Exhibit 10.63
INVESTMENT AGREEMENT
This Investment Agreement ("Agreement"), dated as of May 9, 2003, by
and among INVISA, INC., a Nevada corporation ("Company"), and BARBELL GROUP,
INC. ("Investor").
Whereas, the parties desire that, upon the terms and subject to the
conditions contained herein, the investor shall invest up to one million dollars
($1,000,000) to purchase the Company's common stock, $.001 par value per share
(the "Common Stock");
Whereas, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"),
Rule 506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
act as may be available with respect to any or all of the investments in common
stock to be made hereunder.
Whereas, contemporaneously with the execution and delivery of this
agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto ("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 Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings specified or indicated, and such meanings shall be equally applicable
to the singular and plural forms of the defined terms.
"1933 Act" shall mean the Securities Act of 1933, as it may be amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as it may be amended.
"Affiliate" shall have the meaning specified in Section 5(h).
"Agreed Upon Procedures Report" shall have the meaning specified in Section
2(o).
"Agreement" shall mean this Investment Agreement.
"Bring Down Cold Comfort Letter" shall have the meaning specified in Section
2(n).
"Buy-In" shall have the meaning specified in Section 6.
"Buy-In Adjustment Amount" shall have the meaning specified in Section 6.
"Closing" shall have the meaning specified in Section 2(h).
"Closing Date" shall mean, as defined in Section 2(h), the date which is five
(5) Trading Days following the Put Notice Date.
"Common Stock" shall mean the Common Stock of the Company.
"Control" or "Controls" shall have the meaning specified in Section 5(h).
"Covering Shares" shall have the meaning specified in Section 6.
"Effective Date" shall mean the date the SEC declares effective the Registration
Statement covering the transactions described in the Agreement.
"Environmental Laws" shall have the meaning specified in Section 4(m).
"Escrow Agent" shall mean Capstone Partners, L.P.
"Escrow Agreement" shall mean the Escrow Agreement entered into between the
Company, Investor and Escrow Agent.
"Execution Date" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"Floor Price" shall be a price per Share of the Common Stock stated in the
Preliminary Put Notice which, if greater than the Purchase Price set forth in
the Put Notice given at the end of the same Pricing Period, then no sale of
Shares shall take place pursuant to the Put Notice and it shall become void.
"Indemnitees" shall have the meaning specified in Section 10.
"Indemnified Liabilities" shall have the meaning specified in Section 10.
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Investor" shall mean the investor defined in the Preamble and undersigned.
"Major Transaction" shall have the meaning specified in Section 2(g).
"Material Adverse Effect" shall have the meaning specified in Section 4(a).
"Material Facts" shall have the meaning specified in Section 2(m).
"Maximum Common Stock Issuance" shall have the meaning specified in Section
2(j).
"Open Period" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier of (i) the
date which is twelve (12) months from the Effective Date and (ii) termination of
the Agreement in accordance with Section 9.
"Payment Amount" shall have the meaning specified in Section 2(p).
"Partial Release Form" shall have the meaning specified in Section 2(i).
"Preliminary Put Notice" shall mean a written notice sent to the Investor by the
Company stating (i) the Put Amount of Shares the Company intends to sell to the
Investor pursuant to the terms of the Agreement, (ii) the current number of
Shares issued and outstanding on such date and (iii) the Floor Price in the form
annexed as Exhibit C-1.
"Preliminary Put Notice Date" shall mean the Trading Day on which the Investor
receives a Preliminary Put Notice, however a Preliminary Put Notice shall be
deemed delivered on (x) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern Time
(receipt being deemed to occur if the Company possess a facsimile confirmation
showing completed transmission by such time), or (y) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern
Time on a Trading Day (receipt being documented as described in (x) above). No
Preliminary Put Notice may be deemed delivered on a day that is not a Trading
Day
"Pricing Period" shall mean the period beginning four (4) Trading Days preceding
the Preliminary Put Notice Date and ending on and including the date which is
five (5) Trading Days after such Preliminary Put Notice Date.
"Principal Market" shall have the meaning specified in Section 2(f).
"Prospectus" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"Purchase Amount" shall mean the total amount being paid by Investor on a
particular Closing Date to purchase the Shares.
"Purchase Price" shall mean seventy-five percent (75%) of the Volume Weighted
Average Price during the specified Pricing Period.
"Put Amount" shall mean, with respect to any single Put Notice, at least one
hundred thousand dollars ($100,000) and up to the lowest of (i) twenty-five
percent (25%) of the Volume Weighted Average Price for the thirty (30) Trading
Days prior to the applicable Put Notice Date multiplied by the Trading Volume
for the same period, (ii) a dollar amount calculated in accordance with Section
2 for any Pricing Period which would purchase no more than 4.99% of the issued
and outstanding Common Stock, or (iii) two hundred fifty thousand dollars
($250,000).
"Put Notice" shall mean a written notice sent to the Investor by the Company
stating the (i)
Purchase Price for the Put Amount of Shares the Company intends to sell to the
Investor pursuant to the terms of the Agreement, (ii) and the total number of
Shares to be sold in the form annexed as Exhibit C-2.
"Put Notice Date" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time (receipt
being deemed to occur if the Company possess a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on
a Trading Day (receipt being documented as described in (x) above). No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"Registration Opinion" shall have the meaning specified in Section 2(m).
"Registration Opinion Deadline" shall mean the date that is three (3) Trading
Days prior to each Put Notice Date.
"Registration Period" shall have the meaning specified in Section 5(c).
"Registration Rights Agreement" shall mean the Agreement of even date entered
into by the Company with Investor for the registration of this transaction as
well as other transactions.
"Registration Statement" means the registration statement of the Company filed
under the 1933 Act covering this transaction.
"Related Party" shall have the meaning specified in Section 5(h).
"Repurchase Event" shall have the meaning specified in Section 2(p).
"Resolution" shall have the meaning specified in Section 8(f).
"SEC" shall mean the U.S. Securities & Exchange Commission.
"SEC Documents" shall have the meaning specified in Section 4(f).
"Securities" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"Shares" shall mean the shares of Common Stock of the Company.
"Sold Shares" shall have the meaning specified in Section 6.
"Subsidiaries" shall have the meaning specified in Section 4(a).
"Trading Day" shall mean any day on which the Principal Market for the Company's
Common Stock is open for trading.
"Trading Volume" shall mean the daily aggregate trading volume of the Common
Stock as reported by Bloomberg Financial Markets ("Bloomberg"), or if not
available through Bloomberg then as reported on the National Quotations Systems
Pink Sheets ("Pink Sheets") or on any U.S. exchange on which the Common Stock is
traded.
"Transaction Documents" shall mean the Agreement, Registration Rights Agreement,
Escrow Agreement and each of the other agreements entered into by the parties
hereto in connection with the Agreement.
"Transfer Agent" shall mean Liberty Transfer Company or its successor or any
transfer agent that the Company engages during the term of this Investment
Agreement, the Company's Common Stock transfer agent.
"Valuation Event" shall have the meaning specified in Section 2(k).
"Volume Weighted Average Price" shall be as reported by Bloomberg, or if not
available through Bloomberg, then the average of the bid prices of any market
makers for the Company's Common Stock as reported on the Pink Sheets or any
United States exchange on which the Common Stock is traded.
2. PURCHASE AND SALE OF COMMON STOCK.
a. Purchase and Sale of Common Stock. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $1,000,000.
b. Delivery of Preliminary Put Notices and Put Notices. Subject to the
terms and conditions of the Transaction Documents, and from time to time during
the Open Period the Company may, in its sole discretion, deliver a Preliminary
Put Notice to the Investor which states the Put Amount of Shares which the
Company intends to sell to the Investor during the Pricing Period, the relevant
Pricing Period and the Floor Price. On the next Trading Day following the
Pricing Period, the Company shall delivery a Put Notice to the Investor which
states the Purchase Price of the Shares to be sold and the total number of
Shares to be sold based on the Purchase Price and the Put Amount. Once the Put
Notice is received by the Investor and provided the Purchase Price is greater
than the Floor Price by any amount the Put Notice shall not be terminated and
shall be irrevocable. If the Purchase Price is equal to or less than the Floor
Price, the Put Notice shall be void and no sale of Shares shall take place
During the Open Period, the Company shall not be entitled to submit a Put Notice
until after the previous closing has taken place, and in any event no more than
one Put Notice may be given by the Company during a thirty (30) day period
without the written consent of the Investor.
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Put
Amount it intends to raise during such calendar
quarter, if any, through the issuance of Put Notices. Such notification shall
constitute only the Company's good faith estimate with respect to such calendar
quarter and shall in no way obligate the Company to raise such amount during
such calendar quarter or otherwise limit its ability to deliver Put Notices
during such calendar quarter.
c. Interest. It is the intention of the parties that only interest that
may be payable under this Agreement shall not exceed the maximum amount
permitted under any applicable law. If a law, which applies to this Agreement
which sets the maximum interest amount, is finally interpreted so that the
interest in connection with this Agreement exceeds the permitted limits, then:
(1) any such interest shall be reduced by the amount necessary to reduce the
interest to the permitted limit; and (2) any sums already collected (if any)
from the Company which exceed the permitted limits will be refunded to the
Company. The Investor may choose to make this refund by reducing the amount that
the Company owes under this Agreement or by making a direct payment to the
Company. If a refund reduces the amount that the Company owes the Investor, the
reduction will be treated as a partial payment. In case any provision of this
Agreement is held by a court of competent jurisdiction to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Agreement will not in any way be affected or impaired thereby.
d. Investor's Obligation to Purchase Shares. Subject to the conditions
set forth in this Agreement, following the Investor's receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company during the related Pricing Period the Put Amount of Shares which the
Company intends to sell set forth in the Put Notice, but only if said Shares
bear no restrictive legend, are not subject to stop transfer instructions and
are being held in escrow, pursuant to Section 2(h), prior to the applicable
Closing Date.
e. Limitation on Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and the Company shall in no event sell to
the Investor, that number of Shares, which when added to the sum of the number
of Shares beneficially owned, (as such term is defined under Section 13(d) and
Rule 13d-3 of the Securities Exchange Act of 1934, as may be amended, (the "1934
Act")), by the Investor, would exceed four and ninety-nine hundredths percent
(4.99%) of the number of Shares outstanding on the Put Notice Date for such
Pricing Period, as determined in accordance with Rule 13d-1(j) under the 1934
Act. In no event shall the Investor purchase Shares of the Common Stock other
than pursuant to this Agreement until such date as this Agreement is terminated.
Each Put Notice shall include a representation of the Company as to the number
of Shares of Common Stock outstanding on the related Put Notice Date as
determined in accordance with Section 13(d) of the 1934 Act. In the event that
the number of Shares of Common Stock outstanding as determined in accordance
with Section 13(d) of the 1934 Act is different on any date during a Pricing
Period than on the Put Notice Date associated with such Pricing Period, then the
number of Shares of Common Stock outstanding on such date during such Pricing
Period shall govern for purposes of determining whether the Investor would be
acquiring beneficial ownership of more than four and ninety-nine hundredths
percent (4.99%) of the number of Shares of Common Stock outstanding during such
period.
f. Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and require the Investor to purchase any
Shares at a Closing (as defined in Section 2(h)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared
effective and shall remain effective and available for the
resale of all the Registrable Securities (as defined in the
Registration Rights Agreement) at all times during the Pricing
Period;
(ii) at all times during the period beginning on the related
Put Notice Date and ending on and including the related
Closing Date, the Common Stock shall have been listed on The
American Stock Exchange, Inc. or The New York Stock Exchange,
Inc. or designated on the Nasdaq National Market, The Nasdaq
SmallCap Market, the National Association of Securities
Dealer's, Inc. OTC Electronic Bulletin Board or the Pink
Sheets ("Principal Market") and shall not have been suspended
from trading thereon for a period of five (5) consecutive
Trading Days during the Open Period and the Company shall not
have been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock;
(iii) at least five Trading Days must have elapsed since the
Closing Date of the last Put Notice Date;
(iv) for the twenty (20) Trading Days immediately preceding
both the Put Notice and Closing Dates, the weighted average
daily trading volume of the Shares (excluding block trades) on
the Principal Market (daily trading volume excluding all block
trades x closing bid price) shall be at least twenty-five
thousand dollars ($25,000) and the average of the closing bid
price for such twenty (20) day period shall be greater than
two dollars and fifty cents ($2.50) per share;
(iv) the Company has complied with its obligations and is
otherwise not in breach of a material provision, or in default
under, this Agreement, the Registration Rights Agreement or
any other agreement executed in connection herewith which has
not been corrected prior to delivery of the Put Notice Date;
(v) no injunction shall have been issued, or action commenced
by a governmental authority, prohibiting the purchase or the
issuance of the Common Stock; and
(vi) the issuance of the Common Stock will not violate the
shareholder approval requirements of the Principal Market.
If any of the events described in clauses (i) through (v)
above occurs during a Pricing Period, then the Investor shall
have no obligation to purchase the Put Amount of Common Stock
set forth in the applicable Put Notice.
g. For purposes of this Agreement, a "Major Transaction" shall be
deemed to have occurred at the closing of any of the following events: (i) the
consolidation, merger or other
business combination of the Company with or into another person (other than
pursuant to a migratory merger effected solely for the purposes of changing the
jurisdiction of incorporation of the Company) (ii) the sale or transfer of all
or substantially all of the Company's assets; or (iii) the consummation of a
purchase, tender or exchange offer made to, and accepted by, the holders of more
than thirty percent (30%) of the economic interest in, or the combined voting
power of all classes of voting stock of, the Company.
h. Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(f), 7 and 8, the closing
of the purchase by the Investor of Shares (a "Closing") shall occur on the date
which is five (5) Trading Days following the Put Notice Date (a "Closing Date").
Prior to each Closing Date, (i) the Company shall deliver to the Escrow Agent
pursuant to the Escrow Agreement certificates representing the Shares to be
issued to the Investor on such date and registered in the name of the Investor
or deposit such Shares into the account(s) (with the Investor receiving
confirmation that the Shares are in such account(s)) designated by the Investor
for the benefit of the Investor and (ii) the Investor shall deliver to the
Escrow Agent the Purchase Price to be paid for such Shares (after receipt of
confirmation of delivery of such Shares), determined as aforesaid, by wire
transfer. In lieu of delivering physical certificates representing the Common
Stock and provided that the Transfer Agent then is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Investor, the Company shall use its commercially
reasonable efforts to cause the Transfer Agent to electronically transmit the
shares of Common Stock by crediting the account of the Investor's prime broker
(which shall be specified by Investor a reasonably sufficient time in advance)
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, and
provide proof satisfactory to the Escrow Agent of such delivery.
i. Reserved.
j. Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, if during the Open Period the Company becomes
listed on an exchange that limits the number of shares of Common Stock that may
be issued without shareholder approval, then the number of Shares issuable by
the Company and purchasable by the Investor, including the shares of Common
Stock issuable to the Investor pursuant to Section 11(b), shall not exceed that
number of the shares of Common Stock that may be issuable without shareholder
approval, subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock
("Maximum Common Stock Issuance"), unless the issuance of Shares, including any
Common Stock to be issued to the Investor pursuant to Section 11(b), in excess
of the Maximum Common Stock Issuance shall first be approved by the Company's
shareholders in accordance with applicable law and the By-laws and Articles of
Incorporation of the Company, if such issuance of shares of Common Stock could
cause a delisting on the Principal Market. The parties understand and agree that
the Company's failure to seek or obtain such shareholder approval shall in no
way adversely affect the validity and due authorization of the issuance and sale
of Shares hereunder or the Investor's obligation in accordance with the terms
and conditions hereof to purchase a number of Shares in the aggregate up to the
Maximum Common Stock Issuance limitation, and that such approval
pertains only to the applicability of the Maximum Common Stock Issuance
limitation provided in this Section 2(j).
k. "Valuation Event" shall mean an event in which the Company at any
time during a "Pricing Period" takes any of the following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for dividends paid
with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for or
purchase Common Stock and the price per share for which Common
Stock may at any time thereafter be issuable pursuant to such
options or other rights shall be less than the bid price in
effect immediately prior to such issuance;
(iv) issues any securities convertible into or exchangeable
for Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of such convertible or exchangeable
securities shall be less than the bid price in effect
immediately prior to such issuance;
(v) issues shares of Common Stock otherwise than as provided
in the foregoing subsections (i) through (iv), at a price per
share less, or for other consideration lower, than the bid
price in effect immediately prior to such issuance, or without
consideration;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (i)
through (v); or
(vii) takes any action affecting the number of shares of
Common Stock outstanding, other than an action described in
any of the foregoing subsections (i) through (vi) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially
adverse effect upon the rights of Investor at the time of a
Put Notice is delivered to Investor.
l. The Company agrees that it shall not take any action that would
result in a Valuation Event occurring during a Pricing Period.
m. Accountant's Letter and Registration Opinion. Whenever reasonably
requested by Investor, the Company shall cause to be delivered to the Investor,
on or prior to each Registration Opinion Deadline, an opinion of the Company's
independent counsel, ("Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Closing Date, the
Company acquires knowledge of such Material Facts or any Ineffective Period
occurs, the Company shall promptly notify the Investor.
n. (i) Whenever reasonably requested by Investor (at the expense of the
Company on one occasion and at the expense of the Investor on any
other occasion), the Company shall engage its independent auditors
to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by
the parties hereto, and reports thereon ("Bring Down Cold Comfort
Letters") as shall have been reasonably requested by the Investor
with respect to certain financial information contained in the
Registration Statement and shall have delivered to the Investor such
a report addressed to the Investor, on or prior to each Registration
Opinion Deadline;
(ii) in the event that the Investor shall have requested delivery of
an Agreed Upon Procedures Report pursuant to Section 2(o), the
Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been
reasonably requested by the Investor with respect to certain
financial information of the Company and the Company shall deliver
to the Investor a copy of such report addressed to the Investor. In
the event that the report required by this Section 2(n) cannot be
delivered by the Company's independent auditors, the Company shall,
if necessary, promptly revise the Registration Statement and the
Company shall not deliver a Put Notice to Investor until such report
is delivered.
o. Procedure if Material Facts are Reasonably believed to be untrue or
are omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or (ii) if the Company disputes
the existence of any such material misstatement or omission, (x) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (y) in the event the
dispute relates to the adequacy of financial disclosure and the Investor shall
reasonably request, the Company's independent auditors shall provide to the
Company a letter ("Agreed Upon Procedures Report") outlining the performance of
such "agreed upon procedures" as shall be reasonably requested by the Investor
and the Company shall provide the Investor with a copy of such letter.
p. Delisting; Suspension. If at any time during the Open Period or
within thirty (30) calendar days after any purchase of Shares by the Investor,
(i) the Registration Statement, after it has been declared effective, shall not
remain effective and available for sale of all the Registrable Securities, (ii)
the Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
trading day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock, (iii) there shall have occurred a Major
Transaction (as defined in Section 2(g)) or the public announcement of a pending
Major Transaction which has not been abandoned or terminated, or (iv) the
Registration Statement is no longer effective or stale for a period of more than
five (5) Trading Days as a result of the Company to timely file its financials,
the Company shall repurchase within thirty (30) calendar days of the occurrence
of one of the events listed in clauses (i), (ii), (iii) or (iv)above (each a
"Repurchase Event") and subject to the limitations imposed by applicable federal
and state law, all or any part of the Shares issued to the Investor within the
sixty (60) Trading Days preceding the occurrence of the Repurchase Event and
then held by the Investor at a price per Share equal to the highest Volume
Weighted Average Price during the period beginning on the date of the Repurchase
Event and ending on and including the date on which the Investor is paid by the
Company for the repurchase of the Shares but not more than the Purchase Price
paid by the Investor for the Shares ("Payment Amount"). If the Company fails to
pay to the Investor the full aggregate Payment Amount within ten (10) calendar
days of the occurrence of a Repurchase Event, the Company shall pay to the
Investor, on the first Trading Day following such tenth (10th) calendar day, in
addition to and not in lieu of the Payment Amount payable by the Company to the
Investor an amount equal to two percent (2%) of the aggregate Payment Amount
then due and payable to the Investor, in cash by wire transfer, plus compounded
annual interest of eighteen percent (18%) on such Payment Amount during the
period, beginning on the day following such tenth calendar day, during which
such Payment Amount, or any portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
a. Sophisticated Investor. The Investor has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities.
b. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies..
c. Section 9 of the 1934 Act. During the Open Period, the Investor will
comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
d. Accredited Investor. Investor is an "Accredited Investor" as that
term is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation or the By-laws or (ii) conflict with,
or constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
f. Short Sales. During the Open Period, the Investor, nor any affiliate
of Investor, will not engage in naked short sales of the Shares nor engage in
market manipulation activities as prohibited by the Securities Exchange Act of
1934. Sale of any Shares purchased by the Investor pursuant to this Agreement
shall not be a breach of the representation and warranty contained in this
Section 3(f).
g. Ability to Perform. During the Open Period, the Investor shall
maintain its ability to perform its obligations under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are corporations duly organized and validly existing in good standing
under the laws of the respective jurisdictions of their incorporation, 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 of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Escrow Agreement
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
"Transaction Documents"), and to issue the Shares in accordance with the terms
hereof and thereof, (ii) the execution and delivery of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby, including without limitation the reservation for issuance
and the issuance of the Shares pursuant to this Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders, (iii) the Transaction Documents have been duly and validly
executed and delivered by the Company, and (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. The authorized capital stock of the Company consists
of (i) ninety-five million (95,000,000) shares of Common Stock, of which
approximately seventeen million five hundred thousand (17,500,000) shares are
issued and outstanding as of May 1, 2003, (ii) five million (5,000,000) shares
of blank check Preferred Stock and no (0) shares of Preferred Stock issued and
outstanding as of May 1, 2003, and (iii) approximately four million (4,000,000)
shares of Common Stock are issuable upon the exercise of options, warrants and
conversion rights. All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 4(c) or as set forth in the SEC Documents, as defined in
Section 4(f) below, which is attached hereto and made a part hereof, (i) no
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (v) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement, (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement and (viii)
there is no dispute as to the class of any shares of the Company's capital
stock. The Company has furnished to the Investor, or the Investor has had access
through ▇▇▇▇▇ to, true and correct copies of the Company's Articles of
Incorporation, as in effect on the date hereof (the "Articles Of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-Laws"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Shares. A sufficient number of Shares issuable pursuant
to this Agreement has been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement. Upon issuance in accordance with this Agreement, the
Securities will be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof. In the event the
Company cannot register a sufficient number of Shares, due to the remaining
number of authorized shares of Common Stock being insufficient, the Company will
use its best efforts to register the maximum number of shares it can based on
the remaining balance of authorized shares and will use its best efforts to
increase the number of its authorized shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that
would not individually or in the aggregate have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be knowingly conducted, in violation of any law, statute, ordinance, rule,
order or regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. The Company has filed and
during the Open Period will file all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has delivered to
the Investor or its representatives, or they have had access through ▇▇▇▇▇, true
and complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents, including,
without limitation, information referred to in Section 4(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Investor with any
material, nonpublic information which was not publicly disclosed prior to the
date hereof and any material, nonpublic information provided to the Investor by
the Company or its Subsidiaries or any of their officers, directors, employees
or agents prior to any Closing Date shall be publicly disclosed by the Company
prior to such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule 4(g) or
the SEC Documents filed at least five (5) days prior to the date hereof, there
has been no change or development in the business, properties, assets,
operations, financial condition, results of operations or prospects of the
Company or its Subsidiaries which has had or reasonably could have a Material
Adverse Effect. 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 its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. Except as set forth in Schedule 4(h) or 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
executive officers of Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, in which an adverse decision could have a Material
Adverse Effect.
i. Acknowledgment Regarding Investor's Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor's purchase of the Securities. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or Circumstances.
To the best of the Company's knowledge after due inquiry and investigation, 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, assets, prospects, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 4(l) or the SEC
Documents, none of the Company's trademarks, trade names, service marks, service
▇▇▇▇ registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights necessary to conduct its business as now or
as proposed to be conducted have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
▇▇▇▇ registrations, trade secret or other similar rights of others, or of any
such development of similar or identical trade secrets or technical information
by others and, except as set forth on Schedule 4(l), there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding trademark,
trade name, patents, patent rights, invention, copyright, license, service
names, service marks, service ▇▇▇▇ registrations, trade secret or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
m. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 4(n) or the SEC Documents, have
been incurred in the ordinary course of business, or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made
of such property by the Company or any of its Subsidiaries. Any real property
and facilities held under lease by the Company or any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full
force and effect all certificates, approvals, authorizations and permits from
the appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
s. Tax Status. The Company and each of its Subsidiaries has made or
filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment
of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
t. Certain Transactions. Except as set forth on Schedule 4(t) and in
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 4(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
u. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines during the period between the Effective Date and the end of the Open
Period. The Company's executive officers and directors have studied and fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Agreement is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other shareholders of the Company.
v. Right of First Refusal. The Company shall not, directly or
indirectly, without the prior written consent of Investor offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition) any of its Common Stock or
securities convertible into Common Stock at a price that is less than the market
price of the Common Stock at the time of issuance of such security or investment
if any such Common Stock or such securities have attached registration rights or
otherwise have no restrictions on resale pursuant to Rule 144 or otherwise and
such registration statement will become effective during the Open Period (a
"Subsequent Financing") for a period of two (2) months prior to or following
each Closing Date, except (i) the granting of options or warrants to employees,
officers, directors and consultants, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the
Company, (ii) shares issued upon exercise of any currently outstanding warrants
or options and upon conversion of any currently outstanding convertible
debenture or convertible preferred stock, in each case disclosed pursuant to
Section 4(c), (iii) securities issued in connection with the capitalization or
creation of a joint venture with a strategic partner, (iv) shares issued to pay
part or all of the purchase price for the acquisition by the Company of another
entity (which, for purposes of this clause (iv), shall not include an individual
or group of individuals), and (v) shares issued in a bona fide public offering
by the Company of its securities, unless (A) the Company delivers to Investor a
written notice (the "Subsequent Financing Notice") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) Investor shall not have notified the
Company by 5:00 p.m. (New York time) on the fifth (5th) Trading Day after its
receipt of the Subsequent Financing Notice of its willingness to provide,
subject to completion of mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing Notice.
If Investor shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms set forth in the Subsequent Financing
Notice; provided that the Company shall provide Investor with a second
Subsequent Financing Notice, and Investor shall again have the right of first
refusal set forth above in this Section, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice. The
rights granted to Investor in this Section are not subject to any prior right of
first refusal given to any other person except as disclosed on Schedule 4(c).
v. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Common Stock offered hereby.
5. COVENANTS OF THE COMPANY.
a. Best Efforts. The Company shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Section 7 of
this Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
such states of the United States, as specified by Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to the Closing
Date. The Company shall, at its sole cost and expense, make all filings and
reports relating to the offer and sale of the Securities required under the
applicable securities or "Blue Sky" laws of such states of the United States
following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Holders (as that term is defined in the Registration Rights Agreement) may
sell all of the Securities acquired pursuant to this Agreement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Holders shall have sold all the
Securities issuable hereunder and (B) this Agreement has been terminated
pursuant to Section 9 ("Registration Period"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as a reporting company under the 1934
Act.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes.
e. Financial Information. The Company agrees to make available to the
Investor via ▇▇▇▇▇ or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders and (iv) within two (2) calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc.
f. Reservation of Shares. Subject to the following sentence, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the issuance of the Securities hereunder. In the event that
the Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as described
in this Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder approval for
the authorization of such additional shares.
g. Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, 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 maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the
Investor copies of any notices it receives
from the Principal Market regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5(g).
h. Transactions With Affiliates. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two (2) years, shareholders who beneficially own five percent (5%)
or more of the Common Stock, or affiliates or with any individual related by
blood, marriage or adoption to any such individual or with any entity in which
any such entity or individual owns a five percent (5%) or more beneficial
interest (each a "Related Party"), except for (i) customary employment
arrangements and benefit programs on reasonable terms, (ii) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (iii) any agreement, transaction, commitment or
arrangement which is approved by a majority of the disinterested directors of
the Company. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment or arrangement.
"Affiliate" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a five percent
(5%) or more equity interest in that person or entity, (ii) has five percent
(5%) or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"Control" or "Controls" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
i. Filing of Form 8-K. On or before the date which is three (3) Trading
Days after the Execution Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
j. Corporate Existence. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration; Suspension of Right
to Make a Put. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (i) receipt of any request
for additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
l. Reimbursement. If (i) Investor, other than by reason of its gross
negligence, fraud, misrepresentation, providing materially untrue or inaccurate
information to the Company in connection with a Registration Statement or
willful misconduct (each an "Excluded Act"), becomes involved in any capacity in
any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if Investor is
impleaded in any such action, proceeding or investigation by any person for any
reason other than for an Excluded Act, or (ii) Investor, other than by reason of
an Excluded Act, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this section shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliates of Investor that are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees, attorneys,
accountants, auditors and controlling persons (if any), as the case may be, of
Investor and any such affiliate, and shall be binding upon and inure to the
benefit of any successors of the Company, Investor and any such affiliate and
any such person.
6. COVER.
If, the number of Shares represented by any Put Notices become
restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (a) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (b) the net proceeds (after brokerage commissions, if any) received by the
Investor from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds immediately
upon demand by
the Investor. By way of illustration and not in limitation of the foregoing, if
the Investor purchases Common Stock having a total purchase price (including
brokerage commissions) of eleven thousand dollars ($11,000) to cover a Buy-In
with respect to the Common Stock it sold for net proceeds of ten thousand
dollars ($10,000), the Buy-In Adjustment Amount which the Company will be
required to pay to the Investor will be one thousand dollars ($1,000).
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligations of the Company hereunder to issue and sell Shares to
the Investor is further subject to the satisfaction, at or before each Closing
Date, of each of the following conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
a. The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Company the Purchase Price
for the Shares being purchased by the Investor at the Closing (after receipt of
confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
c. The representations and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or
prior to such Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since the applicable Put
Notice Date.
f. The Investor engages in an Excluded Act.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject
to the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be
materially true and correct as of the date when made and as of the applicable
Closing Date as though made at that time (except for (i) representations and
warranties that speak as of a specific date and (ii) with respect to the
representations made in Sections 4(g), (h) and (j) and the third sentence of
Section 4(k) hereof, events which occur on or after the date of this Agreement
and are disclosed in SEC filings made by the Company at least ten (10) Trading
Days prior to the applicable Put Notice Date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company on or before such Closing Date. The Investor may request an
update as of such Closing Date regarding the representation contained in Section
4(c) above.
d. Investor shall have received an opinion letter of the Company's
counsel on or before the Execution Date.
e. The Company shall have executed and delivered to the Escrow Agent or
Investor the certificates representing, or have executed electronic book-entry
transfer of, the Shares, (in such denominations as such Investor shall request)
being purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above and in a form reasonably acceptable to
the Investor ("Resolutions") and such Resolutions shall not have been amended or
rescinded prior to such Closing Date.
g. If requested by the Investor, the Investor shall receive a letter of
the type, in the form and with the substance of the letter described in Section
3(s) of the Registration Rights Agreement from the Company's auditors.
h. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
i. The Registration Statement shall be effective on each Closing Date
and no stop order suspending the effectiveness of the Registration statement
shall be in effect or shall be pending or threatened. Furthermore, on each
Closing Date (i) neither the Company nor Investor shall have received notice
that the SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action),and (ii) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
j. At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.
k. There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
l. If applicable, the shareholders of the Company shall have approved
the issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(j).
m. The conditions to such Closing set forth in Section 2(f) shall have
been satisfied on or before such Closing Date.
n. The Company shall have certified to the Investor the number of
shares of Common Stock outstanding as of a date within five (5) Trading Days
prior to such Closing Date.
o. The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request upon reasonable advance notice.
9. TERMINATION.
This Agreement shall terminate upon any of the following events:
a. when the Investor has purchased an aggregate of one million dollars
($1,000,000) in the Common Stock of the Company pursuant to this Agreement;
provided that the Company's representations, warranties and covenants contained
in this Agreement insofar as applicable to the transactions consummated
hereunder prior to such termination, shall survive the termination of this
Agreement for the period of any applicable statute of limitations;
b. on the date which is twelve (12) months after the Effective Date;
c. if the Company shall file or consent by answer or otherwise to the
entry of an order for relief or approving a petition for relief, reorganization
or arrangement or any other petition in bankruptcy for liquidation or to take
advantage of any bankruptcy or insolvency law
of any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers of itself or of any substantial part of its
property, or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or if a court or
governmental authority of competent jurisdiction shall enter an order appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or liquidation of
the Company, or if any such petition shall be filed against the Company;
d. if the Company shall issue or sell any equity securities or
securities convertible into, or exchangeable for, equity securities (other than
the current convertible debenture offering) or enter into any other equity
financing facility during the Open Period, other than in compliance with Section
4(v);
e. the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five (5) consecutive Trading Days
during the Open Period;
f. the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the Registrable Securities
in accordance with the terms of the initial Registration Rights Agreement within
fifteen (15) calendar days of the date hereof or the Registration Statement has
not been declared effective within ninety (90) calendar days of the date hereof
("Time for Effectiveness"), provided however that the Time for Effectiveness
shall be extended to one hundred twenty (120) calendar days of the date hereof
only if all of the following occur: (1) the Company files the Registration
Statement no later than the Filing Date; (ii) the Company files an amendment to
the Registration Statement on each date which is no later than ten (10) days
after the Company receives any comments letter on the Registration Statement
from the SEC; and (iii) the Company faxes to Investor's counsel, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, Esq. at 212-986-2907, each letter containing SEC comments on the
Registration Statement within three (3) business days of receiving each such
letter from the SEC ;
g. the Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market; or
h. the Company requires shareholder approval under Nasdaq rules to
issue additional shares and such approval is not obtained within sixty (60) days
from the date when the Company has issued its nineteen and nine-tenths percent
(19.9%) maximum allowable shares.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor.
10. INDEMNIFICATION.
a. In consideration of the Investor's execution and delivery of this
Agreement and the Registration Rights Agreement and acquiring the Shares
hereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Investor and all of their shareholders, officers, directors,
employees 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, "Indemnitees") from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements
("Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (v) the status of the Investor or holder of the Shares as an
investor in the Company, except insofar as any such misrepresentation, breach or
any untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity with written information furnished to
the Company by the Investor which is specifically intended by the Investor for
use in the preparation of any such Registration Statement, preliminary
prospectus or prospectus. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The indemnity provisions
contained herein shall be in addition to any cause of action or similar rights
the Investor may have, and any liabilities the Investor may be subject to.
b. In consideration of the Company's execution and delivery of this
Agreement and the Registration Rights Agreement and selling the Shares hereunder
and in addition to all of the Investor's other obligations under the Transaction
Documents, the Investor shall defend, protect, indemnify and hold harmless the
Company 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 Company is a party to the
action for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements ("Company Liabilities"), incurred by the
Company as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Investor in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby and (ii) any breach of any covenant,
agreement or obligation of the Investor contained in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby.
To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum
contribution to the payment and satisfaction of each of the Company Liabilities
which is permissible under applicable law. The indemnity provisions contained
herein shall be in addition to any cause of action or similar rights the Company
may have, and any liabilities the Company may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the State
of New York, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. Commitment Fee, Legal Fee and Escrow Fee.
(i) As an inducement to the Investor to enter into this
Agreement, the Company has agreed to issue the Investor a
warrant to purchase seventy-five thousand (75,000) shares of
Common Stock (with a term of five (5) years and piggy-back
registration rights (see Exhibit E).
(ii) The Company shall pay the Investor's legal costs
associated with this Agreement only to the extent agreed to in
writing by the Company and the Investor. The Company shall pay
all of its costs and expenses in connection with this
Agreement, the Transaction Documents, and the administration
of the transactions contemplated by this Agreement and the
Transaction Documents.
(iii) The Company shall pay the Escrow Agent for escrow
services pursuant to a separate escrow agreement.
(iv) Except as otherwise set forth herein, each party shall
pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement. Any attorneys' fees and expenses incurred by either
the Company or by the Investor in connection with
the preparation, negotiation, execution and delivery of any
amendments to this Agreement or relating to the enforcement of
the rights of any party, after the occurrence of any breach of
the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated
hereunder, shall be paid on demand by the party which breached
the Agreement and/or defaulted, as the case may be. The
Company shall pay all stamp and other taxes and duties levied
in connection with the issuance of any Securities issued
pursuant hereto.
c. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
d. Headings; Singular/Plural. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
e. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
f. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought.
g. Notices. Any notices or other communications required or permitted
to be given under the terms of this Agreement must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Invisa, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
At the address listed in the Questionnaire.
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
h. No Assignment. This Agreement may not be assigned.
i. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
j. Survival. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings. The Investor shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
k. Publicity. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with two (2) Trading Day prior written notice of such
public statement. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of Investor without the prior written consent of such
Investor, except to the extent required by law. Investor acknowledges that this
Agreement and all or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-B, and that the Company may therefore be required to file such documents as
exhibits to reports or registration statements filed under the Securities 1933
Act or the 1934 Act. Investor further agrees that the status of such documents
and materials as material contracts shall be determined solely by the Company,
in consultation with its counsel.
l. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. Placement Agent. Capstone Partners, L.C. and Crescent Fund LLC were
the only placement agents, brokers or finders involved in this transaction and
no fees or commissions will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other
person or entity, with respect to the transactions contemplated by the
Transaction Documents other than to Capstone Partners, L.C. and Crescent Fund
LLC. The Investor shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of persons or entities for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers, directors,
agents, attorneys (including ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP) and partners, and
their respective affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses incurred
in respect of any such claimed or existing fees, as such fees and expenses are
incurred.
n. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
This Investment Agreement has been entered into and executed as of the
date first above written.
INVISA, INC.
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
-----------------------------
BARBELL GROUP, INC.
By:
-----------------------------
SCHEDULES TO AGREEMENT
SCHEDULE 4(c)
The following registration rights have been granted by Invisa: 500,000
options at $3.50 per share; 3,685,000 shares issued to affiliates/founders, as
part of an acquisition; up to 400,000 shares at $3.00 per share or greater;
250,000 warrants at $1.00 per share with registration rights after June 8, 2004;
and 8,375 options at $5.50 per share.
Invisa has the following redemption rights: up to 400,000 shares are
subject to a redemption right with the redemption price being paid only by a
13-month promissory note with one payment of principal and interest; and 3,750
options can be redeemed by the Company at $.10 per option.
SCHEDULE 4(h)
A vendor, Singletec, has asserted a litigation threat against Invisa
for an account payable allegedly in the approximate amount of $91,000. The
amount due is disputed; however, a settlement/payment schedule has been
tentatively negotiated.
SCHEDULE 4(o)
A wrongful employee termination insurance policy was not renewed.
SCHEDULE 4(t)
The Company amended an agreement with affiliated parties arising out of
the acquisition of patents and other assets by Invisa. The amendment eliminated
the issuance of a potential convertible promissory note and resulted in the
issuance of additional shares of common stock. All of the shares of common stock
have been issued and are reflected in Paragraph 4(c) as being duly issued and
outstanding at the date of this agreement.
EXHIBIT A
FORM OF OPINION OF COUNSEL
May ___, 2003
RE: INVISA, INC.
Ladies and Gentlemen:
We have acted as counsel to Invisa, Inc., a corporation incorporated
under the laws of the State of Nevada ("Company"), in connection with the Series
2003-A 7% Convertible Note, the Investment Agreement, the Financing Agreement,
the Pledge Agreement, the Registration Rights Agreement, the Warrant, the Escrow
Agreement, and the Instructions to Transfer Agent, all dated as of May 7, 2003
(the "Transaction Documents"), and the issuance and sale of shares of common
stock pursuant to the Transaction Documents.
In connection with rendering the opinions set forth herein, we have
examined drafts of the Transaction Documents, the Company's Certificate of
Incorporation, and its Bylaws, as amended to date, the proceedings of the
Company's Board of Directors taken in connection with entering into the
Transaction Documents, and such other documents, agreements and records as we
deemed necessary to render the opinions set forth below.
In conducting our examination, we have assumed the following: (i) that
each of the Transaction Documents has been executed by each of the parties
thereto in the same form as the forms which we have examined, (ii) the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity and accuracy of all documents submitted to us as originals, and the
conformity to originals of all documents submitted to us as copies, (iii) that
each of the Transaction Documents has been duly and validly authorized, executed
and delivered by the party or parties thereto other than the Company, and (iv)
that each of the Transaction Documents constitutes the valid and binding
agreement of the party or parties thereto other than the Company, enforceable
against such party or parties in accordance with the Transaction Documents'
terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Nevada, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of 95,000,000
shares of Common Stock, $.001 par value per share, ("Common Stock") and
5,000,000 Preferred Stock, par value $.001 per share;
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Transaction
Documents, the Common Stock to be issued upon the conversion of the Series
2003-A 7% Convertible Note, as described in the Transaction Documents
represented thereby and shares issued under the Investment Agreement will be
duly authorized and validly issued, fully paid and non-assessable;
5 The Company has the requisite corporate power and authority to enter
into the Transaction Documents and to sell and deliver the Securities and the
Common Stock to be issued as described in the Transaction Documents; each of the
Transaction Documents has been duly and validly authorized by all necessary
corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Transaction Documents by the Company or the consummation of the transactions
contemplated thereby (other than the SEC or applicable state securities agencies
under the Registration Rights Agreement); each of the Transaction Documents has
been duly and validly executed and delivered by and on behalf of the Company,
and is a valid and binding agreement of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other laws affecting creditors rights generally, and except as to
compliance with federal, state, and foreign securities laws, as to which no
opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Transaction Documents and the performance of its
obligations thereunder do not and will not constitute a breach or violation of
any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of Incorporation
or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company is party or by which it or any of its property
is bound, (iii) any applicable statute or regulation or as other, (iv) or any
judgment, decree or order of any court or governmental body having jurisdiction
over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the Series 2003-A 7%
Convertible Note ("Convertible Note"), in accordance with the terms and
conditions of the Transaction Documents, will not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no pending
or threatened litigation, investigation or other proceedings against the Company
except as described in the reports filed with the SEC and in the Transaction
Documents or Schedules thereto.
9. The Transaction Documents are not usurious within the definition of
any laws, rules or regulations applicable to the Transaction Documents. The
Transaction Documents are not rendered unenforceable by virtue of any assertion
of a defense which may be based upon usury.
10. The Company complies with the eligibility requirements for the use
of Form SB-2, under the Securities Act of 1933, as amended.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of Nevada and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Transaction Documents and Securities may be governed by
the laws of other states, we have assumed that such laws are identical in all
respects to the laws of the State of Nevada.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Documents and
Securities and may not be relied upon by any other person or entity or for any
other purpose without our prior consent.
Very truly yours,
By:
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Corporate Counsel to Invisa, Inc.
EXHIBIT B
FORM OF BROKER'S LETTER
Via Facsimile
Date
Attention:
______________________
______________________
______________________
Re: INVISA, INC.
Dear __________________:
It is our understanding that the Form SB-2 Registration Statement bearing SEC
File Number ( ___-______) filed by Invisa, Inc. on _________ _, 200__ was
declared effective on _________, 200__.
This letter shall confirm that ______________ shares of the common stock of
Invisa, Inc. are being sold on behalf of __________________ and that we shall
comply with the prospectus delivery requirements set forth in that Registration
Statement by filing the same with the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
cc: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
EXHIBIT C-1
FORM OF PRELIMINARY PUT NOTICE
PUT NOTICE NO. C-1______
Invisa, Inc., a Nevada corporation (the "Company"), hereby gives preliminary
notice pursuant to the Investment Agreement to thee Investor that it intends to
have the Investor purchase shares of its Common Stock. The Company hereby
certifies that:
1. The Put Amount is: $_______________ (not less than $100,000 nor more than the
lowest of (i) twenty-five percent (25%) of the Volume Weighted Average Price for
the thirty (30) Trading Days prior to the applicable Preliminary Put Notice Date
multiplied by the Trading Volume for the same period, (ii) a dollar amount
calculated in accordance with Section 2 for any Pricing Period which would
purchase no more than 4.99% of the issued and outstanding Common Stock, or (iii)
two hundred fifty thousand dollars ($250,000).
2. The current number of shares of common stock issued and outstanding ("I&O) as
of _____________ are __________________________. 4.99% of I&O is ____________.
3. The Pricing Period (10 Trading Days consisting of the 4 Trading Days
immediately preceding the date of this Preliminary Put Notice and 5 Trading Days
following this Preliminary Put Notice) runs from _______________ to
___________________. The Put Notice shall be given on the Trading Date
immediately following the last Trading Day of the Pricing Period.
4. The Floor Price is $___________ .
INVISA, INC.
By: _________________________
Name: _______________________
Title: ______________________
EXHIBIT C-2
FORM OF PUT NOTICE
PUT NOTICE NO. C-2______
[number is same as corresponding Preliminary Put Notice]
Invisa, Inc., a Nevada corporation (the "Company"), hereby elects to exercise
its right pursuant to the Investment Agreement to require Investor to purchase
shares of its common stock. The Company hereby certifies that:
1. The Put Amount [from Preliminary Put Notice C-1_______ is: $_______________.
2. The Volume Weighted Average Price for the Pricing Period [from Preliminary
Notice C-1_____] is $___________ ("VWAP").
3. The Purchase Price is 75% x [Item 3 VWAP]$____ ___ = $___________ ("PP").
[must be grater than Floor Price stated in Preliminary Put Notice C-1_______]
4. The number of Shares put to the Investor is:
Put Amount [Item 1] $________ / PP [Item 5] $_______ = ________ Shares.
Number of Shares to be purchased ___________*
Aggregate Purchase Price of Shares $___________**
Less Escrow Fee ($__________)(if any)
Amount to be wired to Company $
===========
* Not more than 4.99% of I&O as provided in Item 2 of preliminary Put
Notice No. C-1______. If more than 4.99% of I&O number of Shares to be
purchased shall be reduced accordingly.
** Put Amount from Item 1
INVISA, INC.
By: _________________________
Name: _______________________
Title: ______________________
EXHIBIT D
RESERVED
EXHIBIT E
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
Exercisable Commencing May __, 2003;
Void after May __, 2008.
THIS CERTIFIES that, for value received, Barbell Group, Inc., a
Panamanian corporation, or its registered assigns ("Warrantholder"), is
entitled, subject to the terms and conditions set forth in this Warrant, to
purchase from Invisa, Inc., a Nevada corporation ("Company"), up to seventy-five
thousand (75,000) fully paid, duly authorized and nonassessable shares of common
stock ("Shares"), $___ par value per share, of the Company ("Common Stock"), at
any time commencing on May __, 2003 and continuing up to 5:00 p.m. Pacific Time
on May )__, 2008 ("Exercise Period") at an exercise price equal to
_________($___) per share, subject to adjustment pursuant to Section 8 hereof,
and provided that warrants to purchase (i) twenty-five thousand (25,000) Shares
shall be vested and exercisable upon the issuance of these Warrants, (ii)
twenty-five thousand (25,000) Shares shall be exercisable on the date that, and
only if, the Company has received $500,000 in aggregate financing under a
certain Investment Agreement dated as of May ___, 2003 ("Investment Agreement"),
and (iii) twenty-five thousand (25,000) Shares shall be vested and exercisable
on the date that, and only if, the Company has received $1,000,000 in aggregate
financing under the Investment Agreement.
This Warrant is subject to the following provisions, terms and
conditions:
SECTION 1. TRANSFERABILITY.
1.1 REGISTRATION. The Warrants shall be issued only in registered form.
1.2 TRANSFER. This Warrant shall be transferable only on the books of
the Company maintained at its principal executive offices upon surrender thereof
for registration of transfer duly endorsed by the Warrantholder or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver a new Warrant or Warrants in
appropriate denominations to the person or persons entitled thereto.
1.3 COMMON STOCK TO BE ISSUED. Upon the exercise of any vested Warrants
and upon receipt by the Company of a facsimile or original of Warrantholder's
signed Election to Exercise Warrant (See Exhibit 1), Company shall instruct its
transfer agent to issue stock certificates, subject to the restrictive legend
set forth below, in the name of Warrantholder (or its nominee) and in such
denominations to be specified by Warrantholder representing the number of shares
of Common Stock issuable upon such exercise, as applicable. Company warrants
that no instructions, other than these instructions, have been given or will be
given to the transfer agent and that the Common Stock
shall otherwise be freely transferable on the books and records of the Company.
It shall be the Company's responsibility to take all necessary actions and to
bear all such costs to issue the certificates of Common Stock as provided
herein, including the responsibility and cost for delivery of an opinion letter
to the transfer agent, if so required. The person in whose name the certificates
of Common Stock is to be registered shall be treated as a shareholder of record
on and after the exercise date. Upon surrender of any Warrant that is to be
converted in part, the Company shall issue to the Warrantholder a new Warrant
equal to the unconverted amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO REGISTRATION UNDER OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates of like tenor entitling the
Warrantholder to purchase a like aggregate number of Shares as the certificate
or certificates surrendered then entitle such Warrantholder to purchase. Any
Warrantholder desiring to exchange a warrant certificate shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant
certificate as so requested.
SECTION 3. TERMS OF WARRANTS: EXERCISE OF WARRANTS.
(a) Subject to the terms of this Warrant, the Warrantholder shall have
the right, at any time commencing on May ___, 2003, but before 5:00 p.m. Pacific
Time on May ___, 2008 ("Expiration Time"), to purchase from the Company up to
the number of Shares which the Warrantholder may at the time be entitled to
purchase pursuant to the terms of this Warrant, upon surrender to the Company at
its principal executive office, of the certificate evidencing this Warrant to be
exercised, together with the attached Election to Exercise Warrant form duly
filled in and signed, and upon payment to the Company of the Warrant Price (as
defined in and determined in accordance with the provisions of Section 7 and 8
hereof) or as provided in Section 3(a)(i) hereof, for the number of Shares with
respect to which such Warrant is then exercised. Payment of the aggregate
Warrant Price shall be made in cash, wire transfer or by cashier's check or any
combination thereof.
(b) Subject to the terms of this Warrant, upon such surrender of this
Warrant and payment of such Warrant Price as aforesaid, the Company shall
promptly issue and cause to be delivered to the Warrantholder or to such person
or persons as the Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may designate in
writing) for the number of duly authorized, fully paid and non-assessable whole
Shares to be purchased upon the exercise of this Warrant, and shall deliver to
the Warrantholder Common Stock or cash, to the extent provided in Section 9
hereof, with respect to any fractional
Shares otherwise issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of such Shares as of the close
of business on the date of the surrender of this Warrant and payment of the
Warrant Price, notwithstanding that the certificates representing such Shares
shall not actually have been delivered or that the Share and Warrant transfer
books of the Company shall then be closed. This Warrant shall be exercisable, at
the sole election of the Warrantholder, either in full or from time to time in
part and, in the event that any certificate evidencing this Warrant (or any
portion thereof) is exercised prior to the Expiration Time with respect to less
than all of the Shares specified therein at any time prior to the Expiration
Time, a new certificate of like tenor evidencing the remaining portion of this
Warrant shall be issued by the Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or original of
Warrantholder's signed Election to Exercise Warrant, the Company shall instruct
its transfer agent to issue one or more stock certificates representing that
number of shares of Common Stock which the Warrantholder is entitled to purchase
in accordance with the terms and conditions of this Warrant and the Election to
Exercise Warrant attached hereto. The Company shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Warrant and it shall not be necessary for the Warrantholder to send to
the Company the original Warrants to be exercised.
(d) Such exercise shall be effectuated by sending to the Company, or
its attorney, a facsimile or original of the signed Election to Exercise Warrant
which evidences Warrantholder's intention to exercise those Warrants indicated.
The date on which the Election to Exercise Warrant is effective ("Exercise
Date") shall be deemed to be the date on which the Warrantholder has delivered
to the Company a facsimile or original of the signed Election to Exercise
Warrant. The Company shall deliver to the Warrantholder, or per the
Warrantholder's instructions, the shares of Common Stock within three (3)
business days of receipt of the Election to Exercise Warrants.
(e) Nothing contained in this Warrant shall be deemed to establish or
require the payment of interest to the Warrantholder at a rate in excess of the
maximum rate permitted by governing law. In the event that the rate of interest
required to be paid exceeds the maximum rate permitted by governing law, the
rate of interest required to be paid thereunder shall be automatically reduced
to the maximum rate permitted under the governing law and such excess shall be
returned with reasonable promptness by the Warrantholder to the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the exercise date. Upon surrender of any
Warrants that are to be converted in part, the Company shall issue to the
Warrantholder new Warrants equal to the unconverted amount, if so requested by
Warrantholder.
(g) The Company shall at all times reserve and have available all
Common Stock necessary to meet exercise of the Warrants by all Warrantholders of
the entire amount of
Warrants then outstanding. If, at any time Warrantholder submits an Election to
Exercise Warrant and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a exercise of the
Warrants (a "Exercise Default", the date of such default being referred to
herein as the "Exercise Default Date"), the Company shall issue to the
Warrantholder all of the shares of Common Stock which are available, and the
Election to Exercise Warrant as to any Warrants requested to be converted but
not converted (the "Unconverted Warrants"), upon Warrantholder's sole option,
may be deemed null and void. The Company shall provide notice of such Exercise
Default ("Notice of Exercise Default") to all existing Warrantholders of
outstanding Warrants, by facsimile, within one (1) business day of such default
(with the original delivered by overnight or two day courier), and the
Warrantholder shall give notice to the Company by facsimile within five (5)
business days of receipt of the original Notice of Exercise Default (with the
original delivered by overnight or two day courier) of its election to either
nullify or confirm the Election to Exercise Warrant.
(h) Each person in whose name any certificate for shares of Common
Stock shall be issued shall for all purposes be deemed to have become the holder
of record of the Common Stock represented thereby on the date on which the
Warrant was surrendered and payment of the purchase price and any applicable
taxes was made, irrespective of date of issue or delivery of such certificate,
except that if the date of such surrender and payment is a date when the Shares
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such Shares on the next succeeding date on which such Share
transfer books are open. The Company shall not close such Share transfer books
at any one time for a period longer than seven (7) days.
(i) This Warrant is exercisable in whole or in part at the Exercise
Price per share of Common Stock (as defined hereafter) payable hereunder,
payable in cash or by certified or official bank check, by means of sending to
the Company, or its attorney, an Election to Exercise Warrants, as stated above,
to receive the number of shares of Common Stock stated in such Election or by
"cashless exercise" (only in the event the Shares underlying the Warrants have
not been registered in an effective Registration Statement), by means of sending
to the Company, or its attorney, an Election to Exercise Warrants, as stated
above, to receive a number of shares of Common Stock equal to the difference
between the Market Value (as defined hereafter) of the shares of Common Stock
issuable upon exercise of this Warrant and the total cash exercise price
thereof. Upon transmitting the annexed Notice of Exercise duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, or upon the "cashless exercise" as provided in this Section, the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased. For the purposes of this subsection, "Market
Value" shall be an amount equal to the average closing bid price of a share of
Common Stock for the ten (10) days preceding the Company's receipt of the Notice
of Exercise Form duly executed multiplied by the number of shares of Common
Stock to be issued upon surrender of this Warrant Certificate.
SECTION 4. PAYMENT OF TAXES. The Company shall pay all documentary
stamp taxes, if any, attributable to the initial issuance of the Shares;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable, (i) with respect to any secondary transfer of this
Warrant or the Shares or (ii) as a result of the issuance of the Shares to
any person other than the Warrantholder, and the Company shall not be required
to issue or deliver any certificate for any Shares unless and until the person
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have produced evidence that such tax has been paid to the
appropriate taxing authority.
SECTION 5. MUTILATED OR MISSING WARRANT. In case the certificate or
certificates evidencing this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and of a bond of indemnity, if requested, also
satisfactory to the Company in form and amount, and issued at the applicant's
cost. Applicants for such substitute Warrant certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 6. RESERVATION OF SHARES. The issuance, sale and delivery of
the Warrants have been duly authorized by all required corporate action on the
part of the Company and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid, and non-assessable and enforceable
in accordance with their terms, subject to the laws of bankruptcy and creditors'
rights generally. The Company shall pay all taxes in respect of the issue
thereof. As a condition precedent to the taking of any action that would result
in the effective purchase price per share of Common Stock upon the exercise of
this Warrant being less than the par value per share (if such shares of Common
Stock then have a par value), the Company will take such corporate action as
may, in the opinion of its counsel, be necessary in order that the Company may
comply with all its obligations under this Agreement with regard to the exercise
of this Warrant.
SECTION 7. WARRANT PRICE. During the Exercise Period, the price per
Share ("Warrant Price") at which Shares shall be purchasable upon the exercise
of this Warrant shall be _____________ ($____).
SECTION 8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time after the date
hereof upon the happening of certain events, as follows:
8.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise of
this Warrant shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common Stock in
Common Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (ii) declare a dividend
payable in cash on its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities convertible
into, exchangeable for or other entitling a holder thereof to receive
Common Stock) from the proceeds of such dividend (all Common Stock so issued
shall be deemed to have been issued as a stock dividend), (iii) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iv) combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (v) issue by reclassification of its Common Stock
any shares of Common Stock of the Company, the number of shares of Common Stock
issuable upon exercise of the Warrants immediately prior thereto shall be
adjusted so that the holders of the Warrants shall be entitled to receive after
the happening of any of the events described above that number and kind of
shares as the holders would have received had such Warrants been converted
immediately prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subdivision shall become effective
immediately after the close of business on the record date in the case of a
stock dividend and shall become effective immediately after the close of
business on the effective date in the case of a stock split, subdivision,
combination or reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends other than as described in
Section (8)(a)(ii)), then in such case, the number of shares of Common Stock
thereafter issuable upon exercise of the Warrants shall be determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of the Warrants, by a fraction, of which the numerator shall be the
closing bid price per share of Common Stock on the record date for such
distribution, and of which the denominator shall be the closing bid price of the
Common Stock less the then fair value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock issuable
hereunder otherwise required to be made by this Section 8 will not have to be
adjusted if such adjustment would not require an increase or decrease in one
percent (1%) or more in the number of shares of Common Stock issuable upon
exercise of the Warrant. No adjustment in the number of Shares purchasable upon
exercise of this Warrant will be made for the issuance of shares of capital
stock to directors, employees or independent Warrantors pursuant to the
Company's or any of its subsidiaries' stock option, stock ownership or other
benefit plans or arrangements or trusts related thereto or for issuance of any
shares of Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under such plan.
(d) Whenever the number of shares of Common Stock issuable upon the
exercise of the Warrants is adjusted, as herein provided the Warrant Price shall
be adjusted (to the nearest cent) by multiplying such Warrant Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of shares of Common Stock issuable upon the exercise of each share of the
Warrants immediately prior to such adjustment, and of which the denominator
shall be the number of shares of Common Stock issuable immediately thereafter.
(e) The Company from time to time by action of its Board of Directors
may decrease the Warrant Price by any amount for any period of time if the
period is at least twenty (20) days, the decrease is irrevocable during the
period and the Board of Directors of the Company in its sole discretion shall
have made a determination that such decrease would be in the best interest of
the Company, which determination shall be conclusive. Whenever the Warrant Price
is decreased pursuant to the preceding sentence, the Company shall mail to
holders of record of the Warrants a notice of the decrease at least fifteen (15)
days prior to the date the decreased Warrant Price takes effect, and such notice
shall state the decreased Warrant Price and the period it will be in effect.
8.2 MERGERS, ETC. In the case of any (i) consolidation or merger of the
Company into any entity (other than a consolidation or merger that does not
result in any reclassification, exercise, exchange or cancellation of
outstanding shares of Common Stock of the Company), (ii) sale, transfer, lease
or conveyance of all or substantially all of the assets of the Company as an
entirety or substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in par
value, or from par value to no par value), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
holder of Warrants then outstanding shall have the right thereafter to exercise
such Warrant only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer, capital
reorganization or reclassification by a holder of the number of shares of Common
Stock of the Company into which such Warrants would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Common Stock of the
Company (A) is not an entity with which the Company consolidated or into which
the Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or an affiliate of
a constituent entity, and (B) failed to exercise his or her rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger, sale
or transfer by other than a constituent entity or an affiliate thereof and in
respect of which such rights or election shall not have been exercised
("non-electing share"), then for the purpose of this Section 8.2 the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). If necessary, appropriate adjustment shall be made in the
application of the provision set forth herein with respect to the rights and
interests thereafter of the holder of Warrants, to the end that the provisions
set forth herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of the Warrants. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, capital reorganizations and reclassifications. The Company shall not
effect any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor company or entity (if
other than the Company) resulting from such consolidation, merger, sale or
transfer assumes, by written instrument, the obligation to deliver to the holder
of Warrants such shares of stock,
securities or assets as, in accordance with the foregoing provision, such holder
may be entitled to receive under this Section 8.2.
8.3 STATEMENT OF WARRANTS. Irrespective of any adjustments in the
Warrant Price of the number or kind of shares purchasable upon the exercise of
this Warrant, this Warrant certificate or certificates hereafter issued may
continue to express the same price and number and kind of shares as are stated
in this Warrant.
SECTION 9. FRACTIONAL SHARES. Any fractional shares of Common Stock
issuable upon exercise of the Warrants shall be rounded to the nearest whole
share or, at the election of the Company, the Company shall pay the holder
thereof an amount in cash equal to the closing bid price thereof. Whether or not
fractional shares are issuable upon exercise shall be determined on the basis of
the total number of Warrants the holder is at the time exercising and the number
of shares of Common Stock issuable upon such exercise.
SECTION 10. NO RIGHTS AS STOCKHOLDERS: NOTICES TO WARRANTHOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or its transferees any rights as a stockholder of the Company,
including the right to vote, receive dividends, consent or receive notices as a
stockholder with respect to any meeting of stockholders for the election of
directors of the Company or any other matter. If, however, at any time prior to
the Expiration Time and prior to the exercise of this Warrant, any of the
following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1; or
(b) a dissolution, liquidation or winding up of the Company or any
consolidation, merger or sale of its property, assets and business as an
entirety; then in any one or more of said events, the Company shall give notice
in writing of such event to the Warrantholder at least ten (10) days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights, or other rights or for the effective date of
any dissolution, liquidation of winding up or any merger, consolidation, or sale
of substantially all assets, but failure to mail or receive such notice or any
defect therein or in the mailing thereof shall not affect the validity of any
such action taken. Such notice shall specify such record date or the effective
date, as the case may be.
SECTION 11. MISCELLANEOUS.
(a) BENEFITS OF THIS AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Warrantholder any legal or equitable right, remedy or claim under this Warrant,
and this Warrant shall be for the sole and exclusive benefit of the Company and
the Warrantholder.
(b) RIGHTS CUMULATIVE; WAIVERS. The rights of each of the parties under
this Warrant are cumulative. The rights of each of the parties hereunder shall
not be capable of being waived or varied other than by an express waiver or
variation in writing. Any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or
any other such right. Any defective or partial exercise of any of such rights
shall not preclude any other or further exercise of that or any other such
right. No act or course of conduct or negotiation on the part of any party shall
in any way preclude such party from exercising any such right or constitute a
suspension or any variation of any such right.
(c) BENEFIT; SUCCESSORS BOUND. This Warrant and the terms, covenants,
conditions, provisions, obligations, undertakings, rights, and benefits hereof,
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their heirs, executors, administrators, representatives, successors, and
permitted assigns.
(d) ENTIRE AGREEMENT. This Warrant contains the entire agreement
between the parties with respect to the subject matter hereof. There are no
promises, agreements, conditions, undertakings, understandings, warranties,
covenants or representations, oral or written, express or implied, between them
with respect to this Warrant or the matters described in this Warrant, except as
set forth in this Warrant. Any such negotiations, promises, or understandings
shall not be used to interpret or constitute this Warrant.
(e) ASSIGNMENT. This Warrant may be assigned if the Assignment of
Warrant, attached as Exhibit B to this Warrant, is properly completed, executed
and delivered to the Company.
(f) AMENDMENT. This Warrant may be amended only by an instrument in
writing executed by the parties hereto.
(g) SEVERABILITY. Each part of this Warrant is intended to be
severable. In the event that any provision of this Warrant is found by any court
or other authority of competent jurisdiction to be illegal or unenforceable,
such provision shall be severed or modified to the extent necessary to render it
enforceable and as so severed or modified, this Warrant shall continue in full
force and effect.
(h) NOTICES. Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at its executive office (ii) if to the Subscriber, at the address set
forth under its name in the Purchase Agreement, with a copy to its designated
attorney and (iii) if to any other Subscriber, at such address as such
Subscriber shall have provided in writing to the Company, or at such other
address as each such party furnishes by notice given in accordance with this
Section 12(h), and shall be effective, when personally delivered, upon receipt
and, when so sent by certified mail, four (4) business days after deposit with
the United States Postal Service.
(i) GOVERNING LAW. This Agreement shall be governed by the interpreted
in accordance with the laws of the State of New York without reference to its
conflicts of laws rules or principles. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions.
(j) CONSENTS. The person signing this Warrant on behalf of the Company
hereby represents and warrants that he has the necessary power, consent and
authority to execute and deliver this Warrant on behalf of the Company.
(l) FURTHER ASSURANCES. In addition to the instruments and documents to
be made, executed and delivered pursuant to this Warrant, the parties hereto
agree to make, execute and deliver or cause to be made, executed and delivered,
to the requesting party such other instruments and to take such other actions as
the requesting party may reasonably require to carry out the terms of this
Warrant and the transactions contemplated hereby.
(m) SECTION HEADINGS. The Section headings in this Warrant are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Warrant.
(n) CONSTRUCTION. Unless the context otherwise requires, when used
herein, the singular shall be deemed to include the plural, the plural shall be
deemed to include each of the singular, and pronouns of one or no gender shall
be deemed to include the equivalent pronoun of the other or no gender.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the __ day of May, 2003.
INVISA, INC.
By: ________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
EXHIBIT 1
NOTICE OF ELECTION TO EXERCISE WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of __________, ____, to purchase
__________ shares of the Common Stock, no par value, of INVISA, INC. and tenders
herewith payment in accordance with Section 1 of said Common Stock Purchase
Warrant.
__ CASH: $___________________ = (Exercise Price x Exercise Shares)
Payment is being made by:
__ enclosed check
__ wire transfer
__ other
__ CASHLESS EXERCISE
Net number of Warrant Shares to be issued to Holder : _________*
* based on: Current Market Value - (Exercise Price x Exercise Shares)
---------------------------------------------------------
Market Price of Common Stock
where:
Market Price of Common Stock ["MP"] = $_______________
Current Market Value [MP x Exercise Shares] = $_______________
Please deliver the stock certificate to:
Dated:
____________________________________
[Name of Holder]
By: ________________________________