutive Trading Days during
Open Period.
(x) The Securities cease to be registered under the 1934 Act or listed
or traded on the Nasdaq National Market, American Stock Exchanged or
Nasdaq Small Cap Market or OTC Bulletin Board; or
(xi) The Company requires shareholder approval under AMEX rules to
issue additional shares and such approval is not obtained within 60
days from the date when the Company has issued its 19.9% maximum
allowable shares.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor, who shall have thirty (30)
calendar days to terminate by sending written notice by facsimile transmission
or overnight delivery to the Company. Failure of the Investor to send the
Company written notice within thirty (30) calendar days pursuant to the terms of
this Section 9 shall be deemed a waiver by the Investor to terminate as to the
occurrence of such event, but not a waiver to terminate upon the occurrence of
any other event enumerated above.
10. INDEMNIFICATION. In consideration of the Investor's execution and
delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Shares hereunder 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 Investor and all of their shareholders,
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 (i) 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,
(ii) 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, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction
31
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (iv) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Shares or (v)
the status of the Investor or holder of the Shares as an investor in the
Company, except insofar as any such untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
written information furnished to the Company by the Investor which is
specifically intended by the Investor for use in the preparation of any such
Registration Statement, preliminary prospectus or prospectus. 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. The indemnity provisions contained herein shall be in addition to any cause
of action or similar rights the Investor may have, and any liabilities the
Investor may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, 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.
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.
b. Fees and Expenses.
(i) As a further inducement to the Investor to enter into this
Agreement, on each Closing Date the Company shall pay to the
Investor or its designee, an amount equal to 5% of the Purchase
Amount, which amount the Investor may, at its sole option, deduct
against the Purchase Amount.
(ii) On each Closing Date the Company shall pay to Dutchess
Advisors, Ltd. a finder's fee equal to the sum of 10% of gross
proceeds
32
raised over $250,000 and up to $3,000,000; 8% of gross proceeds
raised over $3,000,000 and up to $7,000,000; 6% of gross proceeds
raised over $7,000,000 and up to $10,000,000; and 4% of gross
proceeds raised over $10,000,000.
(iii) On or before the Execution Date, the Company shall pay its
counsel, Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, LLP the sum of $50,000
on the Execution Date for legal expenses.
(iv) Except as otherwise set forth herein, each party shall pay
the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. Any attorneys' fees
and expenses incurred by either the Company or by the Investor in
connection with the preparation, negotiation, execution and
delivery of any amendments to this Agreement or relating to the
enforcement of the rights of any party, after the occurrence of
any breach of the terms of this Agreement by another party or any
default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which
breached the Agreement and/or defaulted, as the case may be. The
Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of any Shares issued pursuant hereto.
c. 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.
d. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
e. 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.
f. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investor, 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
(including the other Transaction Documents) 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
33
the Company nor the Investor 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
Investor, and no provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought.
g. 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 (1) 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:
▇▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to the Investor:
Cornell Capital Partners, L.P.
-----------------------------
-----------------------------
With a copy to:
-----------------------------
-----------------------------
-----------------------------
Attention: _________________
Telephone: _________________
Facsimile: _________________
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
h. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns,
34
including any purchasers of the Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investor, including by merger or consolidation. The Investor may
assign some or all of its rights hereunder; provided, however, that any such
assignment shall not release the Investor from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Investor shall be entitled to pledge
the Shares in connection with a bona fide margin account.
i. 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.
j. Survival. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings. The Investor shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
k. Publicity. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Investor without
the prior written consent of such Investor, except to the extent required by
law. Investor acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the Securities 1933 Act or the 1934 Act. Investor further
agrees that the status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation with its counsel.
l. 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.
m. Placement Agent. The Company acknowledges and warrants that it has
not engaged a placement agent or broker in connection with the sale of the
Shares. Except for the fee payable to Dutchess Advisors, Ltd. by the Company
pursuant to Section
35
11(b)(ii) hereof, no fees or commissions will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other person or entity, with respect to the transactions
contemplated by the Transaction Documents. The Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other persons or entities for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents. The Company shall indemnify and hold harmless the Investor, their
employees, officers, directors, agents, and partners, and their respective
affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses incurred in respect of
any such claimed or existing fees, as such fees and expenses are incurred.
n. 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.
o. Remedies. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement 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 default
or breach of any provision of this Agreement, including the recovery of
reasonable attorneys fees and costs, and to exercise all other rights granted by
law.
p. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
36
IN WITNESS WHEREOF, the parties hereto have caused this Investment
Agreement to be duly executed as of the date and year first above written.
COMPANY: ▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: ____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
INVESTOR: CORNELL CAPITAL PARTNERS, L.P
By its General Partner, Yorkeville Advisors Management, LLC
By: ____________________________________
Name:
Title:
37
LIST OF SCHEDULES
-----------------
Schedule 4(a) Subsidiaries
Schedule 4(c) Capitalization
Schedule 4(e) Conflicts
Schedule 4(g) Material Changes
Schedule 4(h) Litigation
Schedule 4(n) Intellectual Property
Schedule 4(p) Liens
Schedule 4(v) Certain Transactions
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Escrow Agreement
EXHIBIT C Put Notice
EXHIBIT D Lock Up Agreement
EXHIBIT E Officers' Certificate
EXHIBIT F Opinion of Company's Counsel
EXHIBIT G Secretary's Certificate
EXHIBIT "A"
REGISTRATION RIGHTS AGREEMENT
EXHIBIT "B"
ESCROW AGREEMENT
EXHIBIT "C"
PUT NOTICE
▇▇▇▇▇▇▇▇.▇▇▇, Inc. (the "Company) hereby elects to sell shares of its Common
Stock to the Investor, during the designated Purchase Period, at a Purchase
Price and for the number of shares of Common Stock to be determined on the last
day of the Purchase Period, all pursuant to that certain Investment Agreement by
and between the Company and Investor dated as of March 22, 2001.
Put Notice Date: __________________________
Dollar Amount Requested: __________________
Purchase Period: _________________________
Purchase Price: __________________________ (to be determined)
Number of Shares: _______________________ (to be determined)
Note: Capitalized terms shall have the meaning ascribed to them in the
Investment Agreement.
▇▇▇▇▇▇▇▇.▇▇▇, Inc.
By: ______________________
EXHIBIT "D"
LOCK UP AGREEMENT
EXHIBIT "E"
OFFICER'S CERTIFICATE
EXHIBIT "F"
OPINION OF COMPANY'S COUNSEL
EXHIBIT "G"
SECRETARY'S CERTIFICATE