EXHIBIT 10(B)
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January 22, 2002,
by and among Imaging Technologies Corporation, a Delaware corporation, with
headquarters located at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(the "Company"), and each of the purchasers set forth on the signature pages
hereto (the "Buyers").
WHEREAS:
The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the "SEC") under Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") and pursuant to Regulation D and Regulation S
promulgated under the 1933 Act;
Buyers desire to purchase and the Company desires to issue and sell, upon the
terms and conditions set forth in this Agreement (i) 8% convertible debentures
of the Company, in the form attached hereto as Exhibit "A", in the aggregate
principal amount of One Million Dollars ($1,000,000) (together with any
debenture(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the "Debentures"),
convertible into shares of common stock, $0.005 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in such Debentures and (ii) warrants, in the form attached
hereto as Exhibit "B", to purchase Sixty Million, Two Hundred Forty Thousand,
Nine Hundred Sixty-Four (60,240,964) shares of Common Stock (the "Warrants");
Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Debentures and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
Contemporaneous with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement, in the form
attached hereto as Exhibit "C" (the "Registration Rights Agreement"), pursuant
to which the Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws.
NOW, THEREFORE, the Company and each of the Buyers severally (and not jointly)
hereby agree as follows:
PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
--------------------------------------------------
Purchase of Debentures and Warrants. On the Closing Date (as defined below),
--------------------------------------
the Company shall issue and sell to each Buyer and each Buyer severally agrees
--
to purchase from the Company such principal amount of Debentures and number of
Warrants as is set forth immediately below such Buyer's name on the signature
pages hereto.
Form of Payment. On the Closing Date (as defined below), (i) each Buyer shall
-----------------
pay the purchase price for the Debentures and the Warrants to be issued and sold
to it at the Closing (as defined below) (the "Purchase Price") by wire transfer
of immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto, and (ii) the
Company shall deliver such Debentures and Warrants duly executed on behalf of
the Company, to such Buyer, against delivery of such Purchase Price.
Closing Date. Subject to the satisfaction (or written waiver) of the conditions
------------
thereto set forth in Section 6 and Section 7 below, the date and time of the
issuance and sale of the Debentures and the Warrants pursuant to this Agreement
(the "Closing Date") shall be 12:00 noon Pacific Standard Time on January 22,
2002 or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur on the Closing Date
at such location as may be agreed to by the parties.
BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not jointly)
---------------------------------------
represents and warrants to the Company solely as to such Buyer that:
Investment Purpose. As of the date hereof, the Buyer is purchasing the
-------------------
Debentures and the shares of Common Stock issuable upon conversion of or
--------
otherwise pursuant to the Debentures (including, without limitation, such
-------
additional shares of Common Stock, if any, as are (i) on account of interest on
------
the Debentures, (ii) as a result of the events described in Sections 1.3 and
1.4(g) of the Debentures and Section 2(c) of the Registration Rights Agreement
or (iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the "Conversion Shares") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"Warrant Shares" and, collectively with the Debentures, Warrants and Conversion
Shares, the "Securities") for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
-------- -------
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
Accredited Investor Status. The Buyer is an "accredited investor" as that term
---------------------------
is defined in Rule 501(a) of Regulation D (an "Accredited Investor").
Reliance on Exemptions. The Buyer understands that the Securities are being
------------------------
offered and sold to it in reliance upon specific exemptions from the
---
registration requirements of United States federal and state securities laws and
---
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
Information. The Buyer and its advisors, if any, have been, and for so long as
-----------
the Debentures and Warrants remain outstanding will continue to be, furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Buyer or its advisors. The Buyer and its advisors,
if any, have been, and for so long as the Debentures and Warrants remain
outstanding will continue to be, afforded the opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to
the Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a significant
degree of risk.
Governmental Review. The Buyer understands that no United States federal or
--------------------
state agency or any other government or governmental agency has passed upon or
---
made any recommendation or endorsement of the Securities.
Transfer or Re-sale. The Buyer understands that (i) except as provided in the
---------------------
Registration Rights Agreement, the sale or re-sale of the Securities has not
been and is not being registered under the 1933 Act or any applicable state
securities laws, and the Securities may not be transferred unless (a) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, (b) the Buyer shall have delivered to the Company an opinion of
counsel that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company, (c) the Securities
are sold or transferred to an "affiliate" (as defined in Rule 144 promulgated
under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer who agrees
to sell or otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall
have delivered to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the ▇▇▇▇ ▇▇▇) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In the
---- ----
event that the Company does not accept the customary opinion of counsel provided
by the Buyer with respect to the transfer of Securities pursuant to an exemption
from registration, such as Rule 144 or Regulation S, within three (3) business
days of delivery of the opinion to the Company, the Company shall pay to the
Buyer liquidated damages of three percent (3%) of the outstanding amount of the
Debentures per month plus accrued and unpaid interest on the Debentures,
prorated for partial months, in cash or shares at the option of the Buyer
("Standard Liquidated Damages Amount"). If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such shares shall
be issued at the Conversion Price (as defined in the Debentures) at the time of
payment.
Legends. The Buyer understands that the Debentures and the Warrants and, until
-------
such time as the Conversion Shares and Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 or Regulation S without any restriction as to
the number of securities as of a particular date that can then be immediately
sold, as permitted by law, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or applicable state securities laws.
The securities may not be sold, transferred or assigned in the absence of an
effective registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not required under said
Act or unless sold pursuant to Rule 144 or Regulation S 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 any Security upon which it is
stamped, as permitted by law, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Security may be made without
registration under the 1933 Act, which opinion shall be accepted by the Company
so that the sale or transfer is effected or (c) such holder provides the Company
with reasonable assurances that such Security can be sold pursuant to Rule 144
or Regulation S. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
Authorization; Enforcement. This Agreement and the Registration Rights Agreement
--------------------------
have been duly and validly authorized. This Agreement has been duly executed
and delivered on behalf of the Buyer, and this Agreement constitutes, and upon
execution and delivery by the Buyer of the Registration Rights Agreement, such
agreement will constitute, valid and binding agreements of the Buyer enforceable
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
Residency. The Buyer is a resident of the jurisdiction set forth immediately
---------
below such Buyer's name on the signature pages hereto.
--
Foreign Buyer. The Buyer is not a "U.S. person" as defined under Rule 902(o) of
-------------
Regulation S under the 1933 Act. The Buyer is not acquiring the Debenture and
Warrant for the account or benefit of any U.S. person.
Offshore Transaction. The document effecting this purchase and sale has been
---------------------
executed by the Buyer outside the "United States" (as defined in Rule 902(p) of
--
Regulation S). The Buyer is acquiring the Debenture and Warrant in an "offshore
transaction" (as defined in Rule 902(i) of Regulation S). The Debenture and
Warrant were not offered to the Buyer in the United States and at the time of
execution of this Agreement and the time of any offer to the Buyer to purchase
the Debenture and Warrant hereunder, the Buyer was physically outside of the
United States.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
--------------------------------------------------
warrants to each Buyer that:
-----
Organization and Qualification. The Company and each of its Subsidiaries (as
--------------------------------
defined below), if any, is a corporation duly organized, validly existing and in
--
good standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership or use of property or the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, assets or financial condition of the Company or its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"Subsidiaries" means any active corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest or is otherwise a
"significant subsidiary" as defined in Rule 1-02 (w) of Regulation S-X
promulgated under the 1933 Act.
Authorization; Enforcement. (i) The Company has all requisite corporate power
---------------------------
and authority to enter into and perform this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Debentures and the
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company by its authorized representative, and such authorized representative is
the true and official representative with authority to sign this Agreement and
the other documents executed in connection herewith and bind the Company
accordingly, and (iv) this Agreement constitutes, and upon execution and
delivery by the Company of the Registration Rights Agreement, the Debentures and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies or by other equitable principles of general application.
Capitalization. As of January 11, 2002, the authorized capital stock of the
--------------
Company consisted of (i) 500,000,000 shares of Common Stock, of which
---
242,649,737 shares are issued and outstanding, 7,500,000 shares were reserved
---
for issuance pursuant to the Company's stock option and stock purchase plans,
--
203,937,134 shares were reserved for issuance pursuant to securities (other than
--
the Debentures and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and, as of the date hereof, 240,963,856
shares are reserved for issuance, subject to the Company effecting the Share
Increase (as defined below) and the Stock Split (as defined below), upon
conversion of the Debentures and the Additional Debentures (as defined in
Section 4(l)) and exercise of the Warrants (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(h) below); and (ii) 7,500 shares
of preferred stock, of which 7,500 shares have been designated as Series A
Preferred Stock, of which 420 shares are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Debentures, the Warrants, the Conversion Shares or Warrant
Shares. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), 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 of the Company and the material rights of the
holders thereof in respect thereto. On September 28, 2001, the Company's
stockholders voted to approve an amendment to the Company's Certificate of
Incorporation to increase the number of shares of authorized Common Stock from
200,000,000 to 500,000,000 (the "Share Increase") and an amendment to the
Company's Certificate of Incorporation to effect a stock combination (reverse
stock split) of the Common Stock in a ratio to be determined by the Company's
board of directors, ranging from one (1) newly issued share for each ten (10)
outstanding shares of Common Stock to one (1) newly issued share for each twenty
(20) outstanding shares of Common Stock (the "Stock Split").
Issuance of Shares. Subject to the Company effecting the Share Increase and the
------------------
Stock Split, the Conversion Shares and Warrant Shares are duly authorized and
reserved for issuance and, upon conversion of the Debentures and exercise of the
Warrants in accordance with their respective terms will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive rights
or other similar rights of stockholders of the Company and will not impose
personal liability upon the holder thereof.
Acknowledgment of Dilution. The Company understands and acknowledges the
----------------------------
potentially dilutive effect to the Common Stock upon the issuance of the
------
Conversion Shares and Warrant Shares upon conversion of the Debenture, or
------
exercise of the Warrants. The Company further acknowledges that its obligation
------
to issue Conversion Shares and Warrant Shares upon conversion of the Debentures
or exercise of the Warrants in accordance with this Agreement, the Debentures
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
No Conflicts. Except as set forth on Schedule 3(f), the execution, delivery and
------------
performance of this Agreement, the Registration Rights Agreement, the Debentures
and the Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares and Warrant
Shares) will not (i) conflict with or result in a violation of any provision of
the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities are
subject) 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 for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Except as set forth on Schedule 3(f), neither
the Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and the Registration Rights
Agreement and as required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Debentures or the
Warrants in accordance with the terms hereof or thereof or to issue and sell the
Debentures and Warrants in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Debentures and the Warrant Shares upon
exercise of the Warrants. Except as disclosed in Schedule 3(f), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB").
SEC Documents; Financial Statements. Except as disclosed in Schedule 3(g), the
------------------------------------
Company has timely 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 Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has delivered to each
Buyer true and complete copies of the SEC Documents, except for such exhibits
and incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 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 in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or
has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings prior the
date hereof). 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 United States 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 statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
June 30, 2001 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
Absence of Certain Changes. Since June 30, 2001, there has been no material
-----------------------------
adverse change and no material adverse development in the assets, liabilities,
---
business, properties, operations, financial condition or results of operations
of the Company or any of its Subsidiaries.
Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or
----------------------
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries, or their officers or directors in their capacity as such,
that could have a Material Adverse Effect. Schedule 3(i) contains a complete
list and summary description of any pending or threatened proceeding against or
affecting the Company or any of its Subsidiaries which would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or
--------------------------
possesses the requisite licenses or rights to use all patents, patent
----
applications, patent rights, inventions, know-how, trade secrets, trademarks,
----
trademark applications, service marks, service names, trade names and copyrights
--
("Intellectual Property") necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in Schedule 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
No Materially Adverse Contracts, Etc. Except as set forth on Schedule 3(k),
----------------------------------------
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.
Tax Status. Except as set forth on Schedule 3(l), the Company and each of its
-----------
Subsidiaries has made or filed all federal, state and foreign 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 provisions
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. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. Except as set forth on Schedule 3(l), none of the
Company's tax returns is presently being audited by any taxing authority.
Certain Transactions. Except as set forth on Schedule 3(m) and except for arm's
--------------------
length transactions pursuant to which the Company or any of its Subsidiaries
makes payments in the ordinary course of business upon terms no less favorable
than the Company or any of its Subsidiaries could obtain from third parties and
other than the grant of stock options disclosed on Schedule 3(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, 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.
Disclosure. All information relating to or concerning the Company or any of its
----------
Subsidiaries set forth in this Agreement and provided to the Buyers pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their business,
properties, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
Acknowledgment Regarding Buyers' Purchase of Securities. The Company
------------------------------------------------------------
acknowledges and agrees that the Buyers are acting solely in the capacity of
----------
arm's length purchasers with respect to this Agreement and the transactions
---
contemplated hereby. The Company further acknowledges that no Buyer is acting
---
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyers' purchase
of the Securities. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
----------------------
person acting on its or their behalf, has directly or indirectly made any offers
or sales in any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act of the issuance
of the Securities to the Buyers. The issuance of the Securities to the Buyers
will not be integrated with any other issuance of the Company's securities
(past, current or future) for purposes of any stockholder approval provisions
applicable to the Company or its securities.
No Brokers. Except as disclosed in Schedule 3(q), the Company has taken no
-----------
action which would give rise to any claim by any person for brokerage
----
commissions, transaction fees or similar payments relating to this Agreement or
----
the transactions contemplated hereby.
Permits; Compliance. The Company and each of its Subsidiaries is in possession
--------------------
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted (collectively, the "Company Permits"), and there is no action
pending or, to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since June 30, 2001, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
Environmental Matters.
----------------------
There are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
Other than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
There are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
Title to Property. 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 3(t) or such as would not have
a Material Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
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 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.
The Company shall provide to Buyer true and correct copies of all policies
relating to directors' and officers' liability coverage, errors and omissions
coverage, and commercial general liability coverage requested by Buyer.
Internal Accounting Controls. The Company and each of its Subsidiaries maintain
----------------------------
a system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, 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.
Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries,
---------------------------
nor any director, officer, agent, employee or other person acting on behalf of
--
the Company or any Subsidiary has, in the course of his actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
No Investment Company. The Company is not, and upon the issuance and sale of
-----------------------
the Securities as contemplated by this Agreement will not be an "investment
--
company" required to be registered under the Investment Company Act of 1940 (an
--
"Investment Company"). The Company is not controlled by an Investment Company.
Breach of Representations and Warranties by the Company. If the Company
---------------------------------------------------------------
materially breaches any of the representations or warranties set forth in this
-------
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Buyer, until such breach is cured. If the Buyers elect to be paid the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.
4. COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to satisfy
-------------
timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Blue Sky Laws. The Company shall, on or before the Closing Date, take
---------------
such action as the Company shall reasonably determine is necessary to qualify
the Securities for sale to the Buyers at the applicable closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-1. The Company's Common
---------------------------------------------
Stock is registered under Section 12(g) of the 1934 Act. The Company represents
and warrants that it meets the requirements for the use of Form S-1 (or if
Company is not eligible for the use of Form S-1 as of the Filing Date (as
defined in the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration of the sale
by the Buyer of the Registrable Securities (as defined in the Registration
Rights Agreement). So long as the Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company with the
SEC in a timely manner so as to become eligible, and thereafter to maintain its
eligibility, for the use of Form S-3. The Company shall issue a press release
describing the materials terms of the transaction contemplated hereby as soon as
practicable following the Closing Date but in no event more than two (2)
business days of the Closing Date, which press release shall be subject to prior
review by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in writing by the
Buyers or unless required by applicable law or regulation, and then only to the
extent of such requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale
-----------------
of the Debentures and the exercise of the Warrants for general corporate
purposes and shall not, directly or indirectly, use such proceeds for any loan
to or investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or indirect
Subsidiaries).
e. Future Offerings. Subject to the exceptions described below, the Company
----------------
will not, without the prior written consent of a majority-in-interest of the
Buyers, not to be unreasonably withheld, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to the
market price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred twenty-five (225) days
from the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending eighteen
(18) months after the end of the Lock-up Period unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Debentures purchased by it hereunder bears to the aggregate principal amount of
Debentures purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event
the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day period following
delivery of such new notice to purchase its pro rata share of the securities
being offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), (ii)
issuances of securities as consideration for a merger, consolidation or purchase
of assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company,
(iii) issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof or to the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
approved by the Stockholders or a majority of the independent members of the
Board of Directors of the Company, (iv) shares of Common Stock to be issued
pursuant to the Convertible Note Purchase Agreement, dated December 12, 2000, by
and among certain investors and the Company, (v) shares of Common Stock to be
issued pursuant to the Convertible Note Purchase Agreement, dated July 26, 2001,
by and among certain investors and the Company, (vi) shares of Common Stock to
be issued pursuant to the Convertible Note Purchase Agreement, dated September
21, 2001, by and among certain investors and the Company, (vii) shares of Common
Stock to be issued pursuant to the Convertible Note Purchase Agreement, dated
November 7, 2001, by and among certain investors and the Company, (viii) shares
of Common Stock to be issued pursuant to the Agreement and Release, dated March
1, 2001, by and among the Company, American Industries, Inc. and various other
parties thereto and (ix) shares of Common Stock to be issued pursuant to the
Second OEM Amendment, dated October 25, 2000, between the Company and Artifex
Software, Inc. In the event that the Company completes a Future Offering on
terms more favorable to another investor than the transaction contemplated
hereby, the terms of the Debentures and the Warrants will be amended to reflect
such more favorable terms. Notwithstanding anything contained in the foregoing
-----------------------------------------------------
to the contrary, in the event that the Company enters into a Future Offering
--------------------------------------------------------------------------------
during the Lock-up Period, the Buyer shall have the right to purchase up to 35%
--------------------------------------------------------------------------------
of such Future Offering and Balmore Funds, S.A shall have the right to purchase
--------------------------------------------------------------------------------
up to 65% of such Future Offering; provided that, in the event that either party
--------------------------------------------------------------------------------
elects not to purchase its pro rata portion as set forth herein, the other party
--------------------------------------------------------------------------------
may purchase such non-electing party's pro rata portion.
---------------------------------------------------------------
f. Expenses. At the Closing, the Company shall reimburse Buyers for
--------
reasonable expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, reasonable attorneys' and consultants' fees and expenses,
transfer agent fees, fees for stock quotation services, fees relating to any
amendments or modifications of the Documents or any consents or waivers of
provisions in the Documents, fees for the preparation of opinions of counsel,
escrow fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly, otherwise
the Company must make immediate payment for reimbursement to the Buyers for all
fees and expenses immediately upon written notice by the Buyer or the submission
of an invoice by the Buyer. If the Company fails to reimburse the Buyer in full
within three (3) business days of the written notice or submission of invoice by
the Buyer, the Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.
g. Financial Information. The Company agrees to send the following reports
----------------------
to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
h. Authorization and Reservation of Shares. Subject to the Company
-------------------------------------------
effecting the Share Increase and the Stock Split, the Company shall at all times
-
have authorized, and reserved for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Debentures. The Company shall not reduce the number
of shares of Common Stock reserved for issuance upon conversion of Debentures
and exercise of the Warrants without the consent of each Buyer. Subject to the
Company effecting the Share Increase and the Stock Split, the Company shall at
all times maintain the number of shares of Common Stock so reserved for issuance
at an amount ("Reserved Amount") equal to no less than two (2) times the number
that is then actually issuable upon full conversion of the Debentures and
Additional Debentures and upon exercise of the Warrants (based on the Conversion
Price of the Debentures or the Exercise Price of the Warrants in effect from
time to time). If at any time after February 28, 2002, the number of shares of
Common Stock authorized and reserved for issuance ("Authorized and Reserved
Shares") is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within forty-five (45) days following the date on which the
number of Authorized and Reserved Shares exceeds the Reserved Amount, the
Company shall pay to the Buyer the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Buyer. If the Buyer elects to
be paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment. In order
to ensure that the Company has authorized a sufficient amount of shares to meet
the Reserved Amount at all times, the Company must deliver to the Buyer at the
end of every quarter a list detailing (1) the current amount of shares
authorized by the Company and reserved for the Buyer; and (2) the amount of
shares issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one year. If
the Company fails to provide such list within five (5) business days of the end
of each quarter, the Company shall pay the Standard Liquidated Damages Amount,
in cash or in shares of Common Stock at the option of the Buyer, until the list
is delivered; provided, however, that if the Company fails to provide such list
-------- -------
with five (5) business days of the end of each quarter, the Buyer shall provide
written notice to the Company of such failure and the Company shall have three
(3) business days from the date of such notice to cure such failure. If the
Buyer elects to be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.
i. Listing. The Company shall promptly secure the listing of the Conversion
-------
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any of
the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Debentures (including upon
exercise of the Investment Options) or exercise of the Warrants. The Company
will obtain and, so long as any Buyer owns any of the Securities, maintain the
listing and trading of its Common Stock on the OTCBB, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate Existence. So long as a Buyer beneficially owns any Debentures
-------------------
or Warrants, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.
k. No Integration. The Company shall not make any offers or sales of any
---------------
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. Subsequent Investment. The Company and the Buyers agree that, upon the
----------------------
declaration of effectiveness of the Registration Statement to be filed pursuant
to the Registration Rights Agreement (the "Effective Date"), the Buyers shall
purchase additional debentures ("Additional Debentures") in the aggregate
principal amount of Five Hundred Thousand Dollars ($500,000) for an aggregate
purchase price of Five Hundred Thousand Dollars ($500,000), with the closing of
such purchase to occur within five (5) business days of the Effective Date;
provided, however, that the obligation of each Buyer to purchase the Additional
---- -------
Debentures is subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7; and, provided,
--------
further, that there shall not have been a Material Adverse Effect as of the
---
Effective Date. The terms of the Additional Debentures shall be identical to
the terms of the Debentures to be issued on the Closing Date. The Common Stock
underlying the Additional Debentures shall be Registrable Securities (as defined
in the Registration Rights Agreement) and shall be included in the Registration
Statement to be filed pursuant to the Registration Rights Agreement.
m. Regulation S. The Company covenants and agrees that if the Company fails
------------
to register the Conversion Shares and Warrant Shares by the Effective Date (as
defined in the Registration Rights Agreement), then for so long as such
registration statement is not effective and as any of the Conversion Shares or
Warrant Shares remain outstanding and continue to be "restricted securities"
within the meaning of Rule 144 under the 1933 Act, the Company shall, in order
to permit resales of any of the Conversion Shares or Warrant Shares pursuant to
Regulation S under the 1933 Act, (a) continue to file all material required to
be filed pursuant to Section 13(a) or 15(d) of the 1934 Act, and (b) not
knowingly engage in directed selling efforts in connection with the resale of
securities by any Buyer under Regulation S.
n. Amendments to Certificate of Incorporation. The Company shall file
----------------------------------------------
amendments to the Certificate of Incorporation with the Secretary of State of
the State of Delaware and take whatever other action is necessary to effect the
Share Increase and the Stock Split no later than February 28, 2002. If the
Company fails to effect the Share Increase and the Stock Split on or prior to
February 28, 2002, the Company shall pay to the Buyer the Standard Liquidated
Damages Amount, in cash or in shares of Common Stock, at the option of the
Buyer.
o. Breach of Covenants. If the Company materially breaches any of the
---------------------
covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyers the Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the option of the Buyer, until such breach is cured; provided, however,
-------- -------
that the Buyer shall provide written notice to the Company of such breach and
the Company shall have ten (10) business days from the date of such notice to
cure such breachIf the Buyers elect to be paid the Standard Liquidated Damages
Amount in shares, such shares shall be issued at the Conversion Price at the
time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
-----------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants in accordance with the
terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and the Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
Solely with respect to the Conversion Shares and the Warrant Shares, the Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Conversion Shares and
the Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is effected or
(ii) the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyers, by vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
------------------------------------------------
the Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
---------------------------------------------------
of each Buyer hereunder to purchase the Debentures and Warrants at the Closing
is subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed Debentures
(in such denominations as the Buyer shall request) and Warrants in accordance
with Section 1(b) above.
c. The Transfer Agent Instructions, in form and substance satisfactory to a
majority-in-interest of the Buyers, shall have been delivered to the Company's
Transfer Agent.
d. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by an executive officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer including, but not limited
to certificates with respect to the Company's Certificate of Incorporation,
By-laws and Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company.
g. Trading in the Common Stock on the OTCBB shall not have been suspended by
the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's counsel, dated
as of the Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer and in substantially the same form as Exhibit "D" attached hereto.
8. GOVERNING LAW; MISCELLANEOUS.
------------------------------
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITH SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL REASONABLE FEES AND EXPENSES,
INCLUDING REASONABLE ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in
-------------------------------------
one or more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of
--------
reference only and shall not form part of, or affect the interpretation of, this
-
Agreement.
d. Severability. In the event that any provision of this Agreement is
------------
invalid or enforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other provision
hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments
------------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the terms
-------
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Imaging Technologies Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President and Chief Executive Officer
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇.▇▇▇
With copy to:
Jenkens & ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
If to a Buyer: To the address set forth immediately below such Buyer's name on
the signature pages hereto.
With copy to:
Bristol DLP, LLC
Investment Manager
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
1934 Act, without the consent of the Company.
h. 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.
i. Survival. The representations and warranties of the Company and the
--------
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any material breach by the
Company of any of its representations, warranties and covenants set forth in
Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the right to
---------
review a reasonable period of time before issuance of any press releases, SEC,
OTCBB or NASD filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
-------- -------
entitled, without the prior approval of each of the Buyers, to make any press
release or SEC, OTCBB (or other applicable trading market) or NASD filings with
respect to such transactions as is required by applicable law and regulations
(although each of the Buyers shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).
k. 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.
l. 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.
m. Remedies. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
---
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
IMAGING TECHNOLOGIES CORPORATION
By: ________________________________
▇▇▇▇▇ ▇▇▇▇▇
President and Chief Executive Officer
BRISTOL INVESTMENT FUND, LTD.
By:
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Director
RESIDENCE: Cayman Islands
ADDRESS: Caledonian House
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $
500,000
Number of Warrants: 60,240,964
Aggregate Purchase Price: $ 500,000