PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND AMONG
CERTAIN INVESTORS
AND
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC
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DATED AS OF JULY 3, 2000
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This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the
3rd day of July, 2000 (this "Agreement"), by and between the various investors
identified on Schedule A hereto (each an "Investor" or "Investors"), and
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a corporation organized and existing under the laws of
the State of Florida (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to each Investor,
from time to time as provided herein, and each Investor shall purchase his
Proportionate Share of up to $12,200,000 of the Common Stock (as defined below);
and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Price" shall be the price based on the VWAP.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing at the
election of the Investor made from time to time, either the eighth Trading Day
following the Optional Purchase Date related to such Closing or the second
trading day following the Valuation Period, provided all conditions to such
Closing have been satisfied on or before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the $12,200,000 up to which
the Investors have agreed to provide to the Company in order to purchase Put
Shares pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investors shall have purchased
Put Shares pursuant to this Agreement for an aggregate Purchase Price of
$12,200,000, (y) the date this
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Agreement is terminated pursuant to Section 2.5, or (z) the date occurring
twenty-four (24) months from the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, $.001
par value per share.
Section 1.9 "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section 1.10 "Condition Satisfaction Date" See Section 7.2.
Section 1.11 "Legend" See Section 9.1.
Section 1.12 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the regulations promulgated thereunder.
Section 1.15 "Floor Price" shall mean forty-four cents ($0.44) per
share.
Section 1.16 "Investment Amount" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by the Investor to purchase
Put Shares with respect to any Optional Purchase Date as notified by the Company
to the Investor in accordance with Section 2.2 hereof.
Section 1.17 "Legend" See Section 8.1.
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (a) this Agreement and (b) the Registration Rights
Agreement.
Section 1.19 "Maximum Put Amount" shall mean the amounts set forth in
the following table:
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
VWAP Average Daily Average Daily Trading Average Daily Average Daily
Trading Volume of up Volume of Trading Volume of Trading Volume of
to 75,000 75,001-150,000 150,001-250,000 250,001 or more
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
0.50-0.75 $200,000 $300,000 $500,000 $650,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
0.76-1.00 $300,000 $500,000 $650,000 $750,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
1.01-1.50 $400,000 $600,000 $750,000 $850,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
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------------------------- ---------------------- ----------------------- ---------------------- ----------------------
1.51-2.50 $600,000 $750,000 $850,000 $1,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2.51-3.50 $750,000 $900,000 $1,000,000 $1,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Above 3.51 $800,000 $1,000,000 $1,250,000 $1,500,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
"Average Trading Volume" shall mean the average daily volume of shares of Common
Stock traded during the preceding thirty (30) Trading Days. The Maximum Put
Amount represents the aggregate of all Proportionate Shares of all Investors.
Section 1.20 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "Optional Purchase Date" shall mean the Trading Day during
the Commitment Period that an Optional Purchase Notice to sell Common Stock to
the Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.22 "Optional Purchase Notice" shall mean a written notice to
the Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.23 "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.24 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.25 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the NASD OTC Bulletin Board, 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.
Section 1.26 "Proportionate Share" shall mean the proportion of the
Commitment Amount agreed to be purchased by each Investor as set forth on
Schedule A.
Section 1.27 "Purchase Price" as used in this Agreement shall mean the
following: For each Trading Day during a Valuation Period (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement) the Purchase Price shall be 88% of the VWAP. The
foregoing percentage is a "Purchase Price Percentage."
Section 1.28 "Put" shall mean each occasion the Company elects to
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount of the Company's Common Stock, subject to the
terms of this Agreement which tender must be given to each Investor for such
Investor's Proportionate Share.
Section 1.29 "Put Shares" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
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Section 1.30 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until the Registration Statement has been declared effective by
the SEC and all Put Shares and Warrant Shares have been disposed of pursuant to
the Registration Statement.
Section 1.31 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Subscription Date.
Section 1.32 "Registration Statement" shall mean a registration
statement on Form SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor and Finder of the Registrable
Securities under the Securities Act.
Section 1.33 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
Section 1.35 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "Securities Act" shall have the definition ascribed to it
in the recitals of this Agreement.
Section 1.37 "SEC Documents" shall mean, to the extent applicable, the
Company's Form 10, latest Form 10-K as of the time in question, all Forms 10-Q
and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as
of the time in question until such time the Company no longer has an obligation
to maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.39 "Trading Cushion" shall mean, at any time, the mandatory
thirty (30) Trading Days between Optional Purchase Dates.
Section 1.40 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.41 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
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(b) pays a dividend in its Capital Stock or makes any
other distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the
Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences
of indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in
any of the foregoing Subsections (a) through (f) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of
a Put.
Section 1.42 "Valuation Period" shall mean the period of fourteen (14)
Trading Days during which the Purchase Price of the Common Stock is determined,
which period shall be with respect to the Purchase Prices on any Optional
Purchase Date, the fourteen (14) Trading Days following the Trading Day on which
an Optional Purchase Notice is deemed to be delivered; provided, however, that
if a Valuation Event occurs during any Valuation Period, a new Valuation Period
shall begin on the Trading Day immediately after the occurrence of such
Valuation Event and end on the fifth Trading Day thereafter.
Section 1.43 "VWAP" shall mean the daily volume weighted average price
of the Common Stock on the Principal Market as reported by Bloomberg Financial
using the AQR function.
Section 1.44 "Warrants" shall mean the common stock purchase warrants
of the Company described in Section 13.2, a form of which is annexed hereto as
Exhibit E.
Section 1.45 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of the Warrants.
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ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments/Puts. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article III hereof), on
any Optional Purchase Date the Company may exercise a Put by the delivery of an
Optional Purchase Notice. The number of Put Shares that the Investor shall
receive pursuant to such Put shall be determined by dividing the relevant
portions of the Investment Amount specified in the Optional Purchase Notice by
the corresponding Purchase Prices for each Trading Day during the Valuation
Period.
Section 2.2 Mechanics.
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(a) Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver an Optional Purchase Notice to the
Investor, subject to the conditions set forth in Section 7.2; provided, however,
the Investment Amount for each Put as designated by the Company in the
applicable Optional Purchase Notices shall be neither less than $200,000 in the
aggregate to all Investors nor more than the Maximum Put Amount.
(b) Date of Delivery of Optional Purchase Notice. An
Optional Purchase Notice shall be deemed delivered on (i) the Trading Day it is
received by facsimile or otherwise by the Investor if such notice is received
prior to 12:00 noon New York time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon New York time
on a Trading Day or at any time on a day which is not a Trading Day. No Optional
Purchase Notice may be deemed delivered, on a day that is not a Trading Day.
(c) Determination of Put Shares Issuable. The Purchase Price shall be
based on the Average Daily Price on each separate Trading Day during the
Valuation Period. The number of Put Shares to be purchased by each Investor with
respect to such Investor's Proportionate Share shall be determined on a daily
basis during each Valuation Period and settled on the Closing Date. The portion
of Investment Amount for which Put Shares may be issued for each Trading Day
during the Valuation Period may not exceed one-fourteenth (1/14th) of the
Investment Amount.
(d) Floor Price Limitation. If the Average Daily Price on any Trading
Day during the Valuation Period is less than the Floor Price, the Company shall
not sell and the Investor shall not purchase the Put Shares otherwise to be
purchased for such Trading Day unless the Investor elects, at the Investor's
sole option, to purchase such Put Shares at the Floor Price. In the event the
Investor does not elect to purchase such Put Shares at the Floor Price, then in
such case, one-fourteenth (1/14th) of the Investment Amount shall be withdrawn
from the Investment Amount for each such Trading Day
(e) Maximum Optional Purchase Notices/Amount. There shall be a maximum
of twenty-four (24) Optional Purchase Notices given during the term of this
Agreement. The Company shall have the right to issue each Optional Purchase
Notice for an Investment Amount up to the Maximum Put Amount.
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Section 2.3 Closings. On each Closing Date for a Put (i) the Company
shall deliver in the form required pursuant to Article IX hereof to the Investor
or to escrow one or more certificates, at the Investor's option, representing
the Put Shares to be purchased by the Investor pursuant to Section 2.1 herein,
or if deliverable without legend pursuant to Article IX and if DTC eligible,
deliver the Put Shares electronically after the Optional Purchase Date and on or
prior to the Closing Date, registered in the name of the Investor or, at the
Investor's option, deposit such certificate(s) into such account or accounts
previously designated by the Investor and (ii) the Investor shall deliver to
escrow the Investment Amount specified in the Optional Purchase Notice by wire
transfer of immediately available funds on or before the Closing Date. In
addition, on or prior to the Closing Date, each of the Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
or reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein. Payment of funds to
the Company and delivery of the certificates to the Investor shall occur out of
escrow in accordance with the escrow agreement referred to in Section 7.2(p)
following (x) the Company's deposit into escrow of the certificates representing
the Put Shares and (y) the Investor's deposit into escrow of the Investment
Amount; provided, however, that to the extent the Company has not paid the fees,
expenses and disbursements of the Investor's counsel in accordance with Section
13.1, the amount of such fees, expenses and disbursements shall be paid in
immediately available funds drawn out of the deposited funds, at the direction
of the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date.
Section 2.4 Liquidated Damages. In the event the Put Shares are not
timely delivered by the Company on a Closing Date, the Company will pay the
Investor, as liquidated damages for such failure to deliver and not as a
penalty, one percent (1%) of the applicable Investment Amount for each seven (7)
day period, or part thereof following such failure, in cash, until such Put
Shares have been delivered. The Escrow Agent shall be directed to pay such
liquidated damages to the Investor out of the Investment Amount delivered by the
Investor to the Escrow Agent.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for a consecutive ten day calendar
period or for an aggregate of thirty (30) Trading Days during the Commitment
Period, for any reason, or (ii) the Company shall at any time fail to comply
with the requirements of Section 6.2, 6.3, 6.4, 6.5 or 6.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and not with a view to the distribution of the Common Stock, 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.
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Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director
or to Investor's good faith belief, an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.6 Disclosure; Access to Information. Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and Investor
has had access to copies of any such reports that have been requested by it.
Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor, except as may be
set forth in the Disclosure Schedule delivered in connection herewith, that:
Section 4.1 Organization of the Company. The Company is a corporation
duly organized and existing in good standing under the laws of the State of
Florida and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries. The Company is duly qualified as a foreign corporation to do
business and is
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in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to issue the Put Shares;
(ii) the execution, issuance and delivery of this Agreement and the Registration
Rights Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 200,000,000 shares of Common Stock, of
which 75,774,025 shares of Common Stock were issued and outstanding as of June
14, 2000. None of the authorized and issued capital stock of the Company
consists of preferred stock. Except as set forth in the Financial Statements
described in Section 4.5, there are no options, warrants, or rights to subscribe
to, securities, rights or obligations convertible into or exchangeable for or
giving any right to subscribe for any shares of capital stock of the Company.
All of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable.
Section 4.4 Common Stock. As of the commencement of the Commitment
Period, the Company will have registered its Common Stock pursuant to Section
12(b) or 12(g) of the Exchange Act and be in full compliance with all reporting
requirements of the Exchange Act, if any, and the Company will have maintained
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is then listed or quoted on the Principal Market. As of the
date hereof, the Common Stock is quoted in the OTC "Pink Sheets."
Section 4.5 Financial Statements. The Company has delivered or made
available to the Investor true and complete copies of unaudited financial
statements (without footnotes) as of and for the period ending May 31, 2000
("Financial Statements"). The Company has not provided to the Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. The Financial Statements fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations for the periods then ended, subject to normal year-end
audit adjustments.
Section 4.6 Valid Issuances. Assuming the accuracy of the
representations and warranties contained in Sections 3.1, 3.2 and 3.7 hereof
both at the date hereof and at the time of sale and issuance, the sale and
issuance of the Put Shares will be exempt from registration under the Securities
Act in reliance upon Section 4(2) thereof and/or Regulation D thereto and when
issued, the Put Shares shall be duly and validly issued, fully paid, and
nonassessable. Neither the sales of the Put Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement will (i) result in the creation or imposition of
any liens, charges, claims or other encumbrances
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upon the Put Shares or any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire the Capital Shares or other securities of the Company. The Put
Shares shall not subject the Investor to personal liability by reason of the
possession thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Common Stock
under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance of
Common Stock do not and will not (i) result in a violation of the Company's
Articles of Incorporation or By-Laws or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company is a party, or (iii) result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided that, for
purposes of the Company's representations and warranties as to violations of
foreign law, rule or regulation referenced in clause (iii), no such
representations and warranties are being made insofar as the execution, delivery
and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby are or may be affected by the
status of the Investor under or pursuant to any such foreign law, rule or
regulation. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on any Principal Market;
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
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Section 4.10 No Material Adverse Change. Since the date of the
Financial Statements described in Section 4.5, no Material Adverse Effect has
occurred or exists with respect to the Company.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed to the Investor in the Financial Statements or otherwise in writing,
other than those incurred in the ordinary course of the Company's businesses
since the date of the Financial Statements and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires as of the date hereof, public
disclosure or announcement prior to the date hereof by the Company.
Section 4.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. There are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which might have a Material Adverse
Effect. Except as set forth on Schedule 4.14, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which might
result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company, in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with same, which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
Section 5.2 No 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, subject to compliance with applicable laws, rules and regulations,
enter into any short sale or other hedging or similar arrangement it deems
appropriate with respect to Put Shares after it receives an Optional Purchase
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.
12
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved shall be calculated
based upon the minimum Purchase Price therefor under the terms of this
Agreement.
Section 6.3 Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares. The Company further shall, if the Company applies to have the
Common Stock traded on any other Principal Market, include in such application
the Put Shares, and shall take such other action as is necessary or desirable in
the opinion of the Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company shall take all action
necessary to continue the listing and trading of its Common Stock on the
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
Section 6.4 Exchange Act Registration. The Company shall (i) cause its
Common Stock to become and continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under said Act, and will not take any action or file any
document (whether or not permitted by said Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act. The Company will take all action to
obtain a listing and continue the listing and trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Blackout Period. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by
the
13
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 the 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 the 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; and (v) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Optional Purchase Notice during
the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within
ten (10) days after the commencement of each calendar quarter occurring
subsequent to the commencement of the Commitment Period, the Company undertakes
to notify the Investor as to its reasonable expectations as to the dollar amount
it intends to raise during such calendar quarter, if any, through the issuance
of Optional Purchase Notices. Such notification shall constitute only the
Company's good faith estimate and shall in no way obligate the Company to raise
such amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.10 Disclosure of Material Information. In the event that any
or all of the information disclosed to the Investor in writing prior to the date
hereof becomes material, the Company shall make full and complete public
disclosure in accordance with all applicable law.
Section 6.11 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.12 Issuance of Put Shares. The sale and issuance of the Put
Shares shall be made in accordance with the provisions and requirements of
applicable federal and state law.
14
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor
shall be true and correct in all material respects as of the
date of this Agreement and as of the date of each such Closing
as though made at each such time.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all respects with
all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
an Optional Purchase Notice and the Obligation of the Investor to Purchase Put
Shares. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, (i) on the date of
delivery of such Optional Purchase Notice, (ii) for each day during the
Valuation Period, and (iii) on the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As
set forth in the Registration Rights Agreement, the Company
shall have filed with the SEC a Registration Statement with
respect to the resale of the Registrable Securities that shall
have been declared effective by the SEC prior to the first
Optional Purchase Date, but in no event later than two hundred
and seventy (270) days after the Subscription Date.
(b) Effective Registration Statement. As set forth in
the Registration Rights Agreement, the Registration Statement
shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither
the Company nor the Investor shall have received notice that
the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the
Registration Statement, either temporarily or permanently, or
intends or has threatened to do so, and (ii) no other
suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct in all material respects as of each
Condition Satisfaction Date as though made at each such time
(except for representations and warranties specifically made
as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date, except for any
conditions which have
15
temporarily caused any representations or warranties herein to
be incorrect and which have been corrected with no continuing
impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall
have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the
Company at or prior to each Condition Satisfaction Date,
including but not limited to the requirements for the Company
and its transfer agent set forth in Sections 9.1 and 9.2 to
deliver unlegended Common Stock pursuant to the terms set
forth in Sections 9.1 and 9.2, and Exhibit D hereto.
(e) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that
prohibits or directly or materially adversely affects any of
the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect
of prohibiting or materially adversely affecting any of the
transactions contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock (including
without limitation the Put Shares) shall not have been
suspended by the SEC, the Principal Market or the NASD and the
Common Stock (including without limitation the Put Shares)
shall have been approved for listing or quotation and shall
have actually been listed or quoted on, and shall not have
been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing,
if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to
be delivered to the Investor and Finders, within five (5)
Trading Days of the effective date of the Registration
Statement, an opinion of the Company's independent counsel in
the form of Exhibit B hereto, addressed to the Investor and
Finders; provided, however, that in the event that such an
opinion cannot be delivered by the Company's independent
counsel to the Investor, the Company shall promptly revise the
Registration Statement and shall not deliver an Optional
Purchase Notice. If an Optional Purchase Notice shall have
been delivered in good faith without knowledge by the Company
that an opinion of independent counsel can not be delivered as
required, at the option of the Investor, either the applicable
Closing Date shall automatically be postponed for a period of
up to five (5) Trading Days until such an opinion is delivered
to the Investor, or such Closing shall otherwise be canceled.
Liquidated damages determined pursuant to Section 2.4 shall be
calculated and payable on the Closing Date. The Company's
independent counsel shall also deliver to the Investor and
Finders upon execution of this Agreement an opinion in form
and substance reasonably satisfactory to the Investor and
Finders addressing, among other things, corporate matters and
the exemption from registration under the Securities
16
Act of the issuance of the Registrable Securities by the
Company to the Investor and Finders under this Agreement.
(i) Due Diligence. No dispute between the Company and
the Investor shall exist pursuant to Section 8.2(c) as to the
adequacy of the disclosure contained in the Registration
Statement.
(j) Ten Percent Limitation. On each Closing Date, the
number of Put Shares then to be purchased by the Investor
shall not exceed the number of such shares that, when
aggregated with all other shares of Common Stock then owned by
the Investor beneficially or deemed beneficially owned by the
Investor, would result in the Investor owning more than 9.9%
of all of such Common Stock as would be outstanding on such
Closing Date, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder.
For purposes of this Section 7.2(j), in the event that the
amount of Common Stock outstanding as determined in accordance
with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on
the date upon which the Optional Purchase Notice associated
with such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of
determining whether the Investor, when aggregating all
purchases of Common Stock made pursuant to this Agreement and,
if any, Shares, would own more than 9.9% of the Common Stock
following such Closing Date.
(k) Cross Default. The Company shall not be in
default of a term, covenant, warranty or undertaking of any
other agreement to which the Company and Investor are parties,
nor shall there have occurred an event of default under any
such other agreement, in each case which default would have a
material adverse effect on the financial condition of the
Company or the Company's ability to comply with its
obligations to the Investor.
(l) Minimum Average Trading Volume. The average
trading volume for the Common Stock over the previous thirty
(30) Trading Days equals or exceeds 75,000 shares per Trading
Day.
(m) No Knowledge. The Company shall have no knowledge
of any event more likely than not to have the effect of
causing such Registration Statement to be suspended or
otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days following the Trading
Day on which such Notice is deemed delivered).
(n) Trading Cushion. The Trading Cushion shall have
elapsed since the immediately preceding Optional Purchase
Date.
(o) Shareholder Vote. The issuance of shares of
Common Stock with respect to the applicable Closing, if any,
shall not violate the shareholder approval requirements of the
Principal Market.
(p) Escrow Agreement. The parties hereto shall have
entered into a mutually acceptable escrow agreement for the
Purchase Prices due hereunder, providing for
17
reasonable interest on any funds deposited into the escrow
account established under such agreement.
(q) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied
with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without limitation, a
certificate in substantially the form and substance of Exhibit
C hereto, executed in either case by an executive officer of
the Company and to the effect that all the conditions to such
Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other 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.
Section 8.2 Non-Disclosure of Non-Public Information.
----------------------------------------
(a) Except as disclosed to the Investor in writing
prior to the date hereof, the Company represents and warrants that the Company
and its officers, directors, employees and agents have not disclosed any
non-public information to the Investor or advisors to or representatives of the
Investor. The Company covenants and agrees that it shall refrain from
disclosing, and shall cause its officers, directors, employees and agents to
refrain from disclosing, (including, without limitation, in connection with the
giving of the Adjustment Period Notice pursuant to Section 2.4), unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
18
(b) The Company acknowledges and understands that the
Investor is entering into this Agreement and the Registration Rights Agreement
at the request of the Company and in good faith reliance on (i) the Company's
representation set forth in Section 4.16 that neither it nor its agents have
disclosed to the Investor any material non-public information; and (ii) the
Company's covenant set forth in Section 6.10 that if all or any portion of the
information disclosed to the Investor in writing prior to the date hereof
becomes material, the Company shall timely make full and complete public
disclosure of all or such portion of such information that shall have become
material in accordance with all applicable law.
(c) Nothing herein shall require the Company to
disclose non-public information to the Investor or its advisors or
representatives, and the Company represents that it does not disseminate
non-public 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 non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by 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 8.2 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 non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, 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.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
19
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS
CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY
SET FORTH IN A PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC. AND CERTAIN INVESTORS DATED JULY 3, 2000. A COPY
OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS
MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend,
to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered; provided
that (i) the Registration Statement shall then be effective; (ii) the
Investor confirms to the transfer agent that it has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is
not an affiliate of the Company; and (iii) the Investor confirms to the
transfer agent that the Investor has complied with the prospectus
delivery requirement; and
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing
representations that (i) the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of
sale pursuant to Rule 144(k) under the Securities Act or (ii) the
Investor has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Registrable Securities in a manner
other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities. Any of the notices referred to above in this Section 9.1
may be sent by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
20
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article IX shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement and the Registration
Rights Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement or the Registration Rights Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, and be binding upon, any
transferee of any of the Common Stock purchased or acquired by the Investor
hereunder with respect to the Common Stock held by such person unless such
Common Stock is free from restrictions on further transfer of such Common Stock,
and (b) the Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any affiliate of
the Investor) effective upon written notice to the Company. The Company shall
have the right to require any assignee to execute a counterpart of this
Agreement.
Section 11.2 Termination. This Agreement shall terminate twenty-four
(24) months after the commencement of the Commitment Period; provided, however,
that the provisions of Articles VI, VIII, IX, X, XI, and XII shall survive the
termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This Agreement and the
Registration Rights Agreement 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 except as specifically set forth in
this Agreement or therein.
21
Except as expressly provided in this Agreement, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.:
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which communication shall not constitute notice):
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
To the address and telecopier number set forth on Schedule A hereto
with a copy to (which communication shall not constitute notice):
Grushko & ▇▇▇▇▇▇▇, P.C.
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▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 12.2 Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless
the Investor, its partners, Affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Investor, its partners,
Affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement in any event as such Damages are incurred.
(b) The Investor agrees to indemnify and hold
harmless the Company, its partners, Affiliates, officers, directors, employees,
and duly authorized agents, and each Person or entity, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Company, its partners,
Affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Investor contained
in this Agreement in an aggregate amount not to exceed one-quarter of each such
Investor's Proportionate Share.
Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of
which any person claiming indemnification under any provision of Section 12.2
(an "Indemnified Party") might seek indemnity under Section 12.2 is asserted
against or sought to be collected from such Indemnified Party by a person other
than the Company, the Investor or any affiliate of the Company or (a "Third
Party Claim"), the Indemnified Party shall deliver a written notification,
enclosing a copy of all papers served, if any, and specifying the nature of and
basis for such Third Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of Section 12.2
against any person (the "Indemnifying Party"), together with the amount or, if
not then reasonably ascertainable, the estimated amount, determined in good
faith, of such Third Party Claim (a "Claim Notice") with reasonable promptness
to the Indemnifying Party. If the Indemnified Party fails to provide the Claim
Notice with reasonable promptness after the Indemnified Party receives notice of
such Third Party Claim, the
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Indemnifying Party will not be obligated to indemnify the Indemnified Party with
respect to such Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such failure of the
Indemnified Party. The Indemnifying Party will notify the Indemnified Party as
soon as practicable within the period ending thirty (30) calendar days following
receipt by the Indemnifying Party of either a Claim Notice or an Indemnity
Notice (as defined below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified Party
under Section 12.2 and whether the Indemnifying Party desires, at its sole cost
and expense, to defend the Indemnified Party against such Third Party Claim.
1. If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
12.3(a), then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
which affects the Indemnified Party, other than the payment of monetary damages
or that provides for the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to Section 12.2). The
Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified Party, at
any time prior to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause 1, file any motion, answer or other pleadings
or take any other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause 1, and except as provided in the
preceding sentence, the Indemnified Party will bear its own costs and expenses
with respect to such participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under Section 12.2 with respect to such Third Party Claim.
2. If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 12.3(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause 2, if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the
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Indemnifying Party disputes its liability or the amount of its liability
hereunder to the Indemnified Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the Indemnifying Party in the manner
provided in clause 3 below, the Indemnifying Party will not be required to bear
the costs and expenses of the Indemnified Party's defense pursuant to this
clause 2 or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party will reimburse the Indemnifying Party
in full for all reasonable costs and expenses incurred by the Indemnifying Party
in connection with such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the Indemnified Party
pursuant to this clause 2, and the Indemnifying Party will bear its own costs
and expenses with respect to such participation.
3. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 12.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the Loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party will
proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such dispute shall
be resolved by arbitration in accordance with paragraph (c) of this Section
12.3.
(b) In the event any Indemnified Party should have a
claim under Section 12.2 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written notification of
a claim for indemnity under Section 12.2 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 12.2 and
the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party will proceed in good faith to negotiate a resolution
of such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with
paragraph (c) of this Section 12.3.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the
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reasonable fees, expenses and disbursements of the Investor's counsel in an
amount not less than $1,500 per Closing.
Section 13.2 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party
except as described on Schedule 13.2("Finder"). The Company agrees to pay to the
Finder a fee equal to twelve percent (12%) ("Finder's Fee") of the Investment
Amount actually received by the Company, as set forth on Schedule 13.2 hereto.
Said sum shall be paid out of the escrow account established for deposit of
Investment Amounts. The Finder shall also receive the Warrants in the aggregate
amount set forth on Schedule 13.2 hereto. A form of Warrant is annexed hereto as
Exhibit E. The Warrants shall be issued upon the execution of this Agreement.
The per share purchase price of the Warrants is set forth on Schedule 13.2
hereto. The Finders are granted the registration rights set forth in the
Registration Rights Agreement with respect to the Warrant Shares. The Company's
obligations to the Finders is binding even if the Registration Rights Agreement
is not signed by the Finders. A default by the Company of the Company's
obligations to the Finders shall be deemed a default under the Agreement and
shall terminate the Investment Obligation. The Investment Obligation shall
terminate if the Finder does not receive the Finder's Fee or Warrants on or
before a Closing Date or if the Warrants deliverable upon execution of this
Agreement are not delivered within five (5) days of the execution of this
Agreement. The Company on the one hand, and the Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any other persons claiming brokerage commissions or finder's
fees on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.3 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 13.4 Entire Agreement. This Agreement, the Exhibits hereto and
the Registration Rights Agreement set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as if fully set forth herein.
Section 13.5 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. 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, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.6 Title and Subtitles. 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.
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Section 13.7 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the VWAP, trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
JADESBURG LIMITED - Investor
▇▇▇▇ ▇▇▇▇▇▇▇, Director
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