EXHIBIT 10.4:
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of April 2, 2003 by
and between FLEXXTECH CORPORATION, a Nevada corporation with its principal
executive office at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ (the "Company"),
and the undersigned investor (the "Investor").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $5,000,000 to
purchase the Company's common stock, no par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"),
Rule 506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the foregoing recitals, which shall
be considered an integral part of this Agreement, the covenants and agreements
set forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings specified or indicated, and such meanings
shall be equally applicable to the singular and plural forms of the defined
terms.
"1933 ACT" shall mean the Securities Act of 1933, as it may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as it may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREED UPON PROCEDURES REPORT" shall have the meaning specified in Section
2(o).
"AGREEMENT" shall mean this Investment Agreement.
"BRING DOWN COLD COMFORT LETTER" shall have the meaning specified in Section
2(n).
"BUY-IN" shall have the meaning specified in Section 6.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
"CLOSING" shall have the meaning specified in Section 2(h).
"CLOSING DATE" shall mean, as defined in Section 2(h), the date which is
thirteen (13) Trading Days following the Put Notice Date.
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"EFFECTIVE DATE" shall mean the date the SEC declares effective under the 1933
Act the Registration Statement covering the Securities.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(m).
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"INVESTOR" shall mean Dutchess Private Equities Fund, LP or its designee, a
Delaware limited partnership.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(g).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
"MATERIAL FACTS" shall have the meaning specified in Section 2(m).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(j).
"MINIMUM ACCEPTABLE PRICE" with respect to any Put Notice Date shall mean 75% of
the average of the closing bid prices for the fifteen (15) Trading Day period
immediately preceding such Put Notice Date.
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is 36 (thirty-six) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(p).
"PARTIAL RELEASE FORM" shall have the meaning specified in Section 2(i).
"PRICING PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date.
"PRINCIPAL MARKET" shall mean the American Stock Exchange, Inc., the National
Association of Securities Dealer's, Inc. OTC-BB, the BBX, the Nasdaq National
Market System or the Nasdaq SmallCap Market, whichever is the principal market
on which the Common Stock is listed.
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the total amount being paid by the Investor on a
particular Closing Date to purchase the Securities.
"PURCHASE PRICE" shall mean 92% (ninety-two percent) of the lowest posted bid
price of the Common Stock during the Pricing Period in a Trading Day.
"PUT AMOUNT" shall have the meaning set forth in Section 2(b) hereof.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Put Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of Shares
issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 9:00 am Eastern Time, or (y) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
"PUT RESTRICTION" shall mean the days between the end of the Pricing Period and
the date on which the Investor deems the Put closed. During this time, the
Company shall not be entitled to deliver another Put Notice.
"REGISTRATION OPINION" shall have the meaning specified in Section 2(m).
"REGISTRATION OPINION DEADLINE" shall mean the date that is three (3) Trading
Days prior to each Put Notice Date.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
2
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of the Securities.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering the Common Stock issuable hereunder.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"REPURCHASE EVENT" shall have the meaning specified in Section 2(p).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having no par
value per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Registration Rights
Agreement, the Investor Agreement and each of the other agreements entered into
by the parties hereto in connection with this Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
2. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Subject to the terms and
conditions set forth herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase from the Company, up to that number of Shares
having an aggregate Purchase Price of $5,000,000.
b. Delivery of Put Notices. (i) Subject to the terms and
conditions of the Transaction Documents, and from time to time during the Open
Period, the Company may, in its sole discretion, deliver a Put Notice to the
Investor which states the Put Amount (designated in shares of Common Stock)
which the Company intends to sell to the Investor on a Closing Date. The Put
Notice shall be in the form attached hereto as Exhibit "F" and incorporated
herein by reference. The Put Amount designated by the Company in the form of a
Put Notice shall be as follows:
The amount that the Company shall be entitled to Put to the
Investor shall be equal to 175% of the average daily volume (U.S. market only)
of the Common Stock for the 20 (twenty) Trading Days prior to the applicable Put
Notice Date multiplied by the average of the three (3) daily closing prices
immediately preceding the Put Date, but in no event more than $1,000,000.
During the Open Period, the Company shall not be entitled to
submit a Put Notice until after the previous Closing has been completed. The
Purchase Price for the Common Stock identified in the Put Notice shall be equal
to 92% (ninety-two percent) of the lowest posted bid price of the Common Stock
during the Pricing Period.
(ii) If the closing bid price during the applicable
Pricing Period with respect to that Put Notice is less than 75% (seventy-five
percent) of the closing bid prices of the Common Stock for the fifteen (15)
Trading Days prior to the Put Notice Date ("MINIMUM ACCEPTABLE PRICE") the Put
Notice will terminate, only at the Company's request, sent via FACSIMILE to the
Investor, the Investor will continue the Put until the FACSIMILE is received by
the Investor. In the event that the closing bid price for the applicable Pricing
Period is less than the Minimum Acceptable Price, the Company may elect, by
sending written notice to the Investor via facsimile, to cancel that portion of
the Put Notice remaining for that number of Trading Days remaining after the
written cancellation notice is received by the Investors. The written notice
shall be deemed received by the Investors on (i) the Trading Day it is actually
received by facsimile or otherwise by the Investors if such notice is received
on or prior to 9:00 A.M. New York time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile after 9:00 A.M. New York time on a
Trading Day or at anytime on a day
3
which is not a Trading Day. Notwithstanding the foregoing, there shall be a
closing with respect to, and the Company shall be responsible for delivering,
that number of shares of Common Stock to the Investor that were sold by the
Investors through and including the end of the Trading Day the written
cancellation notice is received by the Investor.
(iii) Within Thirteen (13) calendar days after the
commencement of each calendar quarter occurring subsequent to the commencement
of the Open Period, the Company undertakes to notify Investor as to its
reasonable expectations as to the Put Amount it intends to raise during such
calendar quarter, if any, through the issuance of Put Notices. Such notification
shall constitute only the Company's good faith estimate with respect to such
calendar quarter and shall in no way obligate the Company to raise such amount
during such calendar quarter or otherwise limit its ability to deliver Put
Notices during such calendar quarter. The failure by the Company to comply with
this provision can be cured by the Company's notifying Investor at any time as
to its reasonable expectations with respect to the current calendar quarter.
c. Interest. It is the intention of the parties that any interest
that may be deemed to be payable under this Agreement shall not exceed the
maximum amount permitted under any applicable law. If a law, which applies to
this Agreement which sets the maximum interest amount, is finally interpreted so
that the interest in connection with this Agreement exceeds the permitted
limits, then: (1) any such interest shall be reduced by the amount necessary to
reduce the interest to the legally permitted limit; and (2) any sums already
collected (if any) from the Company which exceed the legally permitted limits
will be refunded to the Company. The Investor may choose to make this refund by
reducing the amount that the Company owes under this Agreement or by making a
direct payment to the Company. If a refund reduces the amount that the Company
owes the Investor, the reduction will be treated as a partial payment. In case
any provision of this Agreement is held by a court of competent jurisdiction to
be excessive in scope or otherwise invalid or unenforceable, such provision
shall be adjusted rather than voided, if possible, so that it is enforceable to
the maximum extent possible, and the validity and enforceability of the
remaining provisions of this Agreement will not in any way be affected or
impaired thereby.
e. 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 the Company shall in no event sell to
the Investor, that number of Shares, which when added to the sum of the number
of Shares "beneficially owned" (as such term is defined under Section 13(d) and
Rule 13d-3 of the Securities Exchange Act of 1934, as may be amended, (the "1934
ACT")), by the Investor, would exceed 4.99% of the number of Shares outstanding
on the Put Notice Date for such Pricing Period, as determined in accordance with
Rule 13d-1(j) promulgated under the 1934 Act. In no event shall the Investor
purchase Shares other than pursuant to this Agreement until such date as this
Agreement is terminated. Each Put Notice shall include a representation of the
Company as to the number of Shares outstanding on the related Put Notice Date.
In the event that the number of Shares outstanding is different on any date
during a Pricing Period than the number of Shares outstanding on the Put Notice
Date associated with such Pricing Period, then the number of Shares outstanding
on such date during such Pricing Period shall govern for purposes of determining
whether the Investor would be acquiring beneficial ownership of more than 9.99%
of the number of Shares outstanding during such period.
f. Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and the Investor shall not be obligated
to purchase any Shares at a Closing (as defined in Section 2(h)) unless each of
the following conditions are satisfied:
(i) a Registration Statement shall have been declared
effective and shall remain effective and available for the
resale of all the Registrable Securities (as defined in the
Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;
(ii) at all times during the period beginning on the related
Put Notice Date and ending on and including the related
Closing Date, the Common Stock shall have been listed on the
Principal Market and shall not have been suspended from
trading thereon for a period of five (5) consecutive Trading
Days during the Open Period and the Company shall not have
been notified of any pending or threatened proceeding or other
action to delist or suspend the Common Stock;
(iii) the Company has complied with its obligations and is
otherwise not in breach of a material provision of, or in
default under, this Agreement, the Registration Rights
Agreement or any other agreement executed in connection
herewith which has not been corrected prior to delivery of the
Put Notice Date;
4
(iv) no injunction shall have been issued and remain in force,
or action commenced by a governmental authority which has not
been stayed or abandoned, prohibiting the purchase or the
issuance of the Securities; and
(v) the issuance of the Securities will not violate the
shareholder approval requirements of the Principal Market.
If any of the events described in clauses (i) through (v)
above occurs during a Pricing Period, then the Investor shall
have no obligation to purchase the Put Amount of Common Stock
set forth in the applicable Put Notice.
g. For purposes of this Agreement, a "MAJOR TRANSACTION" shall be
deemed to have occurred upon the closing of any of the following events: (i) the
consolidation, merger or other business combination of the Company with or into
another person (other than pursuant to a migratory merger effected solely for
the purposes of changing the jurisdiction of incorporation of the Company or
other than a transaction in which the Company is the surviving corporation) (ii)
the sale or transfer of all or substantially all of the Company's assets; or
(iii) the consummation of a purchase, tender or exchange offer made to, and
accepted by, the holders of more than 30% of the economic interest in, or the
combined voting power of all classes of voting stock of, the Company.
h. Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(f), 7 and 8, the closing
of the purchase by the Investor of Shares (a "CLOSING") shall occur on the date
which is Thirteen (13) Trading Days following the applicable Put Notice Date or
when deemed close by the investor. (each a "CLOSING DATE") Prior to each Closing
Date, (i) the Company shall deliver to the Investor, certificates representing
the Shares to be issued to the Investor on such date and registered in the name
of the Investor and (ii) the Investor shall deliver to the Company the Purchase
Price to be paid for such Shares (after Investor has received such Shares),
determined as set forth in Section 2(b) and (d), by wire transfer. The Company
shall instruct the transfer agent to send the certificate via overnight delivery
and supply the tracking number and amount of shares to Investor via ▇-▇▇▇▇.▇▇
lieu of delivering physical certificates representing the Securities and
provided that the Company's transfer agent then is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to electronically transmit the
Securities by crediting the account of the Investor's prime broker (which shall
be specified by the Investor a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
The Company understands that a delay in the issuance of Securities
beyond the Closing Date could result in economic loss to the Investor. After the
Effective Date, as compensation to the Investor for such loss, the Company
agrees to pay late payments to the Investor for late issuance of Securities
(delivery of Securities after the applicable Closing Date) in accordance with
the following schedule (where "No. of Days Late" is defined as the number of
days beyond the Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 10
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Investor's right to pursue actual damages for the Company's failure to issue and
deliver the Securities to the Investor, except to the extent that such late
payments shall constitute payment for and offset any such actual damages alleged
by the Investor, and any Buy In Adjustment Amount.
i. Partial Release of Shares. After Investor has received a Put
Notice, but prior to the related Closing Date, the Investor may authorize the
Investor to release, every five (5) Trading Days, a portion of the Purchase
Amount from the investor to the Company in exchange for a fixed number of
Shares, subject to the following conditions:
5
(i) The Investor shall fill out and sign a Partial
Release of Purchase Amount and Shares (the "Partial
Release Form"). The Partial Release Form shall set
forth the number of Shares to be released to Investor
and the dollar amount the Investor shall wire to the
Company.
(ii) The Partial Release Form shall be filled out and
signed by the Investor and faxed to the Company prior
to 12:00 p.m. New York City time.
The number of Shares stated in the Partial Release Form shall be equal
to the dollar amount to be released divided by 92% (ninety-two percent) of the
lowest bid price during that number of Trading Days of the Pricing Period that
have expired.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in this Agreement shall be
honored with the balance of the Purchase Amount being released to the Company
and the balance of the Shares owed to the Investor being released to Investor.
j. Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, if during the Open Period the Company
becomes listed on an exchange that limits the number of shares of Common Stock
that may be issued without shareholder approval, then the number of Shares
issuable by the Company and purchasable by the Investor, including the shares of
Common Stock issuable to the Investors pursuant to Section 11(b), shall not
exceed that number of the shares of Common Stock that may be issuable without
shareholder approval, subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalization affecting the Common
Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of Shares,
including any Common Stock to be issued to the Investors pursuant to Section
11(b), in excess of the Maximum Common Stock Issuance shall first be approved by
the Company's shareholders in accordance with applicable law and the By-laws and
Articles of Incorporation of the Company, if such issuance of shares of Common
Stock could cause a delisting on the Principal Market. The parties understand
and agree that the Company's failure to seek or obtain such shareholder approval
shall in no way adversely affect the validity and due authorization of the
issuance and sale of Securities or the Investor's obligation in accordance with
the terms and conditions hereof to purchase a number of Shares in the aggregate
up to the Maximum Common Stock Issuance limitation, and that such approval
pertains only to the applicability of the Maximum Common Stock Issuance
limitation provided in this Section 2(j).
k. "VALUATION EVENT" means the Company taking any of the
following actions at any time during a "Pricing Period":
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for
dividends paid with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for
or purchase Common Stock ("Options") and the price
per share for which Common Stock may at any time
thereafter be issuable pursuant to such Options shall
be less than the Bid Price in effect immediately
prior to such issuance of such Options;
(iv) issues any securities convertible into or
exchangeable for Common Stock ("Convertible
Securities") and the consideration per share for
which shares of Common Stock may at any time
thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Bid
Price in effect immediately prior to such issuance of
the Convertible Securities;
(v) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (i) through
(iv), at a price per share less, or for other
consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without
consideration;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a
dividend in liquidation or by way of return of
capital or other than as a dividend payable out of
earnings or surplus legally available for dividends
under applicable law or any distribution to such
holders made in respect of the sale of all or
substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (i) through (v); or
(vii) takes any action affecting the number of shares of
Common Stock outstanding, other than an action
described in any of the foregoing subsections (i)
through (vi) hereof, inclusive, which in the opinion
of the Company's Board of Directors, determined in
good faith, would have
6
a materially adverse effect upon the rights of
Investor at the time of a Put Notice is delivered to
Investor.
l. The Company agrees that it shall not take any action that
would result in a Valuation Event occurring during a Pricing Period.
m. Accountant's Letter and Registration Opinion. Whenever
reasonably requested by Investor, the Company shall cause to be delivered to the
Investor, on or prior to each Registration Opinion Deadline, an opinion of the
Company's independent counsel (the "REGISTRATION OPINION"), addressed to the
Investor stating, inter alia, that no material 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, the Company shall promptly notify the Investor and as promptly as
possible amend each of the Registration Statement and any supplemental
Registration Statements, as applicable, and any related prospectus or cause such
Ineffective Period to terminate, as the case may be, and deliver such
Registration Opinion and updated prospectus as soon as possible thereafter. If
at any time after a Put Notice shall have been delivered to Investor but before
the related Closing Date, the Company acquires knowledge of such Material Facts
or any Ineffective Period occurs, the Company shall immediately notify the
Investor in writing.
n. (i) Whenever reasonably requested by Investor, the Company
shall engage its independent auditors to prepare in accordance with the
provisions of Statement on Auditing Standards No. 71, as amended, such written
report (the "BRING DOWN COLD COMFORT LETTERS") with respect to the financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on or prior to each
Registration Opinion Deadline;
(ii) in the event that the Investor shall have requested
delivery of an Agreed Upon Procedures Report pursuant to Section 2(o), 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(n) cannot be
delivered by the Company's independent auditors, the Company shall, if
necessary, promptly revise the Registration Statement and the Company shall not
deliver a Put Notice to Investor until such report is delivered.
o. Procedure if Material Facts are Reasonably believed to be
untrue or are omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement or a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading, (i) the Company shall file with the SEC an amendment to the
Registration Statement responsive to such alleged untrue statement or omission
and provide the Investor, as promptly as practicable, with copies of the
Registration Statement and related Prospectus, as so amended, or (ii) if the
Company disputes the existence of any such material misstatement or omission,
(x) the Company's independent counsel shall provide the Investor's counsel with
a Registration Opinion and (y) in the event the dispute relates to the adequacy
of financial disclosure and the Investor shall reasonably request, the Company's
independent auditors shall provide to the Company a letter ("AGREED UPON
PROCEDURES REPORT") outlining the performance of such "agreed upon procedures,"
which shall not require any more than the SAS 71 review described above as shall
be reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter.
p. Delisting; Suspension. If at any time during the Open Period
or within thirty (30) calendar days after the end of the Open Period, (i) the
Registration Statement, after it has been declared effective, shall not remain
effective and available for sale of all the Registrable Securities for a period
exceeding 10 calendar days, (ii) the Common Stock shall not be listed on the
Principal Market or shall have been suspended from trading thereon (excluding
suspensions of not more than one trading day resulting from business
announcements by the Company) or the Company shall have been notified of any
pending or threatened proceeding or other action to delist or suspend the Common
Stock, (iii) there shall have occurred a Major Transaction (as defined in
Section 2(g)) or the public announcement of a pending Major Transaction which
has not been abandoned or terminated, or (iv) the Registration Statement is no
longer effective or stale for a period of more than five (5) Trading Days as a
result of the Company's failure to timely file its financial statements or for
any other reason, the Company shall repurchase within thirty (30) calendar days
of the occurrence of one of the events listed in clauses (i), (ii), (iii) or
(iv) above (each a "REPURCHASE EVENT") and
7
subject to the limitations imposed by applicable federal and state law, all or
any part of the Securities issued to the Investor within the sixty (60) Trading
Days preceding the occurrence of the Repurchase Event and then held by the
Investor at a price per Share equal to the highest closing bid price during the
period beginning on the date of the Repurchase Event and ending on and including
the date on which the Investor is paid by the Company for the repurchase of the
Shares (the "PAYMENT AMOUNT"). If the Company fails to pay to the Investor the
full aggregate Payment Amount within ten (10) calendar days of the occurrence of
a Repurchase Event, the Company shall pay to the Investor, on the first Trading
Day following such tenth (10th) calendar day, in addition to and not in lieu of
the Payment Amount payable by the Company to the Investor, an amount equal to
two (2%) percent of the aggregate Payment Amount then due and payable to the
Investor, in cash by wire transfer, plus compounded annual interest of 18% on
such Payment Amount during the period, beginning on the day following such tenth
calendar day, during which such Payment Amount, or any portion thereof, is
outstanding.
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants,
that:
a. Sophisticated Investor. The Investor has, by reason of its
business and financial experience, such knowledge, sophistication and experience
in financial and business matters and in making investment decisions of this
type that it is capable of (A) evaluating the merits and risks of an investment
in the Securities and making an informed investment decision, (B) protecting its
own interest and (C) bearing the economic risk of such investment for an
indefinite period of time.
b. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Investor and is a
valid and binding agreement of the Investor enforceable against the Investor in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
c. Section 9 of the 1934 Act. During the Open Period, the
Investor will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the Common
Stock. The Investor agrees not to short, either directly or indirectly through
its affiliates, principals or advisors, the Company's common stock during the
term of this Agreement, however, it shall not be deemed a short if the Investor
sells common stock after the delivery of the Put Notice from the Company.
d. Accredited Investor. Investor is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not result in a violation
of the Articles of Incorporation, the By-laws or other organizational documents
of the Investor.
f. The Investor has had an opportunity to discuss the business,
management and financial affairs of the Company with the Company's management;
The Investor is purchasing the Securities for its own account
for investment purposes and not with a view towards distribution; provided,
however, that by making the representations herein, the Investor does not agree
to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under applicable state
and/or federal securities law;
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. Organization and Qualification. The Company is a corporation
duly organized and validly existing in good standing under the laws of its
jurisdiction, and has the requisite corporate power and authorization to own its
properties and to carry on its business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the
business, properties, assets,
8
operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined in Section 1 and
4(b)below). The Company has no subsidiaries.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders, (iii) the Transaction Documents have been duly and validly
executed and delivered by the Company, and (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock, no par
value per share, of which as of the date hereof, 503,407 shares are issued and
outstanding; 0 shares of Preferred Stock, of which none are issued and
outstanding; and none (as of April 7, 2003) shares of Common Stock are issuable
upon the exercise of options, warrants and conversion rights. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 4(c) which is
attached hereto and made a part hereof, (i) no shares of the Company's capital
stock are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company, (ii) there are no
outstanding debt securities, (iii) there are no outstanding shares of capital
stock, options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, (iv) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (v) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement, (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement and (viii)
there is no dispute as to the class of any shares of the Company's capital
stock. The Company has furnished to the Investor, or the Investor has had access
through ▇▇▇▇▇ to, true and correct copies of the Company's Articles of
Incorporation, as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS `), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Shares. A sufficient number of Shares issuable
pursuant to this Agreement has been duly authorized and reserved for issuance
(subject to adjustment pursuant to the Company's covenant set forth in Section
5(f) below) pursuant to this Agreement. Upon issuance in accordance with this
Agreement, the Securities will be validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof. In
the event the Company cannot register a sufficient number of Shares, due to the
remaining number of authorized shares of Common Stock being insufficient, the
Company will use its best efforts to register the maximum number of shares it
can based on the remaining balance of authorized shares and will use its best
efforts to increase the number of its authorized shares as soon as reasonably
practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default
9
(or an event which with notice or lapse of time or both would become a material
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, contract, indenture
mortgage, indebtedness or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including United States federal and state securities
laws and regulations and the rules and regulations of the Principal Market or
principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act, the Company is not required to obtain any consent, authorization,
permit or order of, or make any filing or registration (except the filing of a
registration statement) with, any court, governmental authority or agency,
regulatory or self-regulatory agency or other third party in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company
and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not, and will not be, in violation
of the listing requirements of the Principal Market as in effect on the date
hereof and on each of the Closing Dates and is not aware of any facts which
would reasonably lead to delisting of the Common Stock by the Principal Market
in the foreseeable future.
f. SEC Documents; Financial Statements. Since at least January
1999, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Investor
or its representatives, or they have had access through ▇▇▇▇▇ to, true and
complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents, including,
without limitation, information referred to in Section 4(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the circumstance
under which they are or were made, not misleading. Neither the Company nor any
of its Subsidiaries or any of their officers, directors, employees or agents
have provided the Investor with any material, nonpublic information which was
not publicly disclosed prior to the date hereof and any material, nonpublic
information provided to the Investor by the Company or its Subsidiaries or any
of their officers, directors, employees or agents prior to any Closing Date
shall be publicly disclosed by the Company prior to such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule
4(g), the Company does not intend to change the business operations of the
Company. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any
10
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. Except as set forth in Schedule 4(h),
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding Investor's Purchase of Shares. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and any advice
given by the Investor or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Investor's purchase of the
Securities. The Company further represents to the Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Since December 31, 2002, no event, liability, development or
circumstance has occurred or exists, or to the Company's knowledge is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, assets, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
▇▇▇▇ ▇▇▇) has notified the Company that such officer intends to leave the
Company's employ or otherwise terminate such officer's employment with the
Company.
l. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 4(l), none of the
Company's trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights necessary to conduct its business as now or as proposed to be
conducted have expired or terminated, or are expected to expire or terminate
within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service ▇▇▇▇
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 4(l), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service ▇▇▇▇ registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
m. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by
11
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects except such as
are described in Schedule 4(n) or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company or any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company reasonably believes
to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in
full force and effect all certificates, approvals, authorizations and permits
from the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
s. Tax Status. The Company and each of its Subsidiaries has made
or filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.
t. Certain Transactions. Except as set forth on Schedule 4(t) and
in the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 4(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, 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.
u. Dilutive Effect. The Company understands and acknowledges that
the number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in
12
certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company's
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
v. Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of Investor offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition) any of its Common Stock or
securities convertible into Common Stock at a price that is less than the market
price of the Common Stock at the time of issuance of such security or investment
(a "SUBSEQUENT FINANCING") for a period of one year after the Effective Date,
except (i) the granting of options or warrants to employees, officers, directors
and consultants, and the issuance of shares upon exercise of options granted,
under any stock option plan heretofore or hereafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants or
options and upon conversion of any currently outstanding convertible debenture
or convertible preferred stock, in each case disclosed pursuant to Section 4(c),
(iii) securities issued in connection with the capitalization or creation of a
joint venture with a strategic partner, (iv) shares issued to pay part or all of
the purchase price for the acquisition by the Company of another entity (which,
for purposes of this clause (iv), shall not include an individual or group of
individuals), and (v) shares issued in a bona fide public offering by the
Company of its securities, unless (A) the Company delivers to Investor a written
notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) Investor shall not have notified the
Company by 5:00 p.m. (New York time) on the fifth (5th) Trading Day after its
receipt of the Subsequent Financing Notice of its willingness to provide,
subject to completion of mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing Notice.
If Investor shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms set forth in the Subsequent Financing
Notice; PROVIDED THAT the Company shall provide Investor with a second
Subsequent Financing Notice, and Investor shall again have the right of first
refusal set forth above in this Section, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice. The
rights granted to Investor in this Section are not subject to any prior right of
first refusal given to any other person except as disclosed on Schedule 4(c).
w. Lock-up. The Company shall cause its officers, insiders,
directors, affiliates or other related parties to refrain from selling Common
Stock during each Pricing Period.
x. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Common Stock offered hereby.
5. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Section 7 of
this Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, on
or before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as reasonably specified by Investor, and shall
provide evidence of any such action so taken to the Investor on or prior to the
Closing Date. The Company shall, at its sole cost and expense, make all filings
and reports relating to the offer and sale of the Securities required under the
applicable securities or "Blue Sky" laws of such states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the earlier to occur of (i) the first
date which is after the date this Agreement is terminated pursuant to Section 9
and on which the Holders (as
13
that term is defined in the Registration Rights Agreement) may sell all of the
Securities without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), and (ii) the date on which (A) the Holders
shall have sold all the Securities and (B) this Agreement has been terminated
pursuant to Section 9 (the "REGISTRATION PERIOD"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as a reporting company under the 1934
Act.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Shares (excluding amounts paid by the Company for fees as set forth
in the Transaction Documents) for general corporate and working capital
purposes, but not to pay down debt.
e. Financial Information. The Company agrees to make available to
the Investor via ▇▇▇▇▇ or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information.
f. Reservation of Shares. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Securities hereunder. In the event that
the Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as described
in this Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder approval for
the authorization of such additional shares.
g. Listing. The Company shall promptly secure and maintain the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon the Principal Market and each other national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, such listing of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market (excluding suspensions of not more than one trading day
resulting from business announcements by the Company). The Company shall
promptly provide to the Investor copies of any notices it receives from the
Principal Market regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 5(g).
h. Transactions With Affiliates. The Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
or permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at any
time during the previous two years, shareholders who beneficially own 5% or more
of the Common Stock, or affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest (each a "RELATED
PARTY"), except for (i) customary employment arrangements and benefit programs
on reasonable terms, (ii) any agreement, transaction, commitment or arrangement
on an arms-length basis on terms no less favorable than terms which would have
been obtainable from a person other than such Related Party, or (iii) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary of the Company
shall not be a disinterested director with respect to any such agreement,
transaction, commitment or arrangement. "AFFILIATE" for purposes hereof means,
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity, (ii)
has 5% or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) is under common control with that person or entity.
"CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
i. Filing of Form 8-K. On or before the date which is three (3)
Trading Days after the Execution Date, the Company shall file a Current Report
on Form 8-K with the SEC
14
describing the terms of the transaction contemplated by the Transaction
Documents in the form required by the 1934 Act, if such filing is required.
j. Corporate Existence. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a Registration Statement
or related prospectus in respect of an offering of the 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 any Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
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; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
l. Reimbursement. If (i) Investor, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct, becomes involved
in any capacity in any action, proceeding or investigation brought by the SEC
against or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, or
if Investor is impleaded in any such action, proceeding or investigation by any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor, for the time of any officers or employees of Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, 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 section shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.
6. COVER. If the number of Shares represented by any Put Notices
become restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (a) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (b) the net proceeds (after brokerage commissions, if any) received by the
Investor from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds immediately
upon demand by the Investor. By way of illustration and not in limitation of the
foregoing, if the Investor purchases Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
the Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which the Company will be required to pay to the Investor will be $1,000.
15
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the
Securities to the Investor is further subject to the satisfaction, at or before
each Closing Date, of each of the following conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
a. The Investor shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Investor the Purchase
Price for the Securities being purchased by the Investor at the Closing (after
receipt of confirmation of delivery of such Securities) by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Investor.
c. The representations and warranties of the Investor shall be
true and correct as of the date when made and as of the applicable Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date), and the Investor shall have performed, satisfied
and complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Investor at or prior to such Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since the applicable
Put Notice Date.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject
to the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction
Documents and delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the
Principal Market and trading in the Common Stock shall not have been suspended
by the Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be
true and correct as of the date when made and as of the applicable Closing Date
as though made at that time (except for (i) representations and warranties that
speak as of a specific date and (ii) with respect to the representations made in
Sections 4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events
which occur on or after the date of this Agreement and are disclosed in SEC
filings made by the Company at least ten (10) Trading Days prior to the
applicable Put Notice Date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
on or before such Closing Date. The Investor may request an update as of such
Closing Date regarding the representation contained in Section 4(c) above.
d. Investor shall have received an opinion letter of the
Company's counsel on or before the Execution Date.
e. The Company shall have executed and delivered to the Investor
the certificates representing, or have executed electronic book-entry transfer
of, the Securities (in such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 4(b)(ii) above (the "RESOLUTIONS") and such
Resolutions shall not have been amended or rescinded prior to such Closing Date.
g. If requested by the Investor, the Investor shall receive
letters of the type, in the form and with the substance of the letters described
in Sections 2(m) and 2(n) of this Agreement from the Company's auditors.
16
h. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
i. The Registration Statement shall be effective on each Closing
Date and no stop order suspending the effectiveness of the Registration
statement shall be in effect or shall be pending or threatened. Furthermore, on
each Closing Date (i) neither the Company nor Investor shall have received
notice that the SEC has issued or intends to issue a stop order with respect to
such Registration Statement or that the SEC otherwise has suspended or withdrawn
the effectiveness of such Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and Investor is reasonably satisfied that the SEC no longer
is considering or intends to take such action), and (ii) no other suspension of
the use or withdrawal of the effectiveness of such Registration Statement or
related prospectus shall exist.
j. At the time of each Closing, the Registration Statement
(including information or documents incorporated by reference therein) and any
amendments or supplements thereto shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or which would
require public disclosure or an update supplement to the prospectus.
k. There shall have been no filing of a petition in bankruptcy,
either voluntarily or involuntarily, with respect to the Company and there shall
not have been commenced any proceedings under any bankruptcy or insolvency laws,
or any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
l. If applicable, the shareholders of the Company shall have
approved the issuance of any Shares in excess of the Maximum Common Stock
Issuance in accordance with Section 2(j).
m. The conditions to such Closing set forth in Section 2(f) shall
have been satisfied on or before such Closing Date.
n. The Company shall have certified to the Investor the number of
shares of Common Stock outstanding as of a date within ten (10) Trading Days
prior to such Closing Date.
o. The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request upon reasonable advance notice.
p. On or before the execution of this Agreement, the Company
shall have a draft of the Registration Statement covering the Securities.
9. TERMINATION. This Agreement shall terminate upon any of the
following events:
(i) when the Investor has purchased an aggregate of
$10,000,000 in the Common Stock of the Company pursuant to
this Agreement; provided that the Company's representations,
warranties and covenants contained in this Agreement insofar
as applicable to the transactions consummated hereunder prior
to such termination, shall survive the termination of this
Agreement for the period of any applicable statute of
limitations,
(ii) on the date which is 36 (thirty-six) months after the
Effective Date;
(iii) if the Company shall file or consent by answer or
otherwise to the entry of an order for relief or approving a
petition for relief, reorganization or arrangement or any
other petition in bankruptcy for liquidation or to take
advantage of any bankruptcy or insolvency law of any
jurisdiction, or shall make an assignment for the benefit of
its creditors, or shall consent to the appointment of a
custodian, receiver, trustee or other officer with similar
powers of itself or of any substantial part of its property,
or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or
if a court or governmental authority of competent jurisdiction
shall enter an order appointing a custodian, receiver, trustee
or other officer with similar powers with respect to the
Company or any substantial part of its property or an order
for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or
liquidation of the Company, or if any such petition shall be
filed against the Company;
17
(iv) if the Company shall issue or sell any equity securities
or securities convertible into, or exchangeable for, equity
securities or enter into any other equity financing facility
during the Open Period, other than in compliance with Section
4(v);
(v) the trading of the Common Stock is suspended by the SEC,
the Principal Market or the NASD for a period of five (5)
consecutive Trading Days during the Open Period;
(vi) the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the
initial Registration Rights Agreement within sixty (60)
calendar days of the date hereof or the Registration Statement
has not been declared effective within one hundred eighty
(180) calendar days of the date hereof; or
(vii) The Common Stock ceases to be registered under the 1934
Act or listed or traded on the Principal Market; or
(viii) The Company requires shareholder approval under Nasdaq
rules to issue additional shares and such approval is not
obtained within 60 days from the date when the Company has
issued its 19.9% maximum allowable shares.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor.
10. INDEMNIFICATION. In consideration of the Investor's execution
and delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of their shareholders,
officers, directors, employees, counsel, and direct or indirect investors and
any of the foregoing person's agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "INDEMNITEES") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "INDEMNIFIED LIABILITIES'), incurred by any Indemnitee as
a result of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby (ii) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (iii) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iv) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (v) the status of the Investor or holder of the
Securities as an investor in the Company, except insofar as any such
misrepresentation, breach or any untrue statement, alleged untrue statement,
omission or alleged omission is made in reliance upon and in conformity with
written information furnished to the Company by the Investor which is
specifically intended by the Investor for use in the preparation of any such
Registration Statement, preliminary prospectus or prospectus or based on illegal
or alleged illegal trading of the Shares by the Investor. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The indemnity provisions contained herein shall be in addition to any cause of
action or similar rights the Investor may have, and any liabilities the Investor
may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts
without regard to the principles of conflict of laws. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of Boston, County of Suffolk, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being
18
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
b. Investor Fees; Legal Fees;
(i) Intentionally omitted
(ii) Except as otherwise set forth in the Transaction
Documents, each party shall pay the fees and expenses of its advisers,
counsel, the accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. Any
attorneys' fees and expenses incurred by either the Company or by the
Investor in connection with the preparation, negotiation, execution and
delivery of any amendments to this Agreement or relating to the
enforcement of the rights of any party, after the occurrence of any
breach of the terms of this Agreement by another party or any default
by another party in respect of the transactions contemplated hereunder,
shall be paid on demand by the party which breached the Agreement
and/or defaulted, as the case may be. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of
any Securities.
c. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
d. Headings; Singular/Plural. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
e. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
f. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.
g. Notices. Any notices or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
▇▇▇▇ ▇▇▇▇▇▇▇, President
Flexxtech Corporation
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇, ▇▇
Telephone:
Facsimile:
With a copy to
19
Telephone:
Facsimile:
If to the Investor:
At the address listed in the Questionnaire
With a copy to:
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
h. No Assignment. This Agreement may not be assigned.
i. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
j. Survival. The representations and warranties of the Company
and the Investor contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4 and 5, and the indemnification provisions set forth in
Section 10, shall survive each of the Closings and the termination of this
Agreement.
k. Publicity. The Company and Investor shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Investor without the prior written consent of such Investor, except to the
extent required by law. Investor acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities 1933 Act or the 1934 Act.
Investor further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
l. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. Placement Agent. Unless set forth in this Agreement, no fees
or commissions will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other person
or entity, with respect to the transactions contemplated by the Transaction
Documents. The Investor shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other persons or entities for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers, directors,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses incurred in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. The Investor and each holder of the Shares shall
have all rights and remedies set forth in this Agreement and the Registration
Rights Agreement and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any default or breach of any provision of this Agreement, including
the recovery of reasonable attorneys fees and costs, and to exercise all other
rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor enforces or
20
exercises its rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
q. Pricing of Common Stock. For purposes of this Agreement, the
bid price of the Common Stock in this Agreement shall be as reported on
Bloomberg.
Flexxtech Corporation
SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be
bound by the terms and conditions of the Investment Agreement and the
Registration Rights Agreement.
1. The undersigned signatory hereby certifies that he/she has
read and understands the Investment Agreement, and the representations made by
the undersigned in this Investment Agreement are true and accurate.
By: ________________________
____________________________ By: __________________________________
Date Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: A Managing Member
COMPANY ACCEPTANCE PAGE
This Investment Agreement accepted and agreed
to on April 2, 2003.
Flexxtech Corporation
By __________________________________
▇▇▇▇ ▇▇▇▇▇▇▇, its CEO
LIST OF EXHIBITS
----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT D Broker Representation Letter
EXHIBIT E Board Resolution
EXHIBIT F Put Notice
EXHIBIT G Put Settlement Sheet
EXHIBIT H Partial Release of Put Amount and Shares
LIST OF SCHEDULES
-----------------
Schedule 4(a) Subsidiaries
Schedule 4(c) Capitalization
Schedule 4(e) Conflicts
Schedule 4(g) Material Changes
Schedule 4(h) Litigation
Schedule 4(l) Intellectual Property
Schedule 4(n) Liens
21
Schedule 4(t) Certain Transactions
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
______________________
______________________
______________________
Re: Flexxtech Corporation
Dear ________________:
It is our understanding that the Form______ Registration Statement bearing SEC
File Number ( ___-______) filed by Flexxtech Corporation on Form _____ on
__________, 2003 was declared effective on _________, 200_.
This letter shall confirm that ______________ shares of the common stock of
Flexxtech Corporation are being sold on behalf of __________________ and that we
shall comply with the prospectus delivery requirements set forth in that
Registration Statement by filing the same with the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
______________________
cc: .
EXHIBIT E
EXHIBIT F
Date:
RE: Put Notice Number __
Dear ▇▇. ▇▇▇▇▇▇▇▇,
This is to inform you that as of today, Flexxtech Corporation., a Nevada
corporation (the "Company"), hereby elects to exercise its right pursuant to the
Investment Agreement to require ______________________-. to purchase shares of
its common stock. The Company hereby certifies that:
The amount of this put is $__________.
The Pricing Period runs from ________ until _______.
The current number of shares issued and outstanding as of the Company are:
______________________
22
Regards,
______________________
▇▇▇▇ ▇▇▇▇▇▇▇
Flexxtech Corporation
EXHIBIT G
PUT SETTLEMENT SHEET
Date:
▇▇▇▇▇▇,
Pursuant to the Put given by Flexxtech Corporation to _____________________ on
_________________ 20xx, we are now submitting the amount of common shares for
you to issue to __________.
Please have a certificate baring no restrictive legend totaling __________
shares issued to ________________ immediately and send via DWAC to the following
account:
XXXXXX
If not DWAC eligible, please send Fedex Priority Overnight to:
XXXXXX
Once these shares are received by us, we will have the funds wired to the
Company.
Regards,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
1Exhibit H
PARTIAL RELEASE OF PURCHASE AMOUNT AND SHARES
To:
▇▇▇▇ ▇▇▇▇▇▇▇, CEO
Flexxtech Corporation
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone:
Facsimile:
With a copy to
Pursuant to the terms of the Investment Agreement the Investor requests the
release from the Company of __________ shares of the Company's Common Stock by
overnight delivery or DWAC, if available, and the Investor, upon confirmation of
receipt of the Securities by the Investor shall wire $____________ to the
Company within two (2) Trading Days of said confirmation at which time Investor
shall wire the funds to the Company.
23
INVESTOR
By: ________________________________________
Note: The number of Shares stated in this PARTIAL RELEASE OF PUT AMOUNT AND
SHARES Form shall be equal to the dollar amount to be released divided by 92%
(ninety-two percent) of the lowest closing bid price during that number of
Trading Days that have elapsed in the specified Pricing Period.
SCHEDULE 4(a) SUBSIDIARIES
SCHEDULE 4(c) CAPITALIZATION
SCHEDULE 4(e) CONFLICTS
SCHEDULE 4(g) MATERIAL CHANGES
SCHEDULE 4(h) LITIGATION
SCHEDULE 4(l) INTELLECTUAL PROPERTY
SCHEDULE 4(n) LIENS
SCHEDULE 4(t) CERTAIN TRANSACTIONS
24
