Exhibit 10.1 SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of April 7,
2000, is entered into by and among e-Net ▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation, a Nevada
corporation, with headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and the investors listed on Schedule 1 attached
hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, no par value per share: the Company's Series C Preferred Stock (the
"Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, par value $ 0.001 per share (the "Common Stock") (as converted,
the "Conversion Shares"), in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Preferred Stock,
substantially in the form attached hereto as Exhibit A (the "Certificate of
Designations");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 20,000 shares of the Preferred Stock (the
"Preferred Shares"), no par value per share, in the respective amounts set forth
opposite each Buyer's name on Schedule 1 and warrants, in substantially the same
form attached hereto as Exhibit B (the "Warrants") to acquire 151,351 shares of
Company Common Stock (as exercised, collectively, the "Warrant Shares"); and
D. 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 C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. In connection with the
offering (the "Offering") by the Company of the Preferred Shares and Warrants to
the Buyers, and subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer
and each Buyer severally agrees to purchase from the Company the respective
number of Preferred Shares set forth opposite such Buyer's name on Schedule 1,
along with Warrants to acquire the respective number of Warrant Shares set forth
opposite such Buyer's name on Schedule 1 (the "Closing"). The purchase price
(the "Purchase Price") of the Preferred Shares and the related Warrants at the
Closing shall be $2,000,000.
b. Closing Date. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m. Central Time, within five (5) business days following the
date hereof, subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and the Buyers). The Closing shall
occur on the Closing Date at the offices of the nominee of the Buyers or at such
other location as agreed by the Company and the Buyers.
c. Form of Payment. On the Closing Date, (i) subject to the
satisfaction (or waiver) of the conditions set forth in Section 7 below, each
Buyer shall pay the Purchase Price to the Company, for the Preferred Shares and
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) subject to the satisfaction (or waiver) of the conditions
set forth in Section 6 below, the Company shall deliver to the nominee of the
Buyers, as the escrow agent (the "Escrow Agent"), on behalf of each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "Preferred
Stock Certificates") representing such number of the Preferred Shares which such
Buyer is then purchasing (as indicated opposite such Buyer's name on Schedule 1)
along with the Warrants such Buyer is purchasing (as indicated opposite such
Buyer's name on Schedule 1) hereunder, duly executed on behalf of the Company
and registered in the name of such Buyer or its designee. Upon the completion of
the conditions contained in Sections 6 and 7 of this Agreement, the Escrow Agent
shall deliver the certificates representing the Preferred Shares and the
Warrants to the Buyers via overnight courier after the Buyers have wired the
Purchase Price to the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer is acquiring the Preferred Shares
and Warrants (the Preferred Shares and Warrants may also be referred to herein
as the "Securities"), for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as
amended, (or a successor rule thereto) ("Rule 144"); and (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, and if Seller intends to utilize Rule 144 but
Rule 144 is not applicable to such resale, any resale of the Securities under
circumstances in which the Seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder.
g. Legends. Such Buyer understands that the Preferred Stock
Certificates and certificates or other instruments representing the Warrants and
the stock certificates representing the Conversion Shares and the Warrant Shares
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR
ASSIGNED PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or affecting generally, the enforcement of applicable creditors' rights and
remedies.
i. Residency. Such Buyer is a resident of that country and state,
if applicable, specified in its address on Schedule 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in
which the Company, directly or indirectly, owns a controlling position of
capital stock or holds a controlling position of an equity or similar
interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their
properties and to carry on their business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any
material adverse effect on the business, properties, assets, operations,
results or 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 below
in Section 3(b)).
b. Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Transfer Agent
Instructions (as defined in Section 5), the Warrants and the Certificate of
Designations 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 issuance of the Preferred Shares and the Warrants
and the reservation for issuance and the issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof,
respectively, have been duly 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 stockholders, (iii) the Transaction Documents
have been duly 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, and (v) prior to the Closing
Date, the Certificate of Designations has been filed with the Secretary of
State of the State of Nevada and will be in full force and effect,
enforceable against the Company in accordance with its terms.
c. Issuance of Securities. The Securities are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. The Preferred Shares
shall be entitled to the rights and preferences set forth in the
Certificate of Designations. 533,332 shares of Company common stock
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(g) below) have been duly authorized and reserved for issuance
upon conversion of the Preferred Shares and exercise of the Warrants. Upon
conversion in accordance with the Certificate of Designations or exercise
in accordance with the Warrants, the Conversion Shares and Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Company
common stock. The issuance by the Company of the Securities is, and the
issuance by the Company of the Conversion Shares and Warrant Shares shall
be, exempt from registration under the 1933 Act.
d. 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 (including, without
limitation, the Company's issuance of the Securities and the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares)
will not (i) result in a violation of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the
"Articles of Incorporation") or the Company's By-laws, as amended and as in
effect on the date hereof (the "By-laws") or any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any material agreement, indenture 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 federal and state securities laws and regulations and the rules
and regulations of the Principal Market (as defined in Section 4(f) below))
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. Neither the Company nor its Subsidiaries is in violation of any
term of or in default under its Articles of Incorporation, any Certificate
of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or By-laws or their organizational charter
or by-laws, respectively. Neither the Company or any of its Subsidiaries is
in violation of any term of or in default under 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 which would not 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, ordinance, regulation of any
governmental entity, 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 the Transaction Documents
and as required under the 1933 Act, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self-regulatory
agency 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,
orders, filings and registrations which the Company is required to obtain
prior to Closing pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. 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 in violation of the listing requirements
of the Principal Market (as defined in Section 4(f) below).
e. SEC Documents; Financial Statements. As of the Closing, 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 Securities Exchange Act of 1934, as amended (the "1934
Act") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to
as 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
in order 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 information provided by or on behalf of the Company
to the Buyers which is not included in the SEC Documents, including,
without limitation contains any untrue statement of a material fact or
omits to state any material fact necessary in order 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
Buyers with any material, nonpublic information.
f. Absence of Certain Changes. Since the most recent filing by
the Company with the SEC, there has been no material adverse change and no
material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or
its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
g. Absence of Litigation. Except as set forth in the SEC
Documents, 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 Company or any of
its Subsidiaries, threatened against or affecting the Company, the
Company's common stock, the Common Shares 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.
h. [Reserved].
i. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has
occurred or exists, or is contemplated to occur, with respect to the
Company or its Subsidiaries or their respective business, properties,
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.
j. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of
the Securities.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations
of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated, nor will the Company or
any of its Subsidiaries take any action or steps that would require
registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
l. 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.
m. 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. 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 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 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.
n. 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.
o. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
SEC Documents 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 and any of its Subsidiaries. Any real property
and facilities held under lease by the Company and 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.
p. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes
to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged and the Company does not have any reason to
believe it will not be able to renew its existing insurance coverage under
substantially similar terms for the next two (2) years.
q. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to 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, authorization or permit.
r. Tax Status. The Company and each of its Subsidiaries has made
or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company 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.
s. Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof, none of the
officers, control parties, control entities, 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.
t. Eligibility. The Company is currently eligible to register the
resale of the Conversion Shares and Warrant Shares on a registration
statement on Form SB-2 under the 1933 Act.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at the Closing pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States, and shall provide evidence of any such action so
taken to the Buyers on or prior to the Closing Date. The Company shall make
all filings and reports relating the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of
the United States following the Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is
one year after the date as of which the Investors (as that term is defined
in the Registration Rights Agreement) may sell all of the Conversion Shares
and Warrant Shares without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which (A)
the Investors shall have sold all the Conversion Shares and Warrant Shares
(the "Registration Period") and (B) none of the Preferred Shares or
Warrants is outstanding, 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 an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. Filing of Form 8-K. On or before the fifth (5th) business day
following the Closing, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
e. Right of First Refusal. Subject to the exceptions described
below, the Company and its Subsidiaries shall not negotiate or contract
with any party for any equity financing (including any debt financing with
an equity component) or issue any equity securities of the Company or any
Subsidiary or securities convertible or exchangeable into or for equity
securities of the Company or any Subsidiary (including debt securities with
an equity component) in any form ("Future Offerings") during the period
beginning on the date hereof and ending on, and including, the date which
is 180 days after the Closing Date, unless it shall have first delivered to
each Buyer or a designee appointed by such Buyer written notice (the
"Future Offering Notice") describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Buyer an
option to purchase up to its Aggregate Percentage (as defined below) of the
securities to be issued in such Future Offering, as of the date of delivery
of the Future Offering Notice, in the Future Offering (the limitations
referred to in this sentence is referred to as the "Capital Raising
Limitations"). For purposes of this Section 4(e), "Aggregate Percentage" at
any time with respect to any Buyer shall mean the percentage obtained by
dividing (i) the aggregate number of the Preferred Shares initially issued
and the Closing to such Buyer by (ii) the aggregate number of the Preferred
Shares sold to the Buyers by the Company at the Closing in connection with
the Offering. A Buyer can exercise its option to participate in a Future
Offering by delivering written notice thereof to participate to the Company
within five (5) business days after receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the
Future Offering that such Buyer will purchase, up to its Aggregate
Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers
fail to elect to purchase up to each such Buyer's Aggregate Percentage,
then each Buyer which has indicated that it is willing to purchase a number
of securities in such Future Offering in excess of its Aggregate Percentage
shall be entitled to purchase its pro rata portion (determined in the same
manner as described in the preceding sentence) of the securities in the
Future Offering which one or more of the Buyers have not elected to
purchase. In the event the Buyers fail to elect to fully participate in the
Future Offering within the periods described in this Section 4(e), the
Company shall have 45 days thereafter to sell the securities of the Future
Offering that the Buyers did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in
the Future Offering Notice. In the event the Company has not sold such
securities of the Future Offering within such 45 day period, the Company
shall not thereafter issue or sell such securities without first offering
such securities to the Buyers in the manner provided in this Section 4(e).
The Capital Raising Limitations shall not apply to (i) a loan from a
commercial bank which does not have any equity feature, (ii) any
transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, or (B) as consideration for the
acquisition of a business, product, license or other assets by the Company,
(iii) the issuance of common stock in a firm commitment, underwritten
public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, (v) the grant of additional
options or warrants, or the issuance of additional securities, under any
Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors ((i) through (v)
collectively, the "Exempt Issuances"). The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first
refusal with respect to later Future Offerings.
f. Listing. The Company shall promptly secure the listing of all
of the Registrable Securities (as that term is defined in the Registration
Rights Agreement) upon each national securities exchange, automated
quotation system or bulletin board system, if any, upon which shares of the
Company's common stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of common stock
shall be so listed, such listing of all Registrable Securities from time to
time issuable under the terms of the Transaction Documents. The Company
shall utilize its best efforts to cause the Company's Common Stock to be
authorized for quotation on the Nasdaq National Market ("NNM") or the
Nasdaq Small-Cap Market ("NSCM") and the Company shall maintain the Common
Stock's authorization for quotation on the NNM, NSCM or OTC Electronic
Bulletin Board, as applicable,(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 Company common stock
on the Principal Market. The Company shall promptly, and in no event later
than the following business day, provide to each Buyer copies of any
notices it receives from the Principal Market regarding the continued
eligibility of Company 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 4(f).
g. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Company common stock
needed to provide for the issuance of the shares of Company common stock
upon conversion of all outstanding Preferred Shares and exercise of all
outstanding Warrants.
h. Issuance of Conversion Shares and Warrant Shares. The issuance
of the Conversion Shares and Warrant Shares shall be duly authorized, and
when issued in accordance with the Certificate of Designations or Warrants,
as applicable, the Conversion Shares and Warrant Shares will be validly
issued, fully paid and non-assessable and free of all taxes, liens, charges
and preemptive rights with respect to the issue thereof.
i. Limitation on Filing Registration Statements. The Company
shall not file a registration statement (other than the Registration
Statement (as defined in the Registration Rights Agreement) or a
registration statement on Form S-8) covering the sale or resale of shares
of Company common stock with the SEC during the period beginning on the
date hereof and ending on the date which is 90 days after the Registration
Statement has been declared effective by the SEC.
j. Independent Auditors. The Company shall, until at least three
(3) years after the Closing Date, maintain as its independent auditors an
accounting firm authorized to practice before the SEC.
k. Corporate Existence and Taxes. The Company shall, until at
least the later of (i) the date that is three (3) years after the Closing
Date or (ii) the conversion or redemption of all Preferred Stock and
exercise of all Warrants purchased pursuant to this Agreement, maintain its
corporate existence in good standing (provided, however, that the foregoing
covenant shall not prevent the Company from entering into any merger or
corporate reorganization as long as the surviving entity in such
transaction, if not the Company, has common stock listed for trading on the
Principal Market and shall pay all its taxes when due except for taxes
which the Company disputes).
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
(the "Transfer Agent"), and any subsequent transfer agent, substantially in
the form of Exhibit D hereto (the "Transfer Agent Instructions") to issue
certificates, registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares or Warrant Shares, as applicable in
such amounts as specified from time to time by each Buyer to the Company
upon conversion of the Preferred Shares or exercise of the Warrants, as
applicable. Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants
that no instruction other than the Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section
2(f) hereof will be given by the Company to its Transfer Agent and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in
any way each Buyer's obligations and agreements set forth in Section 2(g)
to comply with all applicable prospectus delivery requirements, if any,
upon resale of the Securities. If a Buyer provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act or the Buyer provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit
the transfer, and, in the case of the Conversion Shares and Warrant Shares,
promptly instruct its Transfer Agent to issue one or more certificates in
such name and in such denominations as specified by such Buyer and without
any restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions
of this Section 5, that the Buyers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and Warrants to each Buyer at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion
by providing each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents, where appropriate, to which it is a party and delivered the same
to the Escrow Agent for the transactions contemplated by this Agreement;
b. The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the
Closing Date; and
c. Such Buyer shall have delivered to the Escrow Agent such other
documents relating to the transactions contemplated by this Agreement as
the Escrow Agent may reasonable request.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares and Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
a. The Company shall have executed each of the Transaction
Documents and delivered the same to the Escrow Agent;
b. The Company's common stock shall be authorized for quotation
on the Principal Market and trading in Company common stock shall not have
been suspended by the SEC or the Principal Market;
c. The Certificate of Designations, shall have been filed with
the Secretary of State of the State of Nevada, and a copy thereof certified
by such Secretary of State shall have been delivered to such Buyer;
d. The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date) and the 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 at or prior to the Closing Date;
e. The Company shall have delivered to the Escrow Agent the
opinion of the Company's counsel dated as of the Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit E attached hereto;
f. The Company shall have executed and delivered to the Escrow
Agent the Preferred Stock Certificates and Warrants (in such denominations
as such Buyer shall request) for the Preferred Shares and Warrants being
purchased by such Buyer at the Closing;
g. The Transfer Agent Instructions shall have been delivered to
and acknowledged in writing by the Company's transfer agent and a copy of
the executed Transfer Agent Instructions shall have been delivered to the
Escrow Agent;
h. The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of
the Securities pursuant to this Agreement in compliance with such laws;
i. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued common stock, solely for the purpose of
effecting the conversion of the Preferred Shares and exercise of the
Warrants, no less than 200% of the number of shares of Company common stock
needed to provide for the issuance of the shares of Company common stock
upon conversion of all outstanding Preferred Stock and exercise of all
outstanding Warrants;
j. The Company shall have delivered to the Escrow Agent such
other documents relating to the transactions contemplated by this Agreement
as the Escrow Agent may reasonably request;
k. Subject to Section 11(l) below, at Closing, the Company shall
reimburse the Buyers for the Buyers' attorneys' fees and other expenses (in
an amount not to exceed $25,000.00) incurred by the Buyers concerning the
due diligence review of the contemplated transactions and the Company, and
the negotiation and preparation of the Transaction Documents and the
consummation of the transactions contemplated thereby;
l. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Buyer;
m. The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10
days of the Closing;
n. The Company shall have delivered to such Buyer a certified
copy of the Articles of Incorporation as certified by the Secretary of
State of the State of Nevada within 10 days of the Closing; and
o. The Company shall have delivered to such Buyer a secretary's
certificate, dated as the Closing, as to (i) the resolutions described in
Section 7(l), (ii) the Articles of Incorporation and (iii) the Bylaws, each
as in effect at the Closing.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
each Buyer and each other holder of the Securities and all of their
stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought or whether such Indemnitee commenced such action), 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 (a) 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, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (c) any cause of
action, suit or claim brought or made against such Indemnitee 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, (d) 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 (e) the status of
such Buyer or holder of the Securities as an investor in the Company. 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.
9. [Reserved.]
10. LIQUIDATED DAMAGES.
The Company agrees that Buyers will suffer damages if the Company
violates any provision of or fails to fulfill any of its obligations or
duties pursuant to the Transaction Documents, other than the Registration
Rights Agreement (a "Company Violation"), and that it would not be possible
to ascertain the extent of such damages. Accordingly, in the event of such
Company Violation, the Company hereby agrees to pay liquidated damages
("Liquidated Damages") to each Buyer following the occurrence of such
Company Violation in an amount determined by multiplying (i) $2.00 per
Preferred Share initially purchased by such Buyer by (ii) the percentage
derived by dividing (A) the actual number of days elapsed from the last day
of the date of the Company Violation or the prior 30-day period, as
applicable, to the day such Company Violation has been completely cured by
(B) 30, in cash. The Liquidated Damages payable pursuant hereto shall be
payable within five (5) business days from the end of the calendar month
commencing on the first calendar month in which a Company Violation occurs.
Notwithstanding anything that may be construed to the contrary, the Company
shall be obligated to pay separate Liquidated Damages for each Company
Violation until each such Company Violation has been completely cured.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall
be governed by and construed in all respects by the internal laws of the
State of Illinois (except for the proper application of the United States
federal securities laws), without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in the City of Chicago. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
b. 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.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of,
this Agreement.
d. 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.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, 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 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 any Buyer 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 holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the
party against whom enforcement is sought.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii)
one business 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:
e-Net ▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
With a copy to:
▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
If to the Transfer Agent:
▇▇▇▇▇▇▇▇ Stock Transfer
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
If to a Buyer, to it at the address and facsimile number set forth on
Schedule 1 with copies to such Buyer's representatives as set forth on
Schedule 1, or at such other address and/or facsimile number and/or to the
attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the
effectiveness of such change.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company
shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of holders of at least two-thirds (2/3)
of the Preferred Shares then outstanding. A Buyer may assign some or all of
its rights hereunder without the consent of the Company, provided, however,
that any such assignment shall not release such Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and the
Company has consented to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
11(l), the agreements and covenants set forth in Sections 4, 5 and 11, the
indemnification provisions set forth in Section 8 and the liquidated
damages provisions set forth in Section 10 shall survive the Closing. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. [Reserved].
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments
and documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from
the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching
party shall have the option to terminate this Agreement with respect to
such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 11(l), the Company shall
remain obligated to reimburse the nonbreaching Buyers for the expenses
described in Section 7(i) above.
m. Placement Agent. The Company acknowledges that it has engaged
▇▇▇▇▇▇ ▇▇▇▇ & Associates as placement agent in connection with the sale of
the Preferred Shares and Warrants, which placement agent may have formally
or informally engaged other agents on its behalf. The Company shall be
responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorneys' fees
and out of pocket expenses) arising in connection with any such claim.
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. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents 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 breach of any provision of this Agreement 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 Buyers hereunder or pursuant to the Transaction
Documents or the Buyers enforce or exercise their 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.
[Signature Page Follows]
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
E-NET ▇▇▇▇▇▇▇▇▇.▇▇▇ CRANSHIRE CAPITAL, L.P.
CORPORATION
By: Downsview Capital, Incorporated,
the General Partner
By:
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By:
Title: President Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
EURAM CAP STRAT. "A" FUND LIMITED
By: JMJ Capital, Inc.,
the Investment Manager
By:
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
KEYWAY INVESTMENTS LTD.
By:
Name:
Title:
THE DOTCOM FUND, LLC
By:
Name:
Title:
SCHEDULE 1: LIST OF INVESTORS
-----------------------------
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Investor's Investor Address Purchase Number of Number of Investor's Legal Representatives'
Name and Facsimile Number Price Preferred Shares Warrant Shares Address and Facsimile Number
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Cranshire c/o Downsview Capital, $700,000.00 7,000 52,973 Strategic Investment Counsel,
Capital, L.P. Inc. LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. ▇▇▇▇
1901 Northbrook, IL 60062
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (p) 847/564-9293
(p) 847/562-9030 (f) 847/564-5497
(f) 847/562-9031
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EURAM Cap c/o JMJ Capital, Inc. $500,000.00 5,000 37,838
Strat. "A" ▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(p) 847/562-9030
(f) 847/562-9031
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▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ $500,000.00 5,000 37,838
Investments Douglas, Isle of Man
Ltd. United Kingdom
1M1 2QG
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
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The dotCom ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. $300,00.00 3,000 22,702
Fund, LLC ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇
(p)847/509-2290
(f)847/509-2295
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Total $2,000,000.00 20,000 151,351
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EXHIBITS
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Exhibit A Form of Certificate of Designations, Preferences and Rights of
the Series C Preferred Stock
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Transfer Agent Instructions
Exhibit E Form of Company Counsel Opinion
Exhibit A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
E-NET ▇▇▇▇▇▇▇▇▇.▇▇▇ CORPORATION
e-Net ▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Nevada, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by the Articles of Incorporation, as amended, of the Company, and
pursuant to the General Corporation Law of the State of Nevada, the Board of
Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, no
par value per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of twenty thousand (20,000) shares of
Series C Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 20,000 shares of Series C
Preferred Stock (the "Preferred Shares"), no par value per share, which shall
have the following powers, designations, preferences and other special rights:
(1) Dividends.
(a) Regular Dividends. Each holder (a "Holder" and, collectively, the
"Holders") of the Preferred Shares shall be entitled to receive on each April 7
and October 7, or if such date is not a Business Day, the immediately subsequent
Business Day, commencing October 7, 2000 (each, a "Dividend Payment Date"),
dividends ("Regular Dividends") at a rate of seven percent (7%) per annum,
computed on the basis of $100.00 per Preferred Share. Such dividends shall be
cumulative from (and including) such Preferred Share's Issuance Date (as defined
below) and shall accrue daily, whether or not earned or declared, thereafter
until paid and be calculated on the basis of a 360 day year. Dividends shall be
payable in cash; provided, however that in lieu of paying such dividends in
cash, the Company may, at its option, at the time of conversion of any or all
Preferred Shares held by any Holder, increase the Transaction Value (defined
below) of each Preferred Share by the amount of Regular Dividends which have
accrued on such Preferred Share but have not been paid by the Company.
(b) Participating Dividends. In the event any dividend or other
distribution payable in cash or other property is declared on the Common Stock
(defined below), each Holder on the record date for such dividend or
distribution shall be entitled to receive per Preferred Share on the date of
payment or distribution of such dividend or other distribution the amount of
cash or property ("Participating Dividends") equal to the cash or property which
would be received by the Holders of the number of shares of Common Stock into
which such Preferred Share would be converted pursuant to Section 2 hereof
immediately prior to such record date; provided, however, that in lieu of paying
such dividends in cash or property, each Holder may, at its sole discretion, at
the time of conversion of any or all Preferred Shares held by such Holder,
receive such dividends by increasing the Transaction Value of each Preferred
Share by the amount of Participating Dividends which have accrued on such
Preferred Share but have not been paid by the Company.
(c) General Payment Provisions. All payments made by the Company with
respect to any Preferred Share shall be made in lawful money of the United
States of America by wire transfer of immediately available funds to such
account as the Holder may from time to time designate by written notice to the
Company in accordance with the provisions of this Certificate of Designations.
Whenever any amount expressed to be due by the terms of this Certificate of
Designations is due on any day which is not a Business Day (as defined below),
the same shall instead be due on the next succeeding day which is a Business
Day.
(2) Conversion of Preferred Shares. Preferred Shares shall be convertible
into shares of the Company's common stock, par value $ 0.001 per share (the
"Common Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:
(i) "Business Day" means any day in which the Principal Market is
open for business.
(ii) "Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security on the Principal Market (as defined
below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security on the OTC Electronic Bulletin Board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, LLC. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holders
of Preferred Shares. If the Company and the Holders of Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(e)(iii) below with the term
"Closing Bid Price" being substituted for the term "Conversion Rate." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
(iii) "Closing Date" has the same meaning as the term is defined
in the Securities Purchase Agreement (the "Securities Purchase Agreement"),
entered into by and between the Company and the initial Holders of the Preferred
Shares, dated April 7, 2000.
(iv) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, the lower of (A) the Fixed
Conversion Price and (B) the Floating Conversion Price, each in effect as of
such date and subject to adjustment as provided herein.
(v) "Conversion Percentage" shall be determined as follows:
(A) if the period of time, with respect to such
Preferred Share, commencing on the Issuance Date and ending on
the Conversion Date is less than one hundred fifty (150) calendar
days, then the Conversion Percentage shall be one hundred percent
(100%);
(B) if the period of time, with respect to such
Preferred Share, commencing on the Issuance Date and ending on
the Conversion Date is equal to or greater than one hundred fifty
(150) calendar days, but less than or equal to one hundred eighty
(180) calendar days, then the Conversion Percentage shall be
ninety-one and one-quarter percent (91.25%);
(C) if the period of time, with respect to such
Preferred Share, commencing on the Issuance Date and ending on
the Conversion Date is equal to or greater than one hundred
eighty-one (181) calendar days, but less than or equal to two
hundred ten (210) calendar days, then the Conversion Percentage
shall be eighty-eight and thirty-four hundredths percent
(88.34%);
(D) if the period of time, with respect to such
Preferred Share, commencing on the Issuance Date and ending on
the Conversion Date is equal to or greater than two hundred
eleven (211) calendar days, but less than or equal to two hundred
forty (240) calendar days, then the Conversion Percentage shall
be eighty-five and forty-two hundredths percent (85.42%); and
(E) if the period of time, with respect to such
Preferred Share, commencing on the Issuance Date and ending on
the Conversion Date is equal to or greater than two hundred
forty-one (241) calendar days, then the Conversion Percentage
shall be eighty-two and one-half percent (82.50%);
provided, however, that in each case the Conversion Percentage is
subject to adjustment as provided herein.
(vi) "Fixed Conversion Price" means $6.7275, subject to
adjustment as provided herein.
(vii) "Floating Conversion Price" means as of any date of
determination, the amount determined by multiplying (i) the Market Price of the
Company Common Stock by (ii) the Conversion Percentage in effect as of such
date, subject to adjustment as provided herein.
(viii) "Market Price" means, with respect to any security for any
period, that price which shall be computed as the equally-weighted arithmetic
average of the three (3) lowest Closing Bid Prices for such security during the
ten (10) consecutive trading day period immediately preceding such date of
determination. (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period).
(ix) "Closing Sale Price" means, for any security as of any date,
the last closing trade price for such security on the Principal Market (as
defined below) as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing trade price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing trade price of such security
in the OTC Electronic Bulletin Board for such security as reported by Bloomberg,
or, if no last closing trade price is reported for such security by Bloomberg,
the last closing ask price of such security as reported by Bloomberg, or, if no
last closing ask price is reported for such security by Bloomberg, the average
of the ask prices of any market makers for such security as reported in the
"pink sheets" by the National Quotation Bureau, LLC. If the Closing Sale Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holders of Preferred
Shares. If the Company and the Holders of Preferred Shares are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(e)(iii) below with the term "Closing Sale Price"
being substituted for the term "Conversion Rate." (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period).
(x) "Issuance Date" means, with respect to each Preferred Share,
the date of issuance of the applicable Preferred Share.
(xi) "Mandatory Conversion Date" means, with respect to any
Preferred Share, the date which is three (3) years after the Issuance Date.
(xii) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(xiii) "Principal Market" means the Nasdaq National Market, the
Nasdaq Small-Cap Market or the OTC Electronic Bulletin Board.
(xiv) "Registration Rights Agreement" means that certain
Registration Rights Agreement entered into by and between the Company and
certain investors, dated as of April 7, 2000.
(xv) "Transaction Value" means the sum of (A) $100.00, (B)
accrued and unpaid Regular Dividends, if so included at the Company's sole
discretion and (C) accrued and unpaid Participating Dividends, if so included at
the Holder's sole discretion, subject to adjustment as provided herein.
(b) Holder's Conversion Right; Mandatory Conversion. Subject to the
provisions of Section 2(d) below, at any time or times on or after the Issuance
Date, any Holder of Preferred Shares shall be entitled to convert any whole
number of Preferred Shares into fully paid and nonassessable shares of Common
Stock in accordance with Section 2(e), at the Conversion Rate (as defined
below). If any Preferred Shares remain outstanding on the Mandatory Conversion
Date, then, subject to Section 2(d) below, such Preferred Shares shall be
converted at the Conversion Rate as of such date in accordance with Section 2(e)
below. The Company shall not issue any fraction of a share of Common Stock upon
any conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a Holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of each Preferred Share pursuant to Section 2(b) shall be
determined according to the following formula (the "Conversion Rate"):
Transaction Value
-----------------
Conversion Price
(d) Limitation on Beneficial Ownership. The Company shall not effect
any conversion of any Preferred Share and no holder of any Preferred Share shall
have the right to convert any Preferred Share pursuant to Section 2(b) to the
extent that after giving effect to such conversion such Person (together with
such Person's affiliates) (A) would beneficially own in excess of 4.9% of the
outstanding shares of the Common Stock following such conversion and (B) would
have acquired, through conversion of any Preferred Share or otherwise (including
without limitation, exercise of any warrant issued pursuant to the Securities
Purchase Agreement), in excess of 4.9% of the outstanding shares of the Common
Stock following such conversion during the 60-day period ending on and including
such Conversion Date (defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by a Person and its
affiliates or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon conversion of the
Preferred Shares with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (i) conversion of the remaining, nonconverted Preferred Shares
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Person and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. Notwithstanding anything to the contrary
contained herein, each Conversion Notice (defined below) shall constitute a
representation by the holder submitting such Conversion Notice that, after
giving effect to such Conversion Notice, (A) the holder will not beneficially
own (as determined in accordance with this Section 2(d)) and (B) during the
60-day period ending on and including such Conversion Date, the holder will not
have acquired, through conversion of any Preferred Share or otherwise (including
without limitation, exercise or any Warrant), a number of shares of Common Stock
in excess of 4.9% of the outstanding shares of Common Stock as reflected in the
Company's most recent Form 10-Q or Form 10-K, as the case may be, or more recent
public press release or other public notice by the Company setting forth the
number of shares of Common Stock outstanding, but after giving effect to
conversions of any Preferred Share by such holder since the date as of which
such number of outstanding shares of Common Stock was reported.
(e) Mechanics of Conversion. The conversion of Preferred Shares shall
be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred Shares
into shares of Common Stock on any date (the "Conversion Date"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to
the Company's designated transfer agent (the "Transfer Agent") with a copy
thereof to the Company and (B) surrender to a common carrier for delivery to the
Transfer Agent as soon as practicable following such date the original
certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "Preferred Stock Certificates").
(ii) Company's Response. Upon receipt by the Company of a copy of
a Conversion Notice, the Company shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such Holder and the
Transfer Agent, which confirmation shall constitute an instruction to the
Transfer Agent to process such Conversion Notice in accordance with the terms
herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates
to be converted pursuant to a Conversion Notice, the Transfer Agent shall, on
the next business day following the date of receipt (or the second business day
following the date of receipt if received after 11:00 a.m. local time of the
Transfer Agent), (A) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled, or (B) provided the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system. If the number of Preferred Shares
represented by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of Preferred Shares being converted, then the Transfer
Agent shall, as soon as practicable and in no event later than three (3)
Business Days after receipt of the Preferred Stock Certificate(s) and at its own
expense, issue and deliver to the Holder a new Preferred Stock Certificate
representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the arithmetic calculation of the Conversion Rate, the Company
shall instruct the Transfer Agent to issue to the Holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the Holder via facsimile within one (1) Business
Day of receipt of such Holder's Conversion Notice. If such Holder and the
Company are unable to agree upon the determination of the arithmetic calculation
of the Conversion Rate within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall within one (1) Business Day submit via facsimile the disputed
arithmetic calculation of the Conversion Rate to an independent, reputable
investment bank or accountant selected by the affected Holders and approved by
the Company. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error and the Company
shall be liable and responsible for paying such investment bank or accountant
fees and expenses.
(iv) Record Holder. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within five (5) Business Days
after the Transfer Agent's receipt of the Preferred Stock
Certificates to be converted and a copy of the Conversion Notice
(the "Share Delivery Period") the Transfer Agent shall fail to
issue a certificate to a Holder or credit such Holder's balance
account with The Depository Trust Company for the number of
shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of Preferred Shares or to issue a new
Preferred Stock Certificate representing the number of Preferred
Shares to which such Holder is entitled pursuant to Section
2(e)(ii) (a "Conversion Failure"), in addition to all other
available remedies which such Holder may pursue hereunder and
under the Securities Purchase Agreement (including
indemnification pursuant to the provisions thereof), the Company
shall pay additional damages to such Holder on each date after
such third (3rd) Business Day such conversion is not timely
effected and/or such Preferred Stock Certificate is not delivered
in an amount equal to 1.0% of the product of (I) the sum of the
number of shares of Common Stock not issued to the Holder on a
timely basis pursuant to Section 2(e)(ii) and to which such
Holder is entitled and, in the event the Company has failed to
deliver a Preferred Stock Certificate to the Holder on a timely
basis pursuant to Section 2(e)(ii), the number of shares of
Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred
Stock Certificate to such Holder without violating Section
2(e)(ii) and (II) the Closing Sale Price of the Common Stock on
the last possible date which the Company could have issued such
Common Stock or such Preferred Stock Certificate, as the case may
be, to such Holder without violating Section 2(e)(ii). If the
Company fails to pay the additional damages set forth in this
Section 2(e)(v) within five (5) Business Days of the date
incurred, then the Holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail
to make such payments, to require the Company, upon written
notice, to immediately issue, in lieu of such cash damages, the
number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided
by (Y) the Conversion Price in effect on such Conversion Date as
specified by the Holder in the Conversion Notice and such shares
of Common Stock shall be considered Registrable Securities
pursuant to the Registration Rights Agreements and shall have the
respective registration rights thereunder.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a Holder has not received all
of the shares of Common Stock prior to the tenth (10th) Business
Day after the expiration of the Share Delivery Period with
respect to a conversion of Preferred Shares, then the Holder,
upon written notice to the Transfer Agent, with a copy to the
Company, may void its Conversion Notice with respect to, and
retain or have returned, as the case may be, any Preferred Shares
that have not been converted pursuant to such Holder's Conversion
Notice; provided that the voiding of a Holder's Conversion Notice
shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such notice pursuant to
Section 2(e)(v)(A) or otherwise. Thereafter, the Fixed Conversion
Price of any Preferred Shares returned or retained by the Holder
for failure to timely convert shall be adjusted to the lesser of
(I) the Fixed Conversion Price in effect as on the date on which
the Holder voided the Conversion Notice and (II) the lowest
Closing Bid Price during the period beginning on the Conversion
Date and ending on the date such Holder voided the Conversion
Notice.
(vi) Pro Rata Conversion and Redemption. In the event the Company
receives a Conversion Notice from more than one Holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each Holder of Preferred Shares
electing to have Preferred Shares converted at such time a pro rata amount of
such Holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such Holder relative
to the number of Preferred Shares submitted for conversion on such date.
(vii) Mechanics of Mandatory Conversion. Subject to Section 2(d)
above, on the Mandatory Conversion Date, all Holders of Preferred Shares shall
surrender all Preferred Shares to the Transfer Agent and all Preferred Shares
shall be converted as of such date as if the Holders of such Preferred Shares
had given the Conversion Notice for all such Preferred Shares on the Mandatory
Conversion Date; provided that the Mandatory Conversion Date shall be extended
for any Preferred Shares, at the sole discretion of the Holders of a majority of
the Preferred Shares then outstanding (determined by reference to principal
balance) for as long as (A) a Triggering Event (defined below) shall have
occurred and be continuing, (B) any event shall have occurred and be continuing
which with the passage of time and the failure to cure would result in a
Triggering Event or (C) in any such Holder's determination, Section 2(d) would
apply to any such conversion.
(f) Taxes. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon the conversion of
Preferred Shares.
(g) Adjustments to Conversion Price. The Conversion Price will be
subject to adjustment from time to time as provided in this Section 2(g).
(i) Adjustment of Fixed Conversion Price upon Issuance of Common
Stock. If and whenever on or after the date of issuance of the Preferred Shares,
the Company issues or sells, or in accordance with this Section 2(g) is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued by the
Company in connection with an Approved Stock Plan (as defined below) or upon
conversion of the Preferred Shares) for a consideration per share less than the
Fixed Conversion Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale, the Fixed Conversion Price
then in effect shall be reduced to an amount equal to ninety percent (90%) of
the consideration per Common Stock share, if any, received by the Company upon
such issue or sale. For purposes of determining the adjusted Fixed Conversion
Price under this Section 2(g)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options and the lowest price per share
for which one share of Common Stock is issuable upon the exercise
of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section
2(g)(i)(A), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities
and the lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes
of this Section 2(g)(i)(B), the "price per share for which one
share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or
sale of the Convertible Security and upon the conversion or
exchange of such Convertible Security. No further adjustment of
the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for
which adjustment of the Fixed Conversion Price had been or are to
be made pursuant to other provisions of this Section 2(g)(i), no
further adjustment of the Fixed Conversion Price shall be made by
reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for
Common Stock changes at any time, the Fixed Conversion Price in
effect at the time of such change shall be adjusted to the Fixed
Conversion Price which would have been in effect at such time had
such Options or Convertible Securities provided for such changed
purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued
or sold. For purposes of this Section 2(g)(i)(C), if the terms of
any Option or Convertible Security that was outstanding as of the
date of issuance of the Preferred Shares are changed in the
manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of
other securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
If any Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the fair market value of such securities on
the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity
in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such
Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the Preferred Shares then outstanding.
If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined within five business days after the tenth (10th) day
following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Holders of a
majority of the Preferred Shares then outstanding. The
determination of such appraiser shall be deemed binding upon all
parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1)
to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or (2) to subscribe
for or purchase Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(g)(i), the following terms have the respective meanings
set forth below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of
Directors of the Company and meets the qualifications and
requirements of Section 401(a) of the Internal Revenue Code of
1986, as amended, pursuant to which the Company's securities
may be issued to any employee, officer, director, consultant
or other service provider for services provided to the
Company.
(II) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or
Convertible Securities.
(III) "Convertible Securities" means any
stock or securities (other than Options) directly or
indirectly convertible into or exchangeable for Common Stock.
(ii) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(iii) Adjustment of Fixed Conversion Price Upon Major Corporate
Event Announcement. In the event (A) the Company makes a public announcement
that it intends to consolidate or merge with or into another Person or engage in
a business combination involving the issuance or exchange of more than 30% of
the Company's outstanding Common Stock, (B) the Company makes a public
announcement that it intends to sell or transfer all or substantially all of the
Company's assets, or (C) any Person (including the Company) publicly announces a
purchase, tender or exchange offer for more than 30% of the Company's
outstanding Common Stock (the transactions described in clauses (A), (B) and (C)
above are hereinafter referred to as "Major Corporate Events" and the date of
the announcement referred to in clause (A), (B) or (C) is hereinafter referred
to as the "Announcement Date"), then the Fixed Conversion Price shall, effective
upon the Announcement Date and continuing through and including the Adjusted
Conversion Price Termination Date (as defined below), be equal to the Conversion
Price which would have been applicable for a conversion by the Holder on the
Announcement Date. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in Section 2(c). For
purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with
respect to any proposed Major Corporate Event for which a public announcement as
contemplated by this Section 2(g)(iii) has been made, the date upon which the
Company or other Person (in the case of clause (C) above) consummates or
publicly announces the termination or abandonment of the proposed Major
Corporate Event which was the subject of the previous public announcement.
(iv) Holder's Right of Alternative Conversion Price Following
Issuance of Convertible Securities or Options. If the Company in any manner
issues or sells Convertible Securities or Options that are convertible into,
exchangeable for or exercisable into Common Stock at a price which varies with
the market price of the Common Stock (the formulation for such variable price
being herein referred to as, the "Variable Price"), the Company shall provide
written notice thereof via facsimile and overnight courier to each Holder of the
Preferred Shares ("Variable Notice") on the date of issuance of such Convertible
Securities or Options. From and after the date the Company issues any such
Convertible Securities or Options with a Variable Price, a Holder of Preferred
Shares shall have the right, but not the obligation, in its sole discretion to
substitute the New Variable Formula (defined below) for the Conversion Price
upon conversion of any Preferred Shares by designating in the Conversion Notice
delivered upon conversion of such Preferred Shares that solely for purposes of
such conversion the Holder is relying on the New Variable Formula rather than
the Conversion Price then in effect. The New Variable Formula shall be equal to
ninety percent (90%) of the Variable Price. A Holder's election to rely on a New
Variable Formula for a particular conversion of Preferred Shares shall not
obligate the Holder to rely on a New Variable Formula for any future conversions
of Preferred Shares.
(v) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 2(e) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(e).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to
each Holder of Preferred Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment.
(B) The Company will give written notice to each
Holder of Preferred Shares at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (I)
with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote
with respect to any Organic Change (as defined below),
dissolution or liquidation, provided that such information shall
be made known to the public prior to or in conjunction with such
notice being provided to such Holder.
(C) The Company will also give written notice to
each Holder of Preferred Shares at least twenty (20) days prior
to the date on which any Organic Change, dissolution or
liquidation will take place, provided that such information shall
be made known to the public prior to or in conjunction with such
notice being provided to such Holder.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the Holders of Preferred Shares contained herein, upon the
consummation of a Major Transaction (as defined below), each Holder of Preferred
Shares shall have the right, at such Holder's option, to require the Company to
redeem all or a portion of such Holder's Preferred Shares at a price per
Preferred Share equal to the greater of (i) 120% of the Transaction Value of
such Preferred Share and (ii) the product of (A) the Conversion Rate in effect
at such time as such Holder delivers a Notice of Redemption at Option of Buyer
Upon Major Transaction (as defined below) and (B) the Closing Sale Price of the
Common Stock on the date immediately preceding such Major Transaction on which
the Principal Market, or the market or exchange where the Common Stock is then
traded, is open for trading ("Major Transaction Redemption Price").
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the Holders of Preferred Shares contained herein, after a Triggering
Event (as defined below), each Holder of Preferred Shares shall have the right,
at such Holder's option, to require the Company to redeem all or a portion of
such Holder's Preferred Shares at a price per Preferred Share equal to the
greater of (i) 120% of the Transaction Value and (ii) the product of (A) the
Conversion Rate in effect at such time as such Holder delivers a Notice of
Redemption at Option of Buyer Upon a Triggering Event (as defined below) and (B)
the Closing Sale Price of the Common Stock on the date immediately preceding
such Triggering Event on which the Principal Market, or the market or exchange
where the Common Stock is then traded, is open for trading ("Triggering Event
Redemption Price" and, collectively with "Major Transaction Redemption Price,"
the "Redemption Price").
(c) "Major Transaction". A "Major Transaction" shall be deemed to have
occurred at such time as 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 purpose of changing the jurisdiction of
incorporation of the Company) involving the issuance, exchange or sale of more
than 30% of the shares of Common Stock then outstanding;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
more than 30% of the outstanding shares of Common Stock.
(d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder of the Preferred Shares for sale of all of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of five (5) consecutive trading days, provided that the cause of
such lapse or unavailability is not due to factors solely within the control of
such Holder of Preferred Shares;
(ii) the suspension from trading or failure of the Common Stock
to be listed on the Nasdaq National Market, the Nasdaq Small-Cap Market, the OTC
Electronic Bulletin Board, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. for a period of five (5) consecutive trading days or for
more than an aggregate of ten (10) trading days in any 365-day period (provided
that such failure shall not constitute a Triggering Event if caused by Holders
of Preferred Shares pursuant to Section 4(c) below);
(iii) the Company's or the Transfer Agent's notice to any Holder
of Preferred Shares, including by way of public announcement, at any time, of
its intention not to comply with a request for conversion of any Preferred
Shares into shares of Common Stock that is tendered in accordance with the
provisions of this Certificate of Designations, or the failure of the Transfer
Agent to comply with a Conversion Notice tendered in accordance with the
provisions of this Certificate of Designations within ten (10) Business Days
after the receipt by the Transfer Agent of the Conversion Notice;
(iv) upon the Company's receipt of a Conversion Notice, the
Company is not obligated to issue the Conversion Shares due to the provisions of
Section 12; or
(v) the Company breaches any material representation, warranty,
covenant or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designations or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby and hereby.
(e) Mechanics of Redemption at Option of Buyer Upon Major Transaction.
No sooner than 15 days nor later than 10 days prior to the consummation of a
Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each Holder
of Preferred Shares, which notice shall include the date by which a Holder
receiving a Notice of Major Transaction must provide the Company with notice of
its intent to exercise its redemption rights hereunder (which date shall not be
sooner than five business days after the date of the Notice of Major Transaction
(the "Major Transaction Response Date")). The Company shall publicly disclose
the material facts of such Major Transaction prior to or concurrently with
providing the Notice of Major Transaction, such public disclosure to be made not
later than 10 days prior to the consummation of such Major Transaction. At any
time after receipt of a Notice of Major Transaction and prior to the Major
Transaction Response Date (or, in the event a Notice of Major Transaction is not
delivered at least 10 days prior to a Major Transaction, at any time prior to
the consummation of a Major Transaction) any Holder of Preferred Shares then
outstanding may require the Company to redeem all of the Holder's Preferred
Shares then outstanding by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon Major
Transaction") to the Company, which Notice of Redemption at Option of Buyer Upon
Major Transaction shall indicate (i) the number of Preferred Shares that such
Holder is electing to redeem and (ii) the applicable Major Transaction
Redemption Price, as calculated pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each Holder of Preferred Shares. At any time after the
earlier of a Holder's receipt of a Notice of Triggering Event and such Holder
becoming aware of a Triggering Event, any Holder of Preferred Shares then
outstanding may require the Company to redeem all of the Preferred Shares by
delivering written notice thereof via facsimile and overnight courier ("Notice
of Redemption at Option of Buyer Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Preferred Shares that such Holder is electing to redeem and (ii)
the applicable Triggering Event Redemption Price, as calculated pursuant to
Section 3(b) above.
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s)
of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from
any Holder of Preferred Shares, the Company shall immediately notify each Holder
of Preferred Shares by facsimile of the Company's receipt of such notices and
each Holder which has sent such a notice shall promptly submit to the Transfer
Agent such Holder's Preferred Stock Certificates which such Holder has elected
to have redeemed. The Company shall deliver the applicable Redemption Price to
such Holder within five (5) Business Days after the Company's receipt of a
Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of
Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's
Preferred Stock Certificates shall have been so delivered to the Transfer Agent.
If the Company is unable to redeem all of the Preferred Shares submitted for
redemption, the Company shall (i) redeem a pro rata amount from each Holder of
Preferred Shares based on the number of Preferred Shares submitted for
redemption by such Holder relative to the total number of Preferred Shares
submitted for redemption by all Holders of Preferred Shares and (ii) in addition
to any remedy such Holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, pay to each Holder interest
at the rate of 2.5% per month (prorated for partial months) in respect of each
unredeemed Preferred Share until paid in full.
(h) Void Redemption. In the event that the Company does not pay the
Redemption Price within the time period set forth in Section 3(g), at any time
thereafter and until the Company pays such unpaid applicable Redemption Price in
full, a Holder of Preferred Shares shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to promptly
return to such Holder any or all of the Preferred Shares that were submitted for
redemption by such Holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or
the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Preferred Shares subject to
the Void Optional Redemption Notice, (ii) the Company shall immediately return
any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Void Optional Redemption Notice is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which the
Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice is delivered to the Company, and (iv) the Conversion Price in
effect at such time shall be reduced by the percentage equal to the product of
(A) .25 and (B) the number of days in the period beginning on the date which is
five business days after the date on which the Notice of Redemption at Option of
Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, is delivered to the Company and ending on
the date on which the Void Optional Redemption Notice is delivered to the
Company.
(i) Disputes; Miscellaneous. In the event of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale
Price", as the case may be, being substituted for the term "Conversion Rate" and
the term "Redemption Price" being substituted for the term "Conversion Rate". A
Holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice. Payments
provided for in this Section 3 shall have priority to payments to other
stockholders in connection with a Major Transaction. In the event of a
redemption pursuant to this Section 3 of less than all of the Preferred Shares
represented by a particular Preferred Stock Certificate, the Company shall
promptly cause to be issued and delivered to the Holder of such Preferred Shares
a preferred stock certificate representing the remaining Preferred Shares which
have not been redeemed.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change". Prior to the consummation of any (i) sale of all
or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement (in form and substance satisfactory to the Holders of a
majority of the Preferred Shares then outstanding) to deliver to each Holder of
Preferred Shares in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Preferred Shares, including, without limitation, having a stated value and
liquidation preference equal to the Transaction Value and the Liquidation
Preference of the Preferred Shares held by such Holder, and satisfactory to the
Holders of a majority of the Preferred Shares then outstanding. Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the Holders of a majority of
the Preferred Shares then outstanding) to insure that each of the Holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such Holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such Holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record Holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(c) Forced Delisting. If a redemption voided pursuant to Section 3(h)
was caused by a Triggering Event involving the Company's inability to issue
Conversion Shares because of the Primary Exchange Cap (as defined in Section
12), and if so directed by the Holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding, including shares of Preferred Shares
submitted for redemption pursuant to Section 3 with respect to which the
applicable Redemption Price has not been paid, in a Void Mandatory Redemption
Notice, the Company shall immediately delist the Common Stock from exchange or
automated quotation system on which the Common Stock is traded and have the
Common Stock, at such Holders' option, traded on the OTC Electronic Bulletin
Board or the "pink sheets".
(5) Company Redemption.
(a) Company's Right to Redeem at Its Election. Subject to Sections
5(d) and 5(e) below, on the date which is 180 calendar days after the Issuance
Date, the Company shall have the right, in its sole discretion, to redeem
("Redemption at the Company's Election"), from time to time, any or all of the
Preferred Shares at the Redemption Price at the Company's Election (as defined
below). If the Company elects to redeem some, but not all, of the Preferred
Shares, the Company shall redeem a pro rata amount from each holder of Preferred
Shares based on the number of Preferred Shares held by such holder relative to
the number of Preferred Shares outstanding.
(i) Redemption Price at the Company's Election. The "Redemption
Price at the Company's Election" shall be an amount per Preferred Share equal to
the sum of (A) the then Transaction Value and (B) any accrued but unpaid Regular
Dividends and Participating Dividends.
(b) Mechanics of Redemption at the Company's Election. The Company
shall effect each such redemption no earlier than twenty (20) trading days and
no later than forty (40) trading days after delivering written notice of its
Redemption at the Company's Election via facsimile and overnight courier
("Notice of Company Redemption") to (A) each holder of the Preferred Shares and
(B) the Transfer Agent. Such Notice of Company Redemption shall indicate (I) the
number of Preferred Shares that have been selected for redemption, (II) the date
that such redemption is to become effective (the "Date of Company Redemption")
and (III) the applicable Redemption Price at the Company's Election.
Notwithstanding anything to the contrary above, any Holder may convert into
Company Common Stock pursuant to Section 2, on or prior to the date immediately
preceding the Date of Company Redemption, any Preferred Shares held by such
Holder including Preferred Shares that have been selected for Redemption at the
Company's Election pursuant to this Section 6.
(c) Payment of Redemption Price. Each Holder submitting Preferred
Shares being redeemed under this Section 6 shall send such Holder's Preferred
Stock Certificates so redeemed to the Transfer Agent within five (5) Business
Days before the Date of Company Redemption, and the Company shall pay the
applicable redemption price to that Holder in cash within three (3) Business
Days after such Holder's Preferred Stock Certificates are delivered to the
Company or its Transfer Agent. If the Company shall fail to pay the applicable
redemption price to such holder on a timely basis as described in this Section
5, in addition to any remedy such holder of Preferred Shares may have under this
Certificate of Designations and the Securities Purchase Agreement, such unpaid
amount shall bear interest at the rate of 2.5% per month until paid in full and
the Conversion Percentage, or any subsequent Conversion Percentage, then in
effect shall be reduced by ten (10) percentage points. Notwithstanding the
foregoing, if the Company fails to pay the applicable redemption price to a
holder within the time period described this Section 5 due to a dispute as to
the arithmetic calculation of the redemption price, such dispute shall be
resolved pursuant to Section 2(e)(iii) above with the term "applicable
redemption price" being substituted for the term "Conversion Rate."
(d) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Redemption pursuant to Section 5(b) above and begin the redemption procedure
under this Section 5, unless it has:
(i) the full amount of the applicable redemption price in cash,
available in a demand or other immediately available account in a bank or
similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for us in redeeming
the Preferred Shares, in the full amount of the applicable redemption price;
(iii) a written agreement with a standby underwriter or qualified
buyer ready, willing and able to purchase from the Company a sufficient number
of shares of stock to provide proceeds necessary to redeem any stock that is not
converted prior to an applicable Redemption at the Company's Election; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the applicable
redemption price.
(e) Certain Conditions During Notice Period. The Company shall not be
entitled to redeem the Preferred Shares on a Date of Company Redemption, unless
each of the following conditions are satisfied as of the date of the Notice of
Company Redemption and on each day from such date until and including the later
of the Date of Company Redemption and the date on which the Company pays the
applicable Redemption Price:
(i) The Registration Statement shall be effective and available
for the sale of no less than 200% of the sum of (I) the number of Conversion
Shares (as defined in the Securities Purchase Agreement) then issuable upon the
conversion of all outstanding Preferred Shares and (II) the number of Warrant
Shares (as defined in the Securities Purchase Agreement) then issuable upon
exercise of all outstanding Warrants and (III) the number of Conversion Shares
and Warrant Shares that are then held by the holders of such shares;
(ii) The Common Stock is designated for quotation on the Nasdaq
National Market, Nasdaq Small-Cap Market, OTC Electronic Bulletin Board, The New
York Stock Exchange, Inc. or The American Stock Exchange, Inc. and is not
suspended from trading; and
(iii) The Company otherwise has satisfied its obligations and is
not in default under this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement.
(6) Reservation of Shares.
(a) Authorized and Reserved Amount. The Company shall, at all times so
long as any of the Preferred Shares are outstanding, reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of shares (the
"Reserved Amount") of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Preferred Shares then outstanding; provided
that the number of shares of Common Stock so reserved shall at no time be less
than two hundred percent (200%) of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible (including but not
limited to any accrued but unpaid Regular Dividends, assuming any such accrued
but unpaid Regular Dividends are paid on such date by delivery of shares of
Common Stock if the Company elected to pay such Regular Dividends in Common
Stock) (the "Minimum Amount"). The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the number
of shares so reserved shall be allocated pro rata among the Holders of the
Preferred Shares based on the number of Preferred Shares held by each Holder at
the time of issuance of the Preferred Shares or increase in the number of
reserved shares, as the case may be. In the event a Holder shall sell or
otherwise transfer any of such Holder's Preferred Shares, each transferee shall
be allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Preferred Shares shall be allocated to
the remaining Holders of Preferred Shares, pro rata based on the number of
Preferred Shares then held by such Holders.
(b) Increases to Reserved Amount. Without limiting any other provision
of this Section 6, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Reservation Trigger
Date") shall be less than two hundred percent (200%) of the number of shares of
Common Stock issuable upon conversion of the Preferred Shares and Warrant Shares
issuable upon exercise of the related Warrants on such trading days (a "Share
Authorization Failure"), the Company shall immediately notify all Holders of
such occurrence and shall take action as soon as possible, but in any event
within thirty (30) days after a Reservation Trigger Date (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to two hundred percent
(200%) of the number of shares of Common Stock then issuable upon conversion of
the Preferred Shares.
(7) Voting Rights. Holders of Preferred Shares shall have no voting rights,
except as required by law, including but not limited to the General Corporation
Law of the State of Nevada, and as expressly provided in this Certificate of
Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the Holders
of the Preferred Shares shall be entitled to receive in cash out of the assets
of the Company, whether from capital or from earnings available for distribution
to its stockholders (the "Liquidation Funds"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class junior in
rank to the Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to $100 and any accrued but unpaid
Regular Dividends and Participating Dividends (such sum being referred to as the
"Liquidation Preference"); provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the Holders of Preferred Shares and
holders of shares of other classes or series of preferred stock of the Company
that are of equal rank with the Preferred Shares as to payments of Liquidation
Funds (the "Pari Passu Shares"), then each Holder of Preferred Shares and Pari
Passu Shares shall receive a percentage of the Liquidation Funds equal to the
full amount of Liquidation Funds payable to such Holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Liquidation Funds
payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In
addition to the receipt of the Liquidation Preference, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the Holders of the Preferred Shares shall be entitled to receive Liquidation
Funds distributed to holders of Common Stock, after the Liquidation Preference
has been paid, to the same extent as if such Holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversions herein or elsewhere) and had held such shares of
Common Stock on the record date for such distribution of the remaining
Liquidation Funds. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No Holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a Holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(9) Preferred Rank. All shares of Common Stock shall be of junior rank to
all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the Holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior or equal rank to the Preferred Shares
in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the Holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's Articles of Incorporation or bylaws, or file
any resolution of the board of directors of the Company with the Nevada
Secretary of State or enter into any agreement containing any provisions, which
would adversely affect or otherwise impair the rights or relative priority of
the Holders of the Preferred Shares relative to the holders of the Common Stock
or the holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(10) Participation. Subject to the rights of the Holders, if any, of the
Pari Passu Shares, the Holders of the Preferred Shares shall, as Holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such Holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(11) Restriction on Redemption and Cash Dividends. Until all of the
Preferred Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, its Common Stock without the prior express written consent
of the Holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
(12) Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Principal Market, or the
market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders of a majority of the Preferred Shares
then outstanding. Until such approval or written opinion is obtained, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any Holder of Preferred Shares shall
convert all of such Holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount,
then the difference between such Holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such Holder shall be allocated to
the respective Cap Allocation Amounts of the remaining Holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such Holder.
(13) Vote to Change the Terms of Preferred Shares. The affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting,
of the Holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, shall be required for any change to this Certificate of
Designations or the Company's Articles of Incorporation which would amend,
alter, change or repeal any of the powers, designations, preferences and rights
of the Preferred Shares.
(14) Lost or Stolen Certificates. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the Holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(15) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the Holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(16) Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Buyers and shall not be
construed against any person as the drafter hereof.
(17) Failure or Indulgence Not Waiver. No failure or delay on the part of a
Holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, its President, as of the 7th day of April 2000.
E-NET ▇▇▇▇▇▇▇▇▇.▇▇▇ CORPORATION
By:
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
EXHIBIT I
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights
(the "Certificate of Designations") of e-Net ▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation (the
"Company"). In accordance with and pursuant to the Certificate of Designations,
the undersigned hereby elects to convert the number of shares of Series C
Preferred Stock, no par value per share (the "Preferred Shares"), of the Company
indicated below into shares of Common Stock, par value $ 0.001 per share (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Is the alternative New Variable Formula being relied on pursuant to Section
2(g)(iv) of the Certificate of Designations? (check one) YES ____ No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):