EXHIBIT 5.1
VALESC INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE INVESTOR
MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS
EXHIBIT I.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement") is
made as of the 15th day of June, 2001, by and between Valesc Inc., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), and the undersigned Investor executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Twenty
Million Dollars ($20,000,000) (the "Maximum Offering Amount"); and
1
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as EXHIBIT D.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(b).
2
"Business Day" shall mean any day during which the Principal Market is open
for trading.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month and for Calendar Months thereafter, beginning on
the earlier of (i) the same numeric day of the next calendar month or (ii) the
last day of the next calendar month. Each Calendar Month shall end on the day
immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as EXHIBIT J.
"Change in Control" shall have the meaning set forth within the definition
of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.6.
"Commitment Period" shall have the meaning set forth in Section 2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as EXHIBIT P.
3
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Valesc Inc., a corporation duly organized and existing
under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.5.
"DWAC Put Shares" shall mean Put Shares, in electronic form, without
restriction on resale, that are delivered to the Depository Trust Company DWAC
account specified by the Investor for the Put Shares.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance Put
Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
4
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in
Section 2.3.1(b).
"Ineffective Period" shall have the meaning given to it in the Registration
Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it in
the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as EXHIBIT B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in EXHIBIT M.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event
either (i) no longer hold a majority of the shares of Common Stock of the
Company or (ii) no longer have the ability to elect the board of directors
of the Company (a "Change of Control");
5
(ii) the sale or transfer of a portion of the Company's assets not in
the ordinary course of business;
(iii) the purchase of assets by the Company not in the ordinary course
of business; or
(iv) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock.
"Market Price" shall equal the average of the two lowest Volume Weighted
Average Prices for the Common Stock on the Principal Market, as reported by
Bloomberg, Inc., during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Closing Certificate" shall mean a certificate in the form of
Exhibit Q1 attached hereto, signed by an officer of the Company
"Officer's Put Certificate" shall mean a certificate in the form of Exhibit
Q2 attached hereto, signed by an officer of the Company.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion.
6
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the terms of
this Agreement, the period beginning on the Business Day immediately following
the Put Date and ending on and including the date which is 20 Business Days
after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the respective Put Share Prices with respect to such Put Shares, subject to
the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section
2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as EXHIBIT F.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as EXHIBIT G.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as EXHIBIT H, or such other form as agreed upon by
the parties, as to any Put Closing.
7
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.7(a), the form of which is attached hereto as EXHIBIT N.
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as EXHIBIT A, or such other form as agreed upon by the
parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section 2.3.6.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as EXHIBIT I.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
8
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall have the meaning set forth in Section 6.19.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the earlier of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has both delivered a Termination Notice to the
Investor and paid the applicable Termination Fee in full, and (c) the date that
both an Automatic Termination has occurred and the Company has paid the
applicable Termination Fee in full.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section 2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to its
transfer agent, substantially in the form attached as EXHIBIT O, or such other
form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as EXHIBIT K.
"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
9
"Warrant Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as EXHIBIT Q, or such other form as agreed
upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean the Commitment Warrants.
2. PURCHASE AND SALE OF COMMON STOCK.
2.1 OFFER TO SUBSCRIBE.
Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock as the Company may, in its sole
and absolute discretion, from time to time elect to issue and sell to Investor
according to one or more Puts pursuant to Section 2.3 below.
2.2 INVESTMENT COMMITMENT.
2.2.1 INVESTMENT COMMITMENT CLOSING. The closing of this Agreement (the
"Investment Commitment Closing") shall be deemed to occur when this Agreement,
the Registration Rights Agreement, the Commitment Warrant and the Warrant
Antidilution Agreement have been duly executed by both Investor and the Company,
and the other Conditions to Investment Commitment Closing set forth in Section
2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTMENT COMMITMENT CLOSING. As a prerequisite to the
Investment Commitment Closing, all of the following (the "Conditions to
Investment Commitment Closing") shall have been satisfied prior to or
concurrently with the Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered to the Investor: (i)
the Registration Rights Agreement (executed by the Company and Investor), (ii)
the Commitment Warrant, (iii) the Investment Commitment Opinion of Counsel
(signed by the Company's counsel), (iv) the Warrant Antidilution Agreement
(executed by the Company and Investor), and (v) a Secretary's Certificate as to
(A) the resolutions of the Company's board of directors authorizing this
transaction, (B) the Company's Certificate of Incorporation, and (C) the
Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have been
received by the Investor;
(c) [Intentionally Left Blank];
(d) other than continuing losses described in the Risk Factors set forth in
the Disclosure Documents (provided for in Section 3.2.4), up through the
Investment Commitment Closing there have been no material
10
adverse changes in the Company's business prospects or financial condition since
the date of the last balance sheet included in the Disclosure Documents,
including but not limited to incurring material liabilities; and
(e) the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects and the Conditions to
Investment Commitment Closing set forth in this Section 2.2.2 shall have been
satisfied on the date of such Investment Commitment Closing; and the Company
shall deliver an Officer's Closing Certificate, signed by an officer of the
Company, to such effect to the Investor.
2.3 PUTS OF COMMON SHARES TO THE INVESTOR.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the Individual Put Limit, the
Maximum Offering Amount and the Cap Amount (if applicable), and the other
conditions and limitations set forth in this Agreement, at any time beginning on
the date on which the Registration Statement is declared effective by the SEC
(the "Effective Date"), the Company may, in its sole and absolute discretion,
elect to exercise one or more Puts according to the following procedure,
provided that each subsequent Put Date after the first Put Date shall be no
sooner than five (5) Business Days following the preceding Pricing Period End
Date:
(a) DELIVERY OF ADVANCE PUT NOTICE. At least ten (10) Business Days but not
more than twenty (20) Business Days prior to any intended Put Date, the Company
shall deliver advance written notice (the "Advance Put Notice," the form of
which is attached hereto as EXHIBIT D, the date of such Advance Put Notice being
the "Advance Put Notice Date") to Investor stating the Put Date for which the
Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the Company
intends to sell to the Investor for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase shares of Common Stock pursuant to such Put Notice (a
"Company Designated Minimum Put Share Price"). The Company Designated Minimum
Put Share Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date, or (ii) the Closing Bid Price
of the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date minus $0.14. The Company may decrease (but not increase)
the Company Designated Minimum Put Share Price for a Put at any time by giving
the Investor written notice of such decrease not later than 12:00 Noon, New York
City time, on the Business Day immediately preceding the Business Day that such
decrease is to take effect. A decrease in the Company Designated Minimum Put
Share Price shall have no retroactive effect on the determination of Trigger
Prices and Excluded Days for days preceding the Business Day that such decrease
takes
11
effect, provided that the Put Share Price for all shares in a Put shall be
calculated using the lowest Company Designated Minimum Put Share Price, as
decreased.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as EXHIBIT E) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) PUT SHARE AMOUNT. The "Put Share Amount" is the number of shares of
Common Stock that the Investor shall be obligated to purchase in a given Put,
and shall equal the lesser of (i) the Intended Put Share Amount, and (ii) the
Individual Put Limit. The "Individual Put Limit" shall equal the lesser of (A)
1,500,000 shares, (B) 15% of the sum of the aggregate daily reported Trading
Volumes in the outstanding Common Stock on the Company's Principal Market,
excluding any block trades of 20,000 or more shares of Common Stock, for all
Evaluation Days (as defined below) in the Pricing Period, (C) the number of Put
Shares which, when multiplied by their respective Put Share Prices, equals the
Maximum Put Dollar Amount, and (D) the 9.9% Limitation, but in no event shall
the Individual Put Limit exceed 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades of 20,000 or more shares of Common Stock, for
the twenty (20) Business Days immediately preceding the Advance Put Notice Date
(this limitation, together with the limitations in (A) and (B) immediately above
are collectively referred to herein as the "Volume Limitations"). Company agrees
not to trade Common Stock or arrange for Common Stock to be traded for the
purpose of artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i) the
Company Designated Minimum Put Share Price, plus $.09, or (ii) the Company
Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing Period
where the lowest intra-day trading price of the Common Stock is less than the
Trigger Price and each Business Day defined in Section 2.3.4 as an "Excluded
Day".
An "Evaluation Day" shall mean each Business Day during a Pricing Period
that is not an Excluded Day.
12
(c) PUT SHARE PRICE. The purchase price for the Put Shares (the "Put Share
Price") shall equal the lesser of (i) the Market Price for such Put, minus $.09,
or (ii) 91% of the Market Price for such Put, but shall in no event be less than
the Company Designated Minimum Put Share Price for such Put, if applicable.
(d) DELIVERY OF PUT NOTICE. After delivery of an Advance Put Notice, on the
Put Date specified in the Advance Put Notice the Company shall deliver written
notice (the "Put Notice," the form of which is attached hereto as EXHIBIT F) to
Investor stating (i) the Put Date, (ii) the Intended Put Share Amount as
specified in the Advance Put Notice (such exercise a "Put"), (iii) the Company
Designated Maximum Put Dollar Amount (if applicable), and (iv) the Company
Designated Minimum Put Share Price (if applicable). In order to effect delivery
of the Put Notice, the Company shall (i) send the Put Notice by facsimile on the
Put Date so that such notice is received by the Investor by 6:00 p.m., New York,
NY time, and (ii) surrender such notice on the Put Date to a courier for
overnight delivery to the Investor (or two (2) day delivery in the case of an
Investor residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Put Notice, the Investor shall, within two (2) Business
Days, send, via facsimile, a confirmation of receipt (the "Put Notice
Confirmation," the form of which is attached hereto as EXHIBIT G) of the Put
Notice to Company specifying that the Put Notice has been received and affirming
the Put Date and the Intended Put Share Amount.
(e) DELIVERY OF REQUIRED PUT DOCUMENTS. On or before the Put Date for such
Put, the Company shall deliver the Required Put Documents (as defined in Section
2.3.6 below) to the Investor (or to an agent of Investor, if Investor so
directs). Unless otherwise specifically requested by the Investor, the Put
Shares shall be transmitted electronically pursuant to the Depository Trust
Company DWAC system or such other electronic delivery system as the Investor
shall request. If the Company has not delivered all of the Required Put
Documents to the Investor on or before the Put Date, the Put shall be
automatically cancelled (an "Impermissible Put Cancellation") and the Company
shall pay the Investor $5,000 for its reasonable due diligence expenses incurred
in preparation for the cancelled Put and the Company may deliver an Advance Put
Notice for the subsequent Put no sooner than ten (10) Business Days after the
date that such Put was cancelled. Also, in the event of a Put Interruption
Notice that occurs prior to the Put Date, the Company shall pay the Investor
$5,000 for its reasonable due diligence expenses incurred in preparation for the
interrupted Put.
(f) LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary in this Agreement, in no event shall the Investor be
required to purchase, and an Intended Put Share Amount may not include, an
amount of Put Shares, which when added to the number of Put Shares acquired by
the Investor pursuant to this Agreement during the 61 days preceding the Put
Date with respect to which this determination of the permitted Intended Put
Share Amount is being made, would exceed 9.9% of the number of shares of Common
Stock outstanding (on a fully diluted basis, to the extent that inclusion of
unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the
13
event that the Section 13(d) Outstanding Share Amount is different on any date
during a Pricing Period than on the Put Date associated with such Pricing
Period, then the number of shares of Common Stock outstanding on such date
during such Pricing Period shall govern for purposes of determining whether the
Investor, when aggregating all purchases of Shares made pursuant to this
Agreement in the 61 calendar days preceding such date, would have acquired more
than 9.9% of the Section 13(d) Outstanding Share Amount. The limitation set
forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's right to initiate
subsequent Puts to the Investor shall terminate permanently (each, an "Automatic
Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) on any date after a cumulative time period or series of time periods,
consisting only of Ineffective Periods and Delisting Events, that lasts for an
aggregate of four (4) months;
(c) if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
(d) after the sooner of (i) the date that is three (3) years after the
Effective Date, or (ii) the Put Closing Date on which the aggregate of the Put
Dollar Amounts for all Puts equal the Maximum Offering Amount (the "Commitment
Period");
(e) the Company has breached any covenant in Section 6 or Section 9 hereof;
or
(f) if no Registration Statement has been declared effective by the date
that is one (1) year after the date of this Agreement, the Automatic Termination
shall occur on the date that is one (1) year after the date of this Agreement.
2.3.3 MAXIMUM OFFERING AMOUNT. The Investor shall not be obligated to
purchase any additional Put Shares once the aggregate Put Dollar Amount paid by
Investor equals the Maximum Offering Amount.
2.3.4 PUT INTERRUPTION. Once the Company delivers an Advance Put Notice to
the Investor, the Company may not cancel the Put. In the event of a "Put
Interruption Event" (as defined below) during any Pricing Period, then (A) the
Company shall notify the Investor in writing (a "Put Interruption Notice") as
soon as possible by facsimile and overnight
14
courier, but no later than the end of the Business Day in which the Company
becomes aware of such facts, (B) the Pricing Period shall be extended or
shortened, as applicable, such that the Pricing Period End Date is the tenth
(10th) Business Day after the date of such Put Interruption Notice from the
Company (the "Put Interruption Date"), (C) each Business Day from and including
the Put Interruption Date through and including the Pricing Period End Date for
the applicable Put (as extended or shortened, if applicable), shall be
considered to be an "Excluded Day," as that term is used in this Agreement, and
(D) the Company Designated Minimum Put Share Price, if any, shall not apply to
the affected Put. In the event that a Put Interruption Event occurs after an
Advance Put Notice Date, but before the applicable Put Date, that Put shall be
deemed to be terminated, and the Company may deliver an Advance Put Notice for a
new Put anytime beginning on the following Business Day, if otherwise allowed
under this Agreement. A "Put Interruption Event" shall mean any of the
following: (i) an Automatic Termination, (ii) the failure of one of the items
specified in Section 2.3.5 below to be true and correct on any day during and
Extended Pricing Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a subdivision or combination, including a
reverse split, of its Common Stock or has subdivided or combined its Common
Stock;
(b) the Company has paid a dividend of its Common Stock or has made any
other distribution of its Common Stock;
(c) the Company has made a distribution of all or any portion of its assets
or evidences of indebtedness to the holders of its Common Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of Material Facts or any
Ineffective Period or Delisting Event occurs.
2.3.5 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER AN
ADVANCE PUT NOTICE OR A PUT NOTICE. The right of the Company to deliver an
Advance Put Notice or a Put Notice is subject to the satisfaction, on the date
of delivery of such Advance Put Notice or Put Notice, of each of the following
conditions:
(a) the Company's Common Stock shall be listed for and actively trading on
the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National
Market or the New York Stock Exchange and the Put Shares shall be so listed, and
to the Company's knowledge there is no notice of any suspension or delisting
with respect to the trading of the shares of Common Stock on such market or
exchange;
(b) the Company shall have satisfied any and all obligations pursuant to
the Registration Rights Agreement, including, but not limited to, the filing of
the Registration Statement with the SEC with respect to the resale of all
Registrable Securities and the requirement that the Registration Statement
15
shall have been declared effective by the SEC for the resale of all Registrable
Securities and the Company shall have satisfied and shall be in compliance with
any and all obligations pursuant to this Agreement and the Warrants;
(c) the representations and warranties of the Company in Sections 5.1, 5.3,
5.4, 5.5, 5.6, 5.10, 5.13, 5.14, 5.15, 5.16, 5.18, 5.19, 5.21, and 5.25 hereof
are true and correct in all material respects as if made on such date, the
Company has satisfied its obligations under Section 2.6 hereof and the
conditions to Investor's obligations set forth in this Section 2.3.5 are
satisfied as of such Closing, and the Company shall deliver an Officer's Put
Certificate certificate, signed by an officer of the Company, to such effect to
the Investor;
(d) the Company shall have authorized and reserved for issuance a
sufficient number of Common Shares for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(e) the Registration Statement is not subject to an Ineffective Period as
defined in the Registration Rights Agreement, the prospectus included therein is
current and deliverable, and to the Company's knowledge there is no notice of
any investigation or inquiry concerning any stop order with respect to the
Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of the Put would
exceed the Cap Amount, the Company shall have obtained the Stockholder 20%
Approval as specified in Section 6.11, if the Company's Common Stock is listed
on the NASDAQ Small Cap Market or the NASDAQ National Market System (the "NMS"),
and such approval is required by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event that, in the Company's
opinion, is more likely than not to have the effect of causing any Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the thirty Business Days following the date on which
such Advance Put Notice and Put Notice is deemed delivered);
(h) there is not then in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained, nor is there any pending or
threatened proceeding or investigation which may have the effect of prohibiting
or adversely affecting any of the transactions contemplated by this Agreement;
16
(i) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or adopted by any court
or governmental authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement, and no actions, suits or
proceedings shall be in progress, pending or threatened by any person (other
than the Investor or any affiliate of the Investor), that seek to enjoin or
prohibit the transactions contemplated by this Agreement. For purposes of this
paragraph (i), no proceeding shall be deemed pending or threatened unless one of
the parties has received written or oral notification thereof prior to the
applicable Closing Date;
(j) the Put Shares delivered to the Investor are DTC eligible and can be
immediately converted into electronic form;
(k) the Company shall have obtained all permits and qualifications (if any)
required by any state securities laws or Blue Sky laws for the offer and sale of
the Common Stock to the Investor and by the Investor or shall have the
availability of exemptions therefrom; and
(l) the Put Shares shall have been delivered to the Depository Trust
Company DWAC account specified by the Investor for the Put Shares.
(m) the Transfer Agent Instructions have been duly executed by both the
Company and the Transfer Agent.
2.3.6 DOCUMENTS REQUIRED TO BE DELIVERED ON THE PUT DATE AS CONDITIONS TO
CLOSING OF ANY PUT. The Closing of any Put and Investor's obligations hereunder
shall additionally be conditioned upon the delivery to the Investor of each of
the following (the "Required Put Documents") on or before the applicable Put
Date:
(a) a number of DWAC Put Shares equal to the Intended Put Share Amount
shall have been delivered to the Depository Trust Company DWAC account specified
by the Investor for the Put Shares (unless the Investor has requested physical
stock certificates, in writing, in which case the Company shall have delivered
to the Investor a number of physical Unlegended Share Certificates equal to the
Intended Put Share Amount, in denominations of not more than 50,000 shares per
certificate);
(b) the following documents: Put Opinion of Counsel, Officer's Certificate,
Put Notice, Registration Opinion, and any report or disclosure required under
Section 2.3.7 or Section 2.5; and
(c) all documents, instruments and other writings required to be delivered
on or before the Put Date pursuant to any provision of this Agreement in order
to implement and effect the transactions contemplated herein.
17
The Company shall be required to deliver a Put Opinion and a Bring Down Cold
Comfort Letter with respect to the first Put. Notwithstanding the above, the
Company shall not be required to deliver a Bring Down Cold Comfort Letter with
respect to a given Put after the first Put if the Company has filed an annual
report on Form 10-K or a quarterly report on Form 10-Q within the thirty (30)
day period immediately preceding the Put Date for such Put.
2.3.7 ACCOUNTANT'S LETTER AND REGISTRATION OPINION.
(a) The Company shall have caused to be delivered to the Investor, (i)
whenever required by Section 2.3.7(b) or by Section 2.5.3, and (ii) on the date
that is three (3) Business Days prior to each Put Date (the "Registration
Opinion Deadline"), an opinion of the Company's independent counsel, in
substantially the form of EXHIBIT N (the "Registration Opinion"), addressed to
the Investor stating, inter alia, that no facts ("Material Facts") have come to
such counsel's attention that have caused it to believe that the Registration
Statement is subject to an Ineffective Period or to believe that the
Registration Statement, any Supplemental Registration Statement (as each may be
amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Interruption Notice to the Investor pursuant to Section 2.3.4 by facsimile
and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent auditors to perform the
procedures in accordance with the provisions of Statement on Auditing Standards
No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the
"Bring Down Cold Comfort Letters") as shall have been reasonably requested by
the Investor with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor such a report
addressed to the Investor, on the date that is three (3) Business Days prior to
each Put Date.
(ii) in the event that the Investor shall have requested delivery of an
Agreed Upon Procedures Report pursuant to Section 2.5.3, the Company shall
engage its independent auditors to perform certain agreed upon procedures and
report thereon as shall have been reasonably requested by the Investor with
respect to certain financial information of the Company and the Company shall
deliver to the Investor a copy of such report addressed to the Investor. In the
event that the report required by this Section 2.3.7(b) cannot be delivered by
the Company's independent auditors, the Company shall, if necessary, promptly
revise the
18
Registration Statement and the Company shall not deliver a Put Notice until such
report is delivered.
2.3.8 INVESTOR'S OBLIGATION AND RIGHT TO PURCHASE SHARES. Subject to the
conditions set forth in this Agreement, following the Investor's receipt of a
validly delivered Put Notice, the Investor shall be required to purchase (each a
"Purchase") from the Company a number of Put Shares equal to the Put Share
Amount, in the manner described below.
2.3.9 MECHANICS OF PUT CLOSING. Each of the Company and the Investor shall
deliver all documents, instruments and writings required to be delivered by
either of them pursuant to this Agreement at or prior to each Closing. Subject
to such delivery and the satisfaction of the conditions set forth in this
Section 2, the closing of the purchase by the Investor of Shares shall occur by
5:00 PM, New York City Time, on the date which is five (5) Business Days
following the applicable Pricing Period End Date (the "Payment Due Date") at the
offices of Investor. On each or before each Payment Due Date, the Investor shall
deliver to the Company, in the manner specified in Section 8 below, the Put
Dollar Amount to be paid for such Put Shares, determined as aforesaid, less any
Non-Usage Fees that are due and unpaid by the Company. The closing (each a "Put
Closing") for each Put shall occur on the date that both (i) the Company has
delivered to the Investor all Required Put Documents, and (ii) the Investor has
delivered to the Company such Put Dollar Amount and any Late Payment Amount, if
applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall pay
to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.10 LIMITATION ON SHORT SALES. The Investor and its affiliates shall not
engage in short sales of the Company's Common Stock; provided, however, that the
Investor may enter into any short exempt sale or any short sale or other hedging
or similar arrangement it deems appropriate with respect to Put Shares after it
receives a Put Notice with respect to such Put Shares so long as such sales or
arrangements do not involve more than the number of such Put Shares specified in
the Put Notice.
2.3.11 CAP AMOUNT. If the Company becomes listed on the Nasdaq Small Cap
Market or the Nasdaq National Market, then, unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
19
2.3.12 INVESTMENT AGREEMENT TERMINATION. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing written
notice ("Termination Notice") to the Investor, by facsimile and overnight
courier, at any time other than during an Extended Put Period. Following either
a Company Termination or an Automatic Termination: (i) the Termination Fee, and
any accrued but unpaid Non-Usage Fees, shall become due and payable as further
described in Section 2.6 below, (ii) following payment of the Termination Fee
and any accrued but unpaid Non-Usage Fees in full, no additional Non-Usage Fees
shall accrue, and (iii) such termination shall have no effect on the parties'
other rights and obligations under this Agreement or any of the agreements
referenced in this Agreement, including but not limited to the Registration
Rights Agreement, the Warrants or the Warrant Antidilution Agreement
(collectively, the "Related Agreements"). Notwithstanding a Termination or
Automatic Termination, the Related Agreements between the parties shall not
terminate and shall remain in full force and effect in accordance with their
respective terms. Notwithstanding the above, any Put Interruption Notice
occurring during an Extended Put Period is governed by Section 2.3.4.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is less
than the Intended Put Share Amount, the Investor shall promptly return to the
Company any shares of Common Stock in the Investor's possession that are not
being purchased by the Investor.
2.4 WARRANTS.
2.4.1 COMMITMENT WARRANTS. In partial consideration hereof, following the
execution of the Letter of Agreement dated on or about April 24, 2001 between
the Company and the Investor, the Company issued and delivered to Investor
warrants (the "Commitment Warrants") in the form attached hereto as EXHIBIT P,
or such other form as agreed upon by the parties, to purchase 780,000 shares of
Common Stock. Each Commitment Warrant shall be immediately exercisable in
accordance with its terms, and shall have a term beginning on the date of
issuance and ending on date that is five (5) years thereafter. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement. The Investment Commitment Opinion of Counsel shall cover the issuance
of the Commitment Warrant and the issuance of the common stock upon exercise of
the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this Agreement,
regardless of whether or not the Registration Statement is or is not filed, and
regardless of whether or not the Registration Statement is or is not declared
effective by the SEC, the Investor shall retain full ownership of the Commitment
Warrant as partial consideration for its commitment hereunder.
2.4.2 [Intentionally Left Blank]
2.5 DUE DILIGENCE REVIEW. The Company shall make available for inspection
and review by the Investor (the "Due Diligence Review"), advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable
20
to the Company), any underwriter participating in any disposition of Common
Stock on behalf of the Investor pursuant to the Registration Statement, any
Supplemental Registration Statement, or amendments or supplements thereto or any
blue sky, NASD or other filing, all financial and other records, all filings
with the SEC, and all other corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The Company shall not disclose
nonpublic information to the Investor or to its advisors or representatives
unless prior to disclosure of such information the Company identifies such
information as being nonpublic information and provides the Investor and such
advisors and representatives with the opportunity to accept or refuse to accept
such nonpublic information for review. The Company may, as a condition to
disclosing any nonpublic information hereunder, require the Investor and its
advisors and representatives to enter into a confidentiality agreement
(including an agreement with such advisors and representatives prohibiting them
from trading in Common Stock during such period of time as they are in
possession of nonpublic information) in form reasonably satisfactory to the
Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate nonpublic information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
21
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The Investor's advisors or
representatives shall make complete disclosure to the Investor's counsel of all
events or circumstances constituting nonpublic information discovered by such
advisors or representatives in the course of their due diligence upon which such
advisors or representatives form the opinion that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in the light of the circumstances in which they
were made, not misleading. Upon receipt of such disclosure, the Investor's
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto; provided, however,
that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED TO BE UNTRUE OR
ARE OMITTED. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such material misstatement
or omission, (i) the Company's independent counsel shall provide the Investor's
counsel with a Registration Opinion and (ii) in the event the dispute relates to
the adequacy of financial disclosure and the Investor shall reasonably request,
the Company's independent auditors shall provide to the Company a letter
("Agreed Upon Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the Company
shall provide the Investor with a copy of such letter.
2.6 COMMITMENT PAYMENTS AND TERMINATION FEE.
On the last Business Day of each twelve (12) Calendar Month period
following the Effective Date (each such period a "Commitment Evaluation
Period"), if the Company has not sold at least $1,000,000 in aggregate Put
Dollar Amount worth of Put Shares during that Commitment Evaluation Period, the
Company, in consideration of Investor's commitment costs, including, but not
limited to, due diligence expenses, shall pay to the Investor an amount (the
"Non-Usage Fee") equal to the difference of (i) $100,000, minus (ii) 10% of the
aggregate Put Dollar Amount of the Put Shares purchased by the Investor during
that Commitment Evaluation Period. In the event that the Company delivers a
Termination Notice to the Investor or an Automatic Termination occurs, the
Company shall pay to the Investor (the "Termination Fee") the greater of (i) the
Non-Usage Fee for the applicable Commitment Evaluation Period, or (ii) the
22
difference of (x) $200,000, minus (y) 10% of the aggregate Put Dollar Amount of
the Put Shares purchased by the Investor during all Puts to date, and the
Company shall not be required to pay the Non-Usage Fee thereafter.
Each Non-Usage Fee or Termination Fee is payable, in cash or Common Stock
(in the manner described below), at the Company's option, within five (5)
business days of the date it accrued. If such payment is made in restricted and
unregistered Common Stock, the Company shall deliver to the Investor a number of
shares of Common Stock equal to 150% of the amount of the Non-Usage Fee or
Termination Fee that is then payable, divided by the lowest closing price of the
Company's Common Stock for the five (5) Business Days immediately preceding the
date of delivery of such shares to the Investor. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR. Investor hereby
represents and warrants to and agrees with the Company as follows:
3.1 ACCREDITED INVESTOR. Investor is an accredited investor ("Accredited
Investor"), as defined in Rule 501 of Regulation D, and has checked the
applicable box set forth in Section 10 of this Agreement.
3.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
3.2.1 ACCESS TO INFORMATION. Investor or Investor's professional advisor
has been granted the opportunity to ask questions of and receive answers from
representatives of the Company, its officers, directors, employees and agents
concerning the terms and conditions of this Offering, the Company and its
business and prospects, and to obtain any additional information which Investor
or Investor's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
3.2.2 RELIANCE ON OWN ADVISORS. Investor has relied completely on the
advice of, or has consulted with, Investor's own personal tax, investment, legal
or other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any of the foregoing, within the meaning
of Section 15 of the Act for any tax or legal advice (other than reliance on
information in the Disclosure Documents as defined in Section 3.2.4 below and on
the Opinion of Counsel). The foregoing, however, does not limit or modify
Investor's right to rely upon covenants, representations and warranties of the
Company in this Agreement.
3.2.3 CAPABILITY TO EVALUATE. Investor has such knowledge and experience in
financial and business matters so as to enable such Investor to utilize the
information made available to it in connection with the Offering in order to
evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 DISCLOSURE DOCUMENTS. Investor, in making Investor's investment
decision to subscribe for the Investment Agreement hereunder, represents that
(a) Investor has received and had an opportunity to review (i) the Company's
Annual Report on Form 10-KSB
23
for the year ended _____________, (ii) the Company's quarterly report on Form
10-QSB for the quarters ended ___________, and _____________, (iii) the Risk
Factors, attached as EXHIBIT I, (the "Risk Factors") (iv) the Capitalization
Schedule, attached as EXHIBIT J, (the "Capitalization Schedule") and (v) the Use
of Proceeds Schedule, attached as EXHIBIT K, (the "Use of Proceeds Schedule");
(b) Investor has read, reviewed, and relied solely on the documents described in
(a) above, the Company's representations and warranties and other information in
this Agreement, including the exhibits, documents prepared by the Company which
have been specifically provided to Investor in connection with this Offering
(the documents described in this Section 3.2.4 (a) and (b) are collectively
referred to as the "Disclosure Documents"), and an independent investigation
made by Investor and Investor's representatives, if any; (c) Investor has, prior
to the date of this Agreement, been given an opportunity to review material
contracts and documents of the Company which have been filed as exhibits to the
Company's filings under the Act and the Exchange Act and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor any written representation or assurance from the Company
other than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investor's right to
rely upon covenants, representations and warranties of the Company in Sections 5
and 6 of this Agreement. Investor acknowledges and agrees that the Company has
no responsibility for, does not ratify, and is under no responsibility
whatsoever to comment upon or correct any reports, analyses or other comments
made about the Company by any third parties, including, but not limited to,
analysts' research reports or comments (collectively, "Third Party Reports"),
and Investor has not relied upon any Third Party Reports in making the decision
to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Investor has substantial
experience in investing in securities and it has made investments in securities
other than those of the Company. Investor acknowledges that Investor is able to
fend for Investor's self in the transaction contemplated by this Agreement, that
Investor has the ability to bear the economic risk of Investor's investment
pursuant to this Agreement and that Investor is an "Accredited Investor" by
virtue of the fact that Investor meets the investor qualification standards set
forth in Section 3.1 above. Investor has not been organized for the purpose of
investing in securities of the Company, although such investment is consistent
with Investor's purposes.
3.3 EXEMPT OFFERING UNDER REGULATION D.
3.3.1 NO GENERAL SOLICITATION. The Investment Agreement was not offered to
Investor through, and Investor is not aware of, any form of general solicitation
or general advertising, including, without limitation, (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, and (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.
3.3.2 RESTRICTED SECURITIES. Investor understands that the Investment
Agreement is, the Common Stock issued at each Put Closing will be, and the
Warrant Shares will be, characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction exempt from the registration requirements of the federal
securities laws and that under such laws and applicable regulations such
securities
24
may not be transferred or resold without registration under the Act or pursuant
to an exemption therefrom. In this connection, Investor represents that Investor
is familiar with Rule 144 under the Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the representations set
forth above, Investor agrees that until the Securities are sold pursuant to an
effective Registration Statement or an exemption from registration, they will
remain in the name of Investor and will not be transferred to or assigned to any
broker, dealer or depositary. Investor further agrees not to sell, transfer,
assign, or pledge the Securities (except for any bona fide pledge arrangement to
the extent that such pledge does not require registration under the Act or
unless an exemption from such registration is available and provided further
that if such pledge is realized upon, any transfer to the pledgee shall comply
with the requirements set forth herein), or to otherwise dispose of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Act and any
applicable state securities laws covering such proposed disposition and such
disposition is made in accordance with such registration statement and in
compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition to the extent relevant for
determination of the availability of an exemption from registration, and (ii) if
reasonably requested by the Company, Investor shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of the Securities under the Act or
state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and the
Investor has no present arrangement (whether or not legally binding) at any time
to sell the Common Stock to or through any person or entity; provided, however,
that by making the representations herein, the Investor does not agree to hold
the Common Stock for any minimum or other specific term and reserves the right
to dispose of the Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition.
3.4 DUE AUTHORIZATION.
3.4.1 AUTHORITY. The person executing this Investment Agreement, if
executing this Agreement in a representative or fiduciary capacity, has full
power and authority to execute and deliver this Agreement and each other
document included herein for which a signature is required in such capacity and
on behalf of the subscribing individual, partnership, trust, estate, corporation
or other entity for whom or which Investor is executing this Agreement.
25
Investor has reached the age of majority (if an individual) according to the
laws of the state in which he or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and validly organized, validly
existing and in good standing as a limited liability company under the laws of
Georgia with full power and authority to purchase the Securities to be purchased
by Investor and to execute and deliver this Agreement.
3.4.3 PARTNERSHIPS. If Investor is a partnership, the representations,
warranties, agreements and understandings set forth above are true with respect
to all partners of Investor (and if any such partner is itself a partnership,
all persons holding an interest in such partnership, directly or indirectly,
including through one or more partnerships), and the person executing this
Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby.
3.4.4 [INTENTIONALLY LEFT BLANK].
4. ACKNOWLEDGMENTS. Investor is aware that:
4.1 RISKS OF INVESTMENT. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of Investor's
entire investment herein. Investor recognizes that the Disclosure Documents,
this Agreement and the exhibits hereto do not purport to contain all the
information, which would be contained in a registration statement under the Act;
4.2 NO GOVERNMENT APPROVAL. No federal or state agency has passed upon the
Securities, recommended or endorsed the Offering, or made any finding or
determination as to the fairness of this transaction;
4.3 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the date of this
Agreement, the Securities and any component thereof have not been registered
under the Act or any applicable state securities laws by reason of exemptions
from the registration requirements of the Act and such laws, and may not be
sold, pledged (except for any limited pledge in connection with a margin account
of Investor to the extent that such pledge does not require registration under
the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall
comply with the requirements set forth herein), assigned or otherwise disposed
of in the absence of an effective registration of the Securities and any
component thereof under the Act or unless an exemption from such registration is
available;
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to sell, transfer,
assign, pledge or otherwise dispose of all or any portion of the Securities or
any component thereof in the absence of either an effective registration
statement or an exemption from the registration requirements of the Act and
applicable state securities laws;
26
4.5 NO ASSURANCES OF REGISTRATION. There can be no assurance that any
registration statement will become effective at the scheduled time, or ever, or
remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 EXEMPT TRANSACTION. Investor understands that the Securities are being
offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Investor to acquire such Securities.
4.7 LEGENDS. The certificates representing the Put Shares shall not bear a
legend restricting the sale or transfer thereof ("Restrictive Legend"). The
certificates representing the Warrant Shares shall not bear a Restrictive Legend
unless they are issued at a time when the Registration Statement is not
effective for resale. It is understood that the certificates evidencing any
Warrant Shares issued at a time when the Registration Statement is not effective
for resale, subject to legend removal under the terms of Section 6.8 below,
shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under
those securities laws or pursuant to an exemption therefrom."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the following representations and warranties to Investor (which shall be true at
the signing of this Agreement, and as of any such later date as specified
hereunder) and agrees with Investor that, except as set forth in the "Schedule
of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would, in the
Company's opinion, have a material adverse effect on the business or properties
of the Company and its subsidiaries taken as a whole. The Company is not the
subject of any pending, threatened or, to its knowledge, contemplated
investigation or administrative or legal proceeding (a "Proceeding") by the
Internal Revenue Service, the taxing authorities of any state or local
jurisdiction, or the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or any
state securities commission, or any other governmental entity, which have not
been disclosed in the Disclosure Documents. None of the disclosed Proceedings,
if any, will, in the Company's opinion, have a material adverse effect upon the
Company. The Company has the following subsidiaries:
5.2 CORPORATE CONDITION. The Company's condition is, in all material
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure
27
Documents, if applicable), except for changes in the ordinary course of business
and normal year-end adjustments that are not, in the aggregate, materially
adverse to the Company. Except for continuing losses, there have been no
material adverse changes to the Company's business, financial condition, or
prospects from the dates of such Disclosure Documents through the date of the
Investment Commitment Closing. The financial statements as contained in the
10-KSB and 10-QSB have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted by
Regulation S-X of the Exchange Act, or Generally Accepted Accounting Principles,
as applicable), subject, in the case of unaudited interim financial statements,
to customary year end adjustments and the absence of certain footnotes, and
fairly present the financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes that are due, except for taxes that it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the best
of the Company's knowledge, threatened against the Company, except as disclosed
in the Disclosure Documents. This Agreement and the Disclosure Documents do not
contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the Company by its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies. The
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and the Warrants, when
issued, sold and delivered in accordance with the terms hereof, for the
consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
28
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or
default of any provisions of its Certificate of Incorporation or Bylaws, each as
amended and in effect on and as of the date of the Agreement, or of any material
provision of any material instrument or material contract to which it is a party
or by which it is bound or of any provision of any federal or state judgment,
writ, decree, order, statute, rule or governmental regulation applicable to the
Company, which would, in the Company's opinion, have a material adverse effect
on the Company's business or prospects, or on the performance of its obligations
under this Agreement or the Registration Rights Agreement. The execution,
delivery and performance of this Agreement and the other agreements entered into
in conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would, in the Company's opinion, have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, or (b) violate the Company's Certificate of Incorporation or By-Laws
or (c) violate any statute, rule or governmental regulation applicable to the
Company which violation would, in the Company's opinion, have a material adverse
effect on the Company's business or prospects.
5.6 REPORTING COMPANY. The Company is subject to the reporting requirements
of the Exchange Act, has a class of securities registered under Section 12 of
the Exchange Act, and has filed all reports required by the Exchange Act since
the date the Company first became subject to such reporting obligations. The
Company undertakes to furnish Investor with copies of such reports as may be
reasonably requested by Investor prior to consummation of this Offering and
thereafter, to make such reports available, for the full term of this Agreement,
including any extensions thereof, and for as long as Investor holds the
Securities. The Common Stock is duly listed or approved for quotation on the
O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 CAPITALIZATION. The capitalization of the Company as of the date hereof
subject to exercise of any outstanding warrants and/or exercise of any
outstanding stock options, and after taking into account the offering of the
Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, is as set forth in the Capitalization Schedule
as set forth in EXHIBIT J. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities. Except as disclosed in the Capitalization Schedule, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or
29
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Act (except the
Registration Rights Agreement).
5.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. EXHIBIT L lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in EXHIBIT L. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in EXHIBIT L. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company expects to use the
proceeds from this Offering (less fees and expenses) for the purposes and in the
approximate amounts set forth on the Use of Proceeds Schedule set forth as
EXHIBIT K hereto. These purposes and amounts are estimates and are subject to
change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity, including, but not
limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges that Investor
may elect to hold the Securities for various periods of time, as permitted by
the terms of this Agreement, the Warrants, and other agreements contemplated
hereby, and the Company further acknowledges that Investor has made no
representations or warranties, either written or oral, as to how long the
Securities will be held by Investor or regarding Investor's trading history or
investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company acknowledges that this
Investment Agreement, the transaction contemplated hereby and the Registration
Statement contemplated hereby have not been approved by the SEC, or any other
regulatory body and there is no guarantee that this Investment Agreement, the
transaction contemplated hereby and the Registration Statement contemplated
hereby will ever be approved by the SEC or any other regulatory body. The
Company is relying on its own analysis and is not relying on any representation
by Investor that either this Investment Agreement, the transaction contemplated
hereby or the Registration Statement contemplated hereby has been or will be
approved by the SEC or other appropriate regulatory body.
30
5.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The Company is not
obligated to pay any compensation or other fees, costs or related expenditures
in cash or securities to any underwriter, broker, agent or other representative
in connection with this Offering.
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The Company is
currently eligible and agrees to maintain its eligibility to register the resale
of its Common Stock on a registration statement on a suitable form under the
Act.
5.15 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
5.17 KEY EMPLOYEES. As of the date of this Agreement, each "Key Employee"
(as defined in EXHIBIT M) is currently serving the Company in the capacity
disclosed in EXHIBIT M. No Key Employee, to the best knowledge of the Company
and its subsidiaries, is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each Key
Employee does not subject the Company or any of its subsidiaries to any
liability with respect to any of the foregoing matters. No Key Employee has, to
the best knowledge of the Company and its subsidiaries, any intention to
terminate his employment with, or services to, the Company or any of its
subsidiaries.
5.18 REPRESENTATIONS CORRECT. The foregoing representations, warranties and
agreements are true, correct and complete in all material respects, and shall
survive any Put Closing and the issuance of the shares of Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company has set
aside on its books provisions
31
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.
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Disclosure
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
5.21 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under DELAWARE law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
5.22 [INTENTIONALLY LEFT BLANK].
5.23 MAJOR TRANSACTIONS. As of the date of this Agreement, there are no
other Major Transactions currently pending or contemplated by the Company.
5.24 FINANCINGS. As of the date of this Agreement, there are no other
financings currently pending or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its next annual
shareholder meeting following its listing on either the Nasdaq Small Cap Market
or the Nasdaq National Market, or at a special meeting to be held as soon as
practicable thereafter, use its best efforts to obtain approval of its
shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) increase the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 25,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and
32
directors of the Company to promptly enter into irrevocable agreements to vote
all of their shares in favor of eliminating such prohibitions. As soon as
practicable after the 20% Approval and the Share Authorization Increase
Approval, the Company agrees to use its best efforts to reserve 25,000,000
shares of Common Stock for issuance under this Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The Company understands
and acknowledges that the amounts available under this Investment Agreement are
limited, among other things, based upon the liquidity of the Company's Common
Stock traded on its Principal Market.
5.27 DILUTION. The number of shares of Common Stock issuable as Put Shares
may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Commitment Period. The Company's executive officers and directors fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, whenever the Company elects to initiate a Put, its obligation
to issue the Put Shares is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
6. COVENANTS OF THE COMPANY.
6.1 INDEPENDENT AUDITORS. The Company shall, until at least the Termination
Date, maintain as its independent auditors an accounting firm authorized to
practice before the SEC.
6.2 CORPORATE EXISTENCE AND TAXES; CHANGE IN CORPORATE ENTITY. The Company
shall, until at least the Termination Date, maintain its corporate existence in
good standing and, once it becomes a "Reporting Issuer" (defined as a Company
which files periodic reports under the Exchange Act), remain a Reporting Issuer
and shall pay all its taxes when due except for taxes which the Company
disputes. The Company shall not, at any time after the date hereof, enter into
any merger, consolidation or corporate reorganization of the Company with or
into, or transfer all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity in such
transaction, if not the Company (the "Surviving Entity"), (i) has Common Stock
listed for trading on Nasdaq or on another national stock exchange and is a
Reporting Issuer, (ii) assumes by written instrument the Company's obligations
with respect to this Investment Agreement, the Registration Rights Agreement,
the Transfer Agent Instructions, the Warrant Antidilution Agreement, the
Warrants and the other agreements referred to herein, including but not limited
to the obligations to deliver to the Investor shares of Common Stock and/or
securities that Investor is entitled to receive pursuant to this Investment
Agreement and upon exercise of the Warrants and agrees by written instrument to
reissue, in the name of the Surviving Entity, any Warrants (each in the same
terms, including but not limited to the same reset provisions, as the applicable
Warrant originally issued or required to be issued by the Company) that are
outstanding immediately prior to such transaction, making appropriate
33
proportional adjustments to the number of shares represented by such Warrants
and the exercise prices of such Warrants to accurately reflect the exchange
represented by the transaction.
6.3 REGISTRATION RIGHTS. Concurrently herewith, the Company will enter into
a registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as EXHIBIT A.
6.4 ASSET TRANSFERS. The Company shall not (i) transfer, sell, convey or
otherwise dispose of any of its material assets to any subsidiary except for a
cash or cash equivalent consideration and for a proper business purpose or (ii)
transfer, sell, convey or otherwise dispose of any of its material assets to any
Affiliate, as defined below, during the Term of this Agreement. For purposes
hereof, "Affiliate" shall mean any officer of the Company, director of the
Company or owner of twenty percent (20%) or more of the Common Stock or other
securities of the Company.
6.5 CAPITAL RAISING LIMITATIONS.
6.5.1 CAPITAL RAISING LIMITATIONS. During the period from the date of this
Agreement until the date that is sixty (60) days after the Termination Date, the
Company shall not issue or sell, or agree to issue or sell Equity Securities (as
defined below), for cash in private capital raising transactions without
obtaining the prior written approval of the Investor of the Offering (the
limitations referred to in this subsection 6.5.1 are collectively referred to as
the "Capital Raising Limitations"). For purposes hereof, the following shall be
collectively referred to herein as, the "Equity Securities": (i) Common Stock or
any other equity securities, (ii) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock or other equity securities, or (iii) any
securities of the Company pursuant to an equity line structure or format similar
in nature to this Offering.
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL. For any private capital raising
transactions of Equity Securities which close after the date hereof and on or
prior to the date that is sixty (60) days after the Termination Date of this
Agreement, not including any warrants issued in conjunction with this Investment
Agreement, the Company agrees to deliver to Investor, at least ten (10) days
prior to the closing of such transaction, written notice describing the proposed
transaction, including the terms and conditions thereof, and providing the
Investor and its affiliates an option (the "Right of First Refusal") during the
ten (10) day period following delivery of such notice to purchase the securities
being offered in such transaction on the same terms as contemplated by such
transaction.
6.5.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND RIGHTS OF FIRST
Refusal. Notwithstanding the above, neither the Capital Raising Limitations nor
the Rights of First Refusal shall apply to (a) any transaction involving
issuances of securities by the Company to a company being acquired by the
Company, as payment to such company for such acquisition, or in connection with
the exercise of options by employees or directors of the Company, or a primary
underwritten offering of the Company's Common Stock, (b) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities
34
outstanding as of the date hereof, (c) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees or
directors, (d) the issuance of debt securities, with no equity feature, incurred
solely for working capital purposes, or (e) the issuance of straight common
stock, at a discount of less than 30% to average closing price of the Company's
Common Stock for the five (5) trading days immediately preceding the date of
issuance of such stock, so long as such issuance carries with it no future
conversion or reset rights or any rights to receive additional shares based upon
a market price at any time in the future.
6.6 FINANCIAL ▇▇-▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ETC. AND CURRENT REPORTS ON FORM 8-K. The
Company shall deliver to the Investor copies of its annual reports on Form
10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor
current reports on Form 8-K within two (2) days of filing for the Term of this
Agreement.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the Investment
Commitment Closing, receive an opinion letter from the Company's legal counsel,
in the form attached as EXHIBIT B, or in such form as agreed upon by the
parties, and shall, concurrent with each Put Date, receive an opinion letter
from the Company's legal counsel, in the form attached as EXHIBIT H or in such
form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any Securities are
issued with a restrictive Legend in accordance with the terms of this Agreement,
the Legend shall be removed and the Company shall issue a certificate without
such Legend to the holder of any Security upon which it is stamped, and a
certificate for a security shall be originally issued without the Legend, if (a)
the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Investor), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 LISTING. Subject to the remainder of this Section 6.9, the Company
shall ensure that its shares of Common Stock (including all Warrant Shares and
Put Shares) are listed and available for trading on the O.T.C. Bulletin Board.
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the O.T.C. Bulletin Board or to become
eligible for and listed and available for trading on the Nasdaq Small Cap
Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in all
material respects with the Company's reporting, filing and other obligations
under the By-Laws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company will
instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering
35
instructions in the form of EXHIBIT O hereto, to issue certificates, registered
in the name of each Investor or its nominee, for the Put Shares and Warrant
Shares in such amounts as specified from time to time by the Company upon any
exercise by the Company of a Put and/or exercise of the Warrants by the holder
thereof. Such certificates shall not bear a Legend unless issuance with a Legend
is permitted by the terms of this Agreement and Legend removal is not permitted
by Section 6.8 hereof and the Company shall cause the Transfer Agent to issue
such certificates without a Legend. Nothing in this Section shall affect in any
way Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3
hereof to resell the Securities pursuant to an effective registration statement
and to deliver a prospectus in connection with such sale or in compliance with
an exemption from the registration requirements of applicable securities laws.
If (a) an Investor provides the Company with an opinion of counsel, which
opinion of counsel shall be in form, substance and scope customary for opinions
of counsel in comparable transactions, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration or (b) an Investor transfers Securities, pursuant to Rule 144, to a
transferee which is an accredited investor, the Company shall permit the
transfer, and, in the case of Put Shares and Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to an
Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 6.10, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put that would
cause the Aggregate Issued Shares to exceed the Cap Amount, if required by the
rules of NASDAQ because the Company's Common Stock is listed on NASDAQ, the
Company shall obtain approval of its stockholders to authorize the issuance of
the full number of shares of Common Stock which would be issuable pursuant to
this Agreement but for the Cap Amount and eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities with respect to the Company's ability to
issue shares of Common Stock in excess of the Cap Amount (such approvals being
the "Stockholder 20% Approval").
6.12 PRESS RELEASE. Any public announcement relating to this financing (a
"Press Release") shall be submitted to the Investor for review at least two (2)
business days prior to the planned release. The Company shall not disclose the
Investor's name in any press release or other public announcement without the
Investor's prior written approval. The Company shall obtain the Investor's
written approval of the Press Release prior to issuance by the Company.
6.13 CHANGE IN LAW OR POLICY. In the event of a change in law, or policy of
the SEC, as evidenced by a No-Action letter or other written statements of the
SEC or the NASD which causes the Investor to be unable to perform its
obligations hereunder, this Agreement shall
36
be automatically terminated and no Termination Fee shall be due, provided that
notwithstanding any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant as partial consideration for its
commitment hereunder.
6.14. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall immediately notify the Investor, but in no
event later than two (2) business days by facsimile and by overnight courier,
upon the occurrence of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of Registrable
Securities: (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
6.15 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE SECURITIES. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and any advice
given by the Investor or any of its representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives and advisors.
6.16. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the
sums payable as Non-Usage Fees, Termination Fees and Ineffective Registration
Payments shall each give rise to liquidated damages and not penalties. The
parties further acknowledge that (a)
37
the amount of loss or damages likely to be incurred by the Investor is incapable
or is difficult to precisely estimate, (b) the amounts specified bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investor, and (c) the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
6.17. COPIES OF FINANCIAL STATEMENTS, REPORTS AND PROXY STATEMENTS.
Promptly upon the mailing thereof to the shareholders of the Company generally,
the Company shall deliver to the Investor copies of all financial statements,
reports and proxy statements so mailed and any other document generally
distributed to shareholders.
6.18. NOTICE OF CERTAIN LITIGATION. Promptly following the commencement
thereof, the Company shall provide the Investor written notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
subsidiary of the Company is a party, in which the amount involved is $250,000
or more and which is not covered by insurance or in which injunctive or similar
relief is sought.
6.19. TERM. The term ("Term") of this Agreement shall be a period of time
beginning on the date of this Agreement and ending on the Termination Date,
provided that notwithstanding the expiration of the Term and notwithstanding any
Termination or Automatic Termination, (A) the Company's covenants in Sections
4.7, 5.1, 5.4, 6.1, 6.2, 6.3, 6.4, 6.8, 6.9,6.10, 6.13 and 7.9 hereof shall
survive and remain in full force and effect until sixty (60) days following the
later of (i) the Termination Date or (ii) the date that all of the Warrants have
been exercised, (B) the Company's covenants under Section 7.8 and Section 9
hereof shall survive and remain in full force and effect for the full period of
time that a suit could be brought against the Investor with respect to this
Agreement, the Related Agreements or with respect to the Registration Statement
and related prospectus under any applicable statutes of limitations, and (C)
notwithstanding a Termination or Automatic Termination, the Related Agreements
between the parties shall not terminate and shall remain in full force and
effect in accordance with their respective terms.
7. MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING; SEVERABILITY.
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, or is altered by a term required by the Securities
Exchange Commission to be included in the Registration Statement, this Agreement
shall continue in full force and effect without said provision; provided that if
the removal of such provision materially changes the economic benefit of this
Agreement to the Investor, this Agreement shall terminate.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be assignable by
either party.
38
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be executed in
any number of counterparts, each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together shall
constitute one (1) instrument.
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neuter pronoun shall be deemed to include a reference to
the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request required or
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights Agreement,
each of the Company and Investor shall pay all costs and expenses that it
respectively incurs, with respect to the negotiation, execution, delivery and
performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants, whether oral, written, or otherwise except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 ARBITRATION. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws. Any controversy or claim
arising out of or related to the Transaction Documents or the breach thereof,
shall be settled by binding arbitration in Atlanta, Georgia in accordance with
the Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of
the American Arbitration Association ("AAA"). A proceeding shall be commenced
upon written demand by Company or any Investor to the other. The arbitrator(s)
shall enter a judgment by default against any party, which fails or refuses to
appear in any properly noticed arbitration proceeding. The proceeding shall be
conducted by one (1) arbitrator, unless the amount alleged to be in dispute
39
exceeds two hundred fifty thousand dollars ($250,000), in which case three (3)
arbitrators shall preside. The arbitrator(s) will be chosen by the parties from
a list provided by the AAA, and if they are unable to agree within ten (10)
days, the AAA shall select the arbitrator(s). The arbitrators must be experts in
securities law and financial transactions. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of the parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in Atlanta, Georgia or to the United
States District Court sitting in Georgia for purposes of enforcement of any
discovery order, judgment or award in connection with such arbitration. The
award of the arbitrator(s) shall be final and binding upon the parties and may
be enforced in any court having jurisdiction. The arbitration shall be held in
such place as set by the arbitrator(s) in accordance with Rule 55.
Although the parties, as expressed above, agree that all claims, including
claims that are equitable in nature, for example specific performance, shall
initially be prosecuted in the binding arbitration procedure outlined above, if
the arbitration panel dismisses or otherwise fails to entertain any or all of
the equitable claims asserted by reason of the fact that it lacks jurisdiction,
power and/or authority to consider such claims and/or direct the remedy
requested, then, in only that event, will the parties have the right to initiate
litigation respecting such equitable claims or remedies. The forum for such
equitable relief shall be in either a state or federal court sitting in Atlanta,
Georgia. Each party waives any right to a trial by jury, assuming such right
exists in an equitable proceeding, and irrevocably submits to the jurisdiction
of said Georgia court. Georgia law shall govern both the proceeding as well as
the interpretation and construction of the Transaction Documents and the
transaction as a whole.
7.9 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon
for the determination of the trading price or trading volume of the Common Stock
on the Principal Market on any given Trading Day for the purposes of this
Agreement shall be the Bloomberg L.P. The written mutual consent of the Investor
and the Company shall be required to employ any other reporting entity.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor shall deliver Put Dollar
Amounts (as payment towards any Put Share Price) by wire transfer, to the
Company pursuant to a wire instruction letter to be provided by the Company, and
signed by the Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby acknowledges and agrees,
subject to the provisions of any applicable laws providing for the refund of
subscription amounts submitted by Investor, that this Agreement is irrevocable
and that Investor is not entitled to cancel, terminate or revoke this Agreement
or any other agreements executed by such Investor and delivered pursuant hereto,
and that this Agreement and such other agreements shall survive the death or
disability of such Investor and shall be binding upon and inure to the benefit
of the parties and their heirs,
40
executors, administrators, successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be joint and several,
and the agreements, representations, warranties and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his heirs, executors, administrators, successors, legal representatives and
assigns.
9. INDEMNIFICATION AND REIMBURSEMENT.
(a) INDEMNIFICATION. In consideration of the Investor's execution and
delivery of the Investment Agreement, the Registration Rights Agreement and the
Warrants (the "Transaction Documents") and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Investor and all of its stockholders, officers, directors, employees and direct
or indirect investors and any of the foregoing person's agents, members,
partners or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim,
derivative or otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors of their
fiduciary or other obligations to the stockholders of the Company, or (d) claims
made by third parties against any of the Indemnitees based on a violation of
Section 5 of the Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to the
Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such
41
counsel to be paid by the Indemnitor, if representation of such Indemnified
Party by the counsel retained by the Indemnitor would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the Indemnitor within a reasonable time of the
commencement of any such action, if prejudicial to the Indemnitor's ability to
defend such action, shall relieve the Indemnitor of any liability to the
Indemnified Party under this Section 9, but the omission to so deliver written
notice to the Indemnitor will not relieve it of any liability that it may have
to any Indemnified Party other than under this Section 9 to the extent it is
prejudicial.
(b) REIMBURSEMENT. If (i) the Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, or (ii)
the Investor, other than by reason of its gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, then in
any such case, the Company will reimburse the Investor for its reasonable legal
and other expenses (including the cost of any investigation and preparation )
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which the Investor is a named party,
the Company will pay the Investor the charges, as reasonably determined by the
Investor, for the time of any officers or employees of the Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearing, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor and any such Affiliate and any such
person or entity. The Company also agrees that neither the Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Investor or any inaccuracy in any representation or
warranty of the Investor contained herein or any breach by the Investor of any
of the provisions hereof.
[INTENTIONALLY LEFT BLANK]
42
10. ACCREDITED INVESTOR. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify] _____________________________________.
43
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 15TH day of June 2001.
▇▇▇▇▇▇ PRIVATE EQUITY, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Manager
SECURITY DELIVERY INSTRUCTIONS:
▇▇▇▇▇▇ Private Equity, LLC
c/o ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 15TH DAY OF JUNE, 2001.
VALESC INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
44
ADVANCE PUT NOTICE
Valesc Inc. (the "Company") hereby intends, subject to the Individual Put Limit
(as defined in the Investment Agreement), to elect to exercise a Put to sell the
number of shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and ▇▇▇▇▇▇ Private Equity, LLC dated on
or about June 15, 2001.
Date of Advance Put Notice: ___________________
Intended Put Date: ___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
VALESC INC.
By:
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT D
45
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Valesc Inc.'s (the "Company") Advance Put Notice on the Advance Put Date written
below, and its intention to elect to exercise a Put to sell shares of common
stock ("Intended Put Share Amount") of the Company to the Investor, as of the
intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and ▇▇▇▇▇▇
Private Equity, LLC dated on or about June 15, 2001.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By: ________________________________
(Signature)
Address:
------------------------------------
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT E
46
PUT NOTICE
Valesc Inc. (the "Company") hereby elects to exercise a Put to sell shares of
common stock ("Common Stock") of the Company to _____________________________,
the Investor, as of the Put Date, at the Put Share Price and for the number of
Put Shares written below, all pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the Company and ▇▇▇▇▇▇ Private Equity,
LLC dated on or about June 15, 2001.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
VALESC INC.
By:
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Address:
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT F
47
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Valesc Inc. (the "Company") Put Notice and election to exercise a Put to sell
___________________________ shares of common stock ("Common Stock") of the
Company to Investor, as of the Put Date, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and ▇▇▇▇▇▇
Private Equity, LLC dated on or about June 15, 2001.
Date of Confirmation: ____________________
Date of Put Notice: _______________
Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By: _______________________________
(Signature)
Address:
------------------------------------
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
EXHIBIT G
48
COMPANY NAME
A STATE CORPORATION
OFFICER'S CLOSING CERTIFICATE
I, OFFICER'S NAME, TITLE of COMPANY NAME, a STATE corporation (the
"Company"), in accordance with Section 2.2.2 of the Investment Agreement dated
MONTH DAY, 2001 ("Investment Agreement"), by and between the Company and ▇▇▇▇▇▇
Private Equity, LLC,
DO HEREBY CERTIFY:
1. Each of the representations and warranties made by the Company in
the Investment Agreement, as modified by the Schedules attached to the
Investment Agreement, is true and correct in all material respects as of
the date hereof.
2. Each of the conditions required to be satisfied by the Company
pursuant to Section 2.2 of the Investment Agreement have been satisfied as
of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand as of the NTH day of MONTH,
2001.
COMPANY NAME
By: SIGNATURE OF COMPANY OFFICER
----------------------------
PRINTED NAME OF COMPANY OFFICER BELOW LINE
COMPANY NAME
A STATE CORPORATION
OFFICER'S PUT CERTIFICATE
I, OFFICER'S NAME, TITLE of COMPANY NAME, a STATE corporation (the
"Company"), in accordance with Section 2.3.5(c) of the Investment Agreement
dated MONTH DAY, 2001 ("Investment Agreement"), by and between the Company and
▇▇▇▇▇▇ Private Equity, LLC,
DO HEREBY CERTIFY:
49
1. Each of the representations and warranties made by the Company in
the Investment Agreement, as modified by the Schedules attached to the
Investment Agreement, is true and correct in all material respects as of
the date hereof.
2. Each of the conditions required to be satisfied by the Company
pursuant to Section 2.3 of the Investment Agreement have been satisfied as
of the date hereof.
3. The Registration Statement has become effective under the
Securities Act, and to the best of our knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
are threatened by the Securities and Exchange Commission.
4. I have participated in the preparation of the Registration
Statement and related Prospectus and after due inquiry nothing has come to
my attention to cause me to have reason to believe that the Registration
Statement, the related Prospectus, or any Amendment or Supplement thereto,
at the time it became effective or as of the date hereof, contained any
untrue statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any Supplement thereto contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to
make statements therein, in light of the circumstances under which they
were made, not misleading.
IN WITNESS WHEREOF, I have hereunto set my hand as of the NTH day of MONTH,
2001.
COMPANY NAME
By: SIGNATURE OF COMPANY OFFICER
----------------------------
PRINTED NAME OF COMPANY OFFICER BELOW LINE
50