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EXHIBIT 10.7
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
SPLENDID ROCK HOLDINGS, LTD.
AND
PET QUARTERS, INC.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of March 15, 2000 (the
"Agreement"), between Splendid Rock Holdings, Ltd., a British Virgin Islands
corporation (the "Investor") and Pet Quarters, Inc., a corporation organized and
existing under the laws of the State of Arkansas (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor from
time to time as provided herein, and Investor shall purchase, up to between
$10,000,000 and $25,000,000 (the "Aggregate Purchase Amount") of the Common
Stock (as defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market on the date in
question.
Section 1.2 "Capital Shares" shall mean the, Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of earnings and assets of
the Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.3.
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Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
fifth Trading Day following the end of the Valuation Period related to such
Closing, provided all conditions to such Closing have been satisfied on or
before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the dollar amount which the
Investor has agreed to provide to the Company in order to purchase Put Shares
pursuant to the terms and conditions of this Agreement and which shall be fixed
by the Company as set forth in Section 2.1(b).
Section 1.7 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased Put Shares pursuant to this Agreement for
gross proceeds to the Company equal to the Commitment Amount, (y) the date this
Agreement is terminated pursuant to Section 2.4, or (z) the date occurring
thirty (30) months from the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the sale by the
Company and resale by the Investor of the Registrable Securities as set forth in
Section 7.2(f).
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in
the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.15 "Market Price" on any given date shall mean the average of
the six (6) lowest Bid Prices (as reported by Bloomberg L.P.) of the Common
Stock on any Trading Day during the Valuation Period relating to such date.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any
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condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement, the Registration Rights Agreement or the Escrow Agreement
in any material respect.
Section 1.17 "Maximum Put Amount" shall mean, as of any Put Date, four
and one eighth percent (4.125%) of the value weighted average price of the
Common Stock for the three (3) month period prior to the Put Date multiplied by
the total trading volume for the three (3) month period prior to the Put Date,
each as reported by Bloomberg, LP.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.21 "Principal Market" shall mean the NASDAQ National Market,
the NASDAQ SmallCap Market, the American Stock Exchange, the New York Stock
Exchange or the OTC Bulletin Board whichever is at the time the principal
trading exchange or market for the Common Stock.
Section 1.22 "Purchase Price" shall mean with respect to Put Shares,
eighty-five percent (85%) (the "Purchase Price Percentage") of the Market Price
during the Valuation Period related to a Put (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement).
Section 1.23 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.24 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.25 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor in the form attached hereto as Exhibit B.
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Section 1.26 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.27 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Put Shares
and Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.28 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the sale and resale of
the Registrable Securities annexed hereto as Exhibit C.
Section 1.29 "Registration Statement" shall mean a registration
statement on Form S-1 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC, such as Form S-3 or SB-2, for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be
available for the resale by the Investor of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.30 "SEC" shall mean the Securities and Exchange Commission.
Section 1.31 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10 or
10-SB, Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 1O-QSB
and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as
of the time in question until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
Section 1.33 "Trading Cushion" shall mean the mandatory twenty (20)
Trading Days between Put Dates, unless waived by the Investor.
Section 1.34 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
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Section 1.35 "Valuation Event" shall mean an event in which the Company
at any time prior to the end of the Commitment Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above or (d) and (e) below, 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 (other than pursuant to this Agreement, any
other agreement disclosed in the SEC Documents prior to the date hereof, and
that certain Common Stock and Warrants Purchase Agreement dated as of February
23, 2000, by and between the Company and AMRO International, S.A. and Markham
Holdings Limited (the "Common Stock and Warrants Purchase Agreement"));
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance (other than pursuant to any qualified
stock incentive plan maintained by the Company);
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
Subsections (a) through (f) hereof, inclusive, which in the opinion of the
Company's Board of Directors, determined in good faith, would have a Material
Adverse Effect upon the rights of the Investor at the time of a Put; provided,
however, that none of the following actions shall constitute a Valuation Event:
(i) the private placement of up to $10,000,000 of convertible preferred stock
and warrants through Ladenburg ▇▇▇▇▇▇▇▇ & Co., Inc. as placement agent (ii) the
borrowing of up to $1,000,000 from the Investor and (iii) the Company's current
obligation to sell 1,023,810 shares of Common Stock to AMRO International, S.A.
and Markham Holdings Limited (238,095 shares upon the Effective Date and a
possible 785,715 in the event of a repricing under the Common Stock and Warrants
Purchase Agreement).
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Section 1.36 "Valuation Period" shall mean the period of eleven (11)
Trading Days beginning seven (7) Trading Days before the Trading Day on which a
Put Notice is deemed to be delivered and ending three (3) Trading Days after
such date; provided, however, that if a Valuation Event occurs during a
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the eleventh
(11th) Trading Day thereafter.
Section 1.37 "Warrants" shall mean the Common Stock Purchase Warrants
in the form of Exhibit D hereto to be delivered to the Investor at the initial
Closing, and if the Commitment Amount is in excess of $10,000,000, upon fixing
of the Commitment Amount in excess of such amount. "Warrant Shares" shall mean
the shares of Common Stock issuable upon exercise of the Warrants. The Company
shall issue Investor Warrants to purchase 400,000 Warrant Shares at the initial
Closing and additional Warrants equal to twenty percent (20%) * [the Commitment
Amount minus $10,000,000]; divided by five (5) as a condition precedent to the
Investor's obligation to increase the Commitment Amount above $10,000,000.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts.
(a) Company's Right to Put. Upon the terms and conditions set
forth herein (including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may make a Put by the delivery of a Put
Notice. The number of Put Shares that the Investor shall receive pursuant to
such Put shall be determined by dividing the Investment Amount specified in the
Put Notice by the Purchase Price for such Valuation Period. The Investment
Amount shall not exceed the Maximum Put Amount on the date of the Put Notice.
(b) Limitation of Commitment Amount. On or before April 15,
2000, the Company shall deliver to the Investor a written notice specifying the
exact Commitment Amount, which shall be not less than $10,000,000 nor more than
$25,000,000. In the absence of such notice, the Commitment Amount shall be
$10,000,000.
Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for each Put
as designated by the Company in the applicable Put Notice shall be neither less
than $ 100,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is
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received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern
Time on a Trading Day or at any time on a day which is not a Trading Day. No Put
Notice may be deemed delivered on a day that is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put the
Investor shall deliver the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver to
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Upon
receipt of notice from the Escrow Agent that the Escrow Agent has possession of
the Investment Amount, the Company shall, if possible, deliver the Put Shares to
the Investor's account through the Depository Trust Company DWAC system, per
written account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to deliver to the
Escrow Agent one or more certificates, as requested by the Investor,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
registered in the name of such account or accounts as may be designated by the
Investor. Payment of funds to the Company and delivery of the certificates to
the Investor (unless delivered by DWAC) shall occur out of escrow in accordance
with the Escrow Agreement, provided, however, that to the extent the Company has
not paid the fees, expenses, and disbursements of the Investor's counsel in
accordance with Section 13.7, the amount of such fees, expenses, and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date.
Section 2.4 Failure of Investor to Honor Puts. The obligation of the
Company to sell Put Shares to the Investor shall terminate if the Investor fails
to honor any Put Notice within two (2) Trading Days of the Closing Date
scheduled for such Put, and the Company notifies Investor of such termination.
Upon such termination, the Company shall maintain the Registration Statement in
effect for such reasonable period, not to exceed forty-five (45) days, as the
Investor may request in order to dispose of any remaining Put Shares. Upon such
termination, any unexercised Warrants shall immediately terminate and become
void. Such termination shall be the Company's sole remedy for the Investor's
failure to honor a Put.
Section 2.5 Additional Shares. In the event that (a) within five
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with Section 3(f) of the Registration
Rights Agreement and (b) the Bid Price on the Trading Day immediately preceding
such "blackout period" (the "Old Bid Price") is greater than the Bid Price on
the first Trading Day following such "blackout period" (the "New Bid Price") the
Company shall issue to the Investor a number of additional shares (the "Blackout
Shares") equal to the difference between (y) the product of the number of
Registrable Securities purchased by the Investor on such most recent Closing
Date and still held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old Bid Price,
divided by the New Bid Price and (z) the number of Registrable Securities
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purchased by the Investor on such most recent Closing Date and still held by the
Investor during such "blackout period" that are not otherwise freely tradable
during such "blackout period".
Section 2.6 Liquidated Damages. The parties hereto acknowledge and
agree that the obligation to issue Registrable Securities under Section 2.5
above shall constitute liquidated damages and not penalties. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investor in
connection with the failure by the Company to timely cause the registration of
the Registrable Securities or in connection with a "blackout period" under the
Registration Rights Agreement, and (c) the parties are sophisticated business
parties and have been represented by legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. (i) the Investor has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement and any accompanying documents or agreements referred to herein
in accordance with their terms, (ii) the execution and delivery of this
Agreement and any accompanying documents or agreements referred to herein and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Investor or its Board of Directors or stockholders is
required, (iii) this Agreement and any accompanying documents or agreements
referred to herein to be signed by the Investor have been duly and validly
executed and delivered by the Investor and (iv) this Agreement and the
accompanying documents or agreements referred to herein are valid and binding
agreements of the Investor enforceable against it in accordance with their
terms, subject to applicable bankruptcy,
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insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the British
Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 Disclosure, Access to Information. Investor has received
and reviewed all documents, records, books and other publicly available
information pertaining to Investor's investment in the Company that have been
requested by Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and Investor has reviewed copies of any such
reports that have been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
Section 3.10 Underwriter Liability. Investor understands that it is the
position of the SEC that the Investor is an underwriter within the meaning of
Section 2(11) of the Securities Act and that the Investor will be identified as
an underwriter of the Put Shares and the Warrant Shares in the Registration
Statement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as set forth on
the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Arkansas and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Put Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required, and (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants have been duly executed and
delivered by the Company and at the initial Closing shall constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the issuance of the
Put Shares and for the exercise of the Warrants.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, $0.001 par value per share, of
which 11,242,000 shares are issued and outstanding as of December 31, 1999 and
10,000,000 shares of preferred stock, $0.001 par value per share, of which no
shares are issued and outstanding at December 31, 1999. Except for (i)
outstanding options and warrants as set forth in the SEC Documents and (ii) as
set forth in the Disclosure Schedule, there are no outstanding Capital Share
Equivalents nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. The Company is not a party to any
agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable.
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Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the OTC
Bulletin Board and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has made available to the
Investor true and complete copies of the SEC Documents. The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis 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 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 operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance
with the terms hereof or of the Warrants, the Put Shares and the Warrant Shares
will be duly and validly issued, fully paid, and non-assessable. Neither the
sales of the Put Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Put Shares, the Warrants or the Warrant Shares or, except
as contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or
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other rights to subscribe for or acquire the Capital Shares or other securities
of the Company. The Put Shares, the Warrants and the Warrant Shares shall not
subject the Investor to personal liability to the Company or its creditors by
reason of the possession thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Articles of Incorporation or By-Laws or
(ii) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under any Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Put Shares or the
Warrants in accordance with the terms hereof (other than any SEC, Principal
Market or state securities filings that may be required to be made by the
Company subsequent to the initial Closing, any registration statement that may
be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.8 No Material Adverse Change. Since December 31, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since December 31,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.10 Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary, nor
has the Company received any written or oral notice of any such action, suit,
proceeding or investigation, which could reasonably be
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expected to have a Material Adverse Effect. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or decree or award has been
issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.11 No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Put Shares or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.12 Material Non-Public Information. The Company has not
disclosed to the Investor any material non-public information that (i) if
disclosed publicly, would reasonably be expected to have a material effect on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.13 Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.14 Tax Matters.
The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax Returns are
true and accurate and has been prepared in compliance with all applicable laws;
the Company has paid all Taxes due and owing by it or any subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice
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indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to Section 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 1.15 Property. Neither the Company nor any of its subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property and buildings held under lease by the Company as
tenant are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
intended to be made of such property and buildings by the Company.
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Section 4.16 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.17 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.18 Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.19 No Misrepresentation. The representations and warranties
of the Company contained in this Agreement, any schedule, annex or exhibit
hereto and any agreement, instrument or certificate furnished by the Company to
the Investor pursuant to this Agreement, do not contain any untrue statement of
a material fact or omit 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.
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ARTICLE V
COVENANTS OF THE INVESTOR
Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of the
Warrants, the Warrant Shares or the Put Shares from the Investor, and the
Investor will not make any statements, representations or comments concerning
the Company to any such purchaser except as expressly permitted by all
applicable state and federal securities laws, rules and regulations and not in
contradiction to any statements or representations contained in the SEC
Documents.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. Except as permitted herein,
specifically in case of an event contemplated by Section 2.4 hereof, the Company
shall cause the Registration Right Agreement to remain in full force and effect
and the Company shall comply in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares and the Warrant Shares. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Put Shares and the
Warrant Shares and will take such other action as is necessary or desirable in
the opinion of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide,
to the extent permitted by and in accordance with Section 8.2 hereof, Investor
with copies of any correspondence to or from such Principal Market which
questions or threatens delisting of the Common Stock, within one Trading Day of
the Company's receipt thereof.
Section 6.3 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by Exchange Act or
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the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Act.
Section 6.4 Legends. The certificates evidencing the Common Stock to be
sold to the Investor shall be free of restrictive legends.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Additional SEC Documents. During the Commitment Period, the
Company will deliver, to the extent permitted by and in accordance with Section
8.2 hereof, to the Investor, as and when the originals thereof are submitted to
the SEC for filing, copies of all SEC Documents so furnished or submitted to the
SEC, or else notify the Investor that such documents are available on the ▇▇▇▇▇
system.
Section 6.7 Notice of Certain Events Affecting Registration, Suspension
of Right to Make a Put. To the extent permitted by and in accordance with
Section 8.2 hereof, the Company will immediately notify the Investor upon the
occurrence of, but not the facts or details pertaining to, any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of Registrable Securities; (i) receipt of any request for
additional information from the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement the
response to which would require any amendments or supplements to the
registration statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any,
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through the issuance of Put Notices. Such notification shall constitute only the
Company's good faith estimate and shall in no way obligate the Company to raise
such amount, or any amount, or otherwise limit its ability to deliver Put
Notices. The failure by the Company to comply with this provision can be cured
by the Company's notifying the Investor, in writing, at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.9 Consolidation, Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS
AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties.
The representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing, and Investor shall
provide a certificate to the Company, substantially in the form of that
delivered by the Investor at the Closing of the sale of the Initial Shares, to
such effect.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on both (i) the date of delivery of such Put Notice and
(ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of each
of the following conditions:
(a) Closing Certificate. All representations and warranties of
the Company contained herein shall remain true and correct as of the Closing
Date as though made as of such date and the Company shall have delivered into
escrow an Officer's Certificate signed by its Chief Executive Officer or
President certifying that all of the Company's representations and
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warranties herein remain true and correct as of the Closing Date and that the
Company has performed all covenants and satisfied all conditions to be performed
or satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common Stock
to the Investor and by the Investor as set forth in the Registration Rights
Agreement or shall have the availability of exemptions therefrom;
(c) Delivery of Put Shares. Delivery into escrow or to DTC of
the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of an opinion
of counsel to the Company, in the form of Exhibit D hereto; and
(e) Transfer Agent. Delivery to the Company's transfer agent
of instructions to such transfer agent in form and substance reasonably
satisfactory to the Investor.
(f) Registration of the Common Stock with the SEC. The
Registration Statement shall have previously become effective and shall remain
effective and available for making resales of the Put Shares and Warrant Shares
by the Investor on each Condition Satisfaction Date and (i) neither the Company
nor the Investor shall have received notice that the SEC has issued or intends
to issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the 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
the Registration Statement or related prospectus shall exist.
(g) Authority. The Company will satisfy all laws and
regulations pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement and the Escrow Agreement to be performed, satisfied or complied with
by the Company at or prior to each Condition Satisfaction Date.
(i) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
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(j) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of Common Stock.
The trading of the Common Stock (including, without limitation, the Put Shares)
is not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice threatening to
delist the Common Stock from the Principal Market.
(l) No Knowledge. The Company has no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is reasonably likely to
occur within the thirty (30) Trading Days following the Trading Day on which
such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed
since the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the Investor
shall have received and been reasonably satisfied with such other certificates
and documents customary at closings of financing transactions, as shall have
been reasonably requested by the Investor in order for the Investor to confirm
the Company's satisfaction of the conditions set forth in this Section 7.2.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1 Due Diligence Review. Pursuant to and in accordance with
Section 8.2 hereof, the Company shall make available for inspection and review
by the Investor, advisors to and representatives of the Investor (who may or may
not be affiliated with the Investor and who are reasonably acceptable to the
Company), any underwriter participating in any disposition of the Registrable
Securities on behalf of the Investor pursuant to the Registration Statement, any
such registration statement or amendment or supplement thereto or any blue sky,
NASD or other filing, all SEC Documents and other filings with the SEC, and all
other publicly available corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such publicly
available information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investor and such representatives,
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advisors and underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the Company and the
accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to
the Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) The Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
(c) The Investor shall not disseminate non-public information
to any person or entity, regardless of whether such person or entity may
purchase stock in the Company pursuant to a public or private offering.
ARTICLE IX
TRANSFER AGENT INSTRUCTIONS
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent
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for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions to deliver the Put Shares without
restrictive legends to the Escrow Agent.
Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall
be placed on the share certificates representing the Put Shares and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
CHOICE OF LAW
Section 10.1 Governing Law/Arbitration. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York City
and without regard to its principles of conflicts of laws. Any dispute under
this Agreement or any Exhibit attached hereto shall be submitted to arbitration
under the American Arbitration Association (the "AAA") in New York City, New
York, and shall be finally and conclusively determined by the decision of a
board of arbitration consisting of three (3) members (hereinafter referred to as
the "Board of Arbitration") selected as according to the rules governing the
AAA. The Board of Arbitration shall meet on consecutive business days in New
York City, New York, and shall reach and render a decision in writing (concurred
in by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
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ARTICLE XI
ASSIGNMENT
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person except by operation of law. Notwithstanding the foregoing, upon the prior
written consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the Investor)
who agrees to make the representations and warranties contained in Article III
and who agrees to be bound hereby.
ARTICLE XII
NOTICES
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Pet Quarters, Inc.: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: C. ▇▇▇ ▇▇▇▇▇▇▇▇
(shall not constitute notice) ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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if to the Investor: c/o ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇ & Partner
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇/▇▇▇▇▇▇▇▇ ▇▇
▇▇-▇▇▇▇ ▇▇▇▇▇
Furstenturn Liechtenstein
Telephone: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
(shall not constitute notice) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Green, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 Entire Agreement. This Agreement, the Exhibits hereto,
which include, but are not limited to the Escrow Agreement, the Registration
Rights Agreement and the Warrants, set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
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provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investor's counsel the sum of $10,000 at the initial Closing
contemplated hereby, and the sum of $1,500 at each subsequent Closing of a Put.
Section 13.8 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party
except for Ladenburg ▇▇▇▇▇▇▇▇ & Co., Inc., whose fee shall be paid by the
Company. The Company on the one hand, and the Investor, on the other hand, agree
to indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated by
this Agreement without the prior consent of the Investor, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from its
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then, it may do so without the prior consent of the Investor,
although it shall be required to provide prior notice (which may be by
telephone) to the Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express consent.
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Section 13.10 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
PET QUARTERS, INC.
By:
--------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
SPLENDID ROCK HOLDINGS, LTD.
By:
--------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Authorized Signatory
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DISCLOSURE SCHEDULE OF PET QUARTERS, INC.
1. ▇▇▇▇▇▇▇ ▇▇▇▇▇-has options to purchase 200,000 shares at $2.96875 per
share.
2. ▇▇▇ ▇▇▇▇▇ has warrants to purchase 573,350 shares at $1.00 per share
and the warrants are not subject to dilution as a result of a stock
split or similar event. ▇▇▇ ▇▇▇▇▇ does not have antidilution rights for
the Company's issuance of additional shares to raise capital.
3. ▇▇▇▇ ▇▇▇▇▇▇▇ has options to purchase 225,000 shares at $1.125 per
share.
4. The following persons have piggyback registration rights:
-----------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ 225,000 shares
-----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 200,000 shares
-----------------------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇▇▇ 573,350 shares
-----------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ 204,723 shares
-----------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇ Trust 204,723 shares
-----------------------------------------------------------------------------------------------------------
▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 1,416,417 shares
-----------------------------------------------------------------------------------------------------------
Bridge Loan Participants 428,334 shares
-----------------------------------------------------------------------------------------------------------
Holders of interest in $2.5M subscription 1,190,476 shares
-----------------------------------------------------------------------------------------------------------
(700,525 shares currently outstanding)
-----------------------------------------------------------------------------------------------------------
5. AMRO International, S.A. ("AMRO") has warrants to purchase 130,000
shares at $4.6575 per share and the warrants are not subject to
dilution as a result of a stock split or similar event. AMRO does not
have antidilution rights for the Company's issuance of additional
shares to raise capital.
6. Markham Holdings Limited ("Markham") has warrants to purchase 20,000
shares at $4.6575 per share and the warrants are not subject to
dilution as a result of a stock split or similar event. Markham does
not have antidilution rights for the Company's issuance of additional
shares to raise capital.
7. Upon the effectiveness of a Registration Statement, AMRO is obligated
to purchase an additional 238,095 shares of the Company for a total
purchase price of $500,000.
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PET QUARTERS, INC.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
May 31, 2000
Splendid Rock Holdings, Ltd.
C/o Dr. ▇▇. ▇▇▇▇▇▇▇▇ & Partner
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇▇-▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
Attn.: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇
Re: Amendment to Private Equity Line of Credit Agreement
Gentlemen:
Reference is made to that certain Private Equity Line of Credit
Agreement (the "Purchase Agreement"), dated March 15, 2000, between Pet
Quarters, Inc. (the "Company") and Splendid Rock Holdings, Ltd. (the
"Purchaser") and that certain Registration Rights Agreement (the "Registration
Agreement"), dated March 15, 2000, between the Company and the Purchaser.
Section 2.1(a) of the Purchase Agreement, as currently constituted, limits the
Company's right to make a Put under the Purchase Agreement to an amount no
greater than 4.125% of the value weighted average price of the Common Stock for
the three (3) month period prior to the Put Date multiplied by the total trading
volume for the three (3) month period prior to the Put Date, each as reported by
Bloomberg, LP. Section 3 of the Registration Agreement, as currently
constituted, obligated the Company to prepare and file, with the Commission,
within sixty(60) of the date thereof, the Registration Statement to permit a
public offering and resale of the Securities. During the time period between the
execution of the Purchase Agreement and the Registration Agreement by the
parties hereto and the date hereof, the Company, with the full knowledge of the
Purchaser, has acquired additional companies which has delayed filing of the
Registration Statement. The Company also anticipates requiring to make Puts in
excess of such limitation and wishes to amend the Purchase Agreement
accordingly.
In consideration of the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree to
restate the following sections of the Purchase Agreement as follows:
Section 1.22 "Purchase Price" unless adjusted as set forth in
Section 2.1(a) herein, shall mean with respect to Put Shares, 85% (the
"Purchase Price Percentage") of the Market Price during the Valuation
Period related to a Put (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this
Agreement).
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Section 2.1(a) Company's Right to Put. Upon the terms and
conditions set forth herein (including, without limitation, the
provisions of Article VII hereof), on any Put Date the Company may make
a Put by the delivery of a Put Notice. The number of Put Shares that
the Investor shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Put Notice by the
Purchase Price for such Valuation Period. In the event the Investment
Amount exceeds the Maximum Put Amount on the date of the Put Notice,
the Purchase Price shall be reduced by 3.5% of the Market Price during
the Valuation Period related to such a Put for the first dollar by
which such Investment Amount exceeds the Maximum Put Amount and a
further 3.5% for every $100,000 thereafter
Section 2.2(a) Put Notice. At any time during the Commitment
Period, the Company may deliver a Put Notice to the Investor, subject
to the conditions set forth in Section 7.2; provided, however, that the
Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than $100,000 nor more than
the Maximum Put Amount (unless otherwise provided for in Section 2.1(a)
herein).
The parties also hereby agree to restate the following section of the
Registration Agreement as follows:
Section 3(a). The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("Commission"), within
ninety (90) days after the date hereof, a registration statement (on
Form ▇-▇, ▇-▇, or other appropriate form of registration statement)
under the Securities Act (the "Registration Statement"), as the sole
expense of the Company (except as provided in Section 3(c) hereof), so
as to permit a public offering and resale of the Securities under the
Act by Holder.
The Company will use its best efforts to cause the
Registration Statement to become effective within one hundred and
twenty (120) days from the date hereof, or, if earlier, within five (5)
days of SEC clearance to request acceleration of effectiveness. The
Company will notify Holder of the effectiveness of the Registration
Statement within one Trading Day of such event.
All terms used but not defined in this letter shall have the meanings
set forth in the Purchase Agreement.
If the foregoing correctly sets forth our understanding and agreement,
please so indicate by signing where indicated below.
Very truly yours,
PET QUARTERS, INC.
By:
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
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ACCEPTED AND AGREED TO:
SPLENDID ROCK HOLDINGS, LTD.
By:
----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇, Authorized Signatory