EXHIBIT 10.26
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COMMON STOCK PURCHASE AGREEMENT
between
D.G. Jewellery of Canada, Ltd.
and
Haymarket LLC
dated as of May 18, 1999
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT, dated as of May 18, 1999 (the
"Agreement"), between the entity listed on Schedule A attached hereto (referred
to as the "Investor"), and D.G JEWELLERY OF CANADA, LTD., a corporation
organized and existing under the laws of the Province of Ontario, Canada (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase up to an aggregate principal amount of
$6,000,000 of Common Stock pursuant to the terms set forth herein and Warrants
to purchase 110,769 Warrant Shares; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.4 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and any
day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government actions to close.
Section 1.4 "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 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
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 1.6 "Closing" shall mean one of the closings of the purchase and
sale of the Common Stock and Warrants pursuant to Article II below.
Section 1.7 "Closing Date" shall mean the date the closing of the purchase
and sale of the Common Stock and Warrants occurs pursuant to Article II below.
Section 1.8 "Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.9 "Damages" shall mean any loss, claim, damage, liability, costs
and expenses which shall include, but not be limited to, reasonable attorney's
fees, disbursements, costs and expenses of expert witnesses and investigation.
Section 1.10 "Effective Date" shall mean the date on which the SEC first
declares effective the Registration Statement registering the resale of
1,750,000 shares of Common Stock.
Section 1.11 "Escrow Agent" shall mean the law firm of The ▇▇▇▇▇▇▇▇▇ Law
Group, P.C., pursuant to the terms of the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the agreement regarding the
escrow of the Purchase Price, Initial Shares, Secondary Shares, and Warrants
entered into between the Company, the Escrow Agent and the Investor on the
Subscription Date annexed 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 "First Tranche Closing Date" shall mean the date of the
closing of the purchase and sale of the Initial Shares and Warrants associated
with the first tranche occurs pursuant to Article II below
Section 1.15 "First Tranche Purchase Price" shall mean $4,000,000.
Section 1.16 "Initial Shares" shall mean the shares of Common Stock
issuable upon the Closing of the first tranche as contained in Section 2.7
below.
Section 1.17 "Issuance Price" shall mean the result of the following: the
applicable Purchase Price divided by the 100% of the Bid Price of the Common
Stock on the Trading Day immediately preceding the applicable Closing Date.
Section 1.18 "Legend" shall have the meaning set forth in Article VIII
below.
Section 1.19 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, trading volume of the Common Stock, 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
condition, circumstance, or situation that would prohibit or otherwise in any
material respect interfere with the ability of the Company to enter into and
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perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, or the Warrants in any material respect.
Section 1.20 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "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 1.22 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.23 "Principal Market" shall mean the NASDAQ National Market, the
NASDAQ Small Cap Market, the American Stock Exchange, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.24 "Purchase Price" shall mean collectively the First Tranche
Purchase Price and the Second Tranche Purchase Price.
Section 1.25 "Registrable Securities" shall have the definition set forth
in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, and the Investor on
the Subscription Date annexed hereto as Exhibit B.
Section 1.27 "Registration Statement" shall mean a registration statement
on Form S-1, or other available form, for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "SEC" shall mean the Securities and Exchange Commission.
Section 1.30 "Second Tranche Closing Date" shall mean the date of the
closing of the purchase and sale of the Secondary Shares and Warrants associated
with the second tranche occurs pursuant to Article II below.
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Section 1.31 "Second Tranche Purchase Price" shall mean that dollar amount
set forth in the Company's option notice for the Secondary Shares which shall be
a minimum of $1,000,000 and a maximum of $2,000,000.
Section 1.32 "Secondary Shares" shall mean the shares of Common Stock
issuable upon the Closing of the second tranche as contained in Section 2.7
below.
Section 1.33 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34 "Securities" shall mean the Initial Shares, Secondary Shares,
Additional Shares, and Warrant Shares.
Section 1.35 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "SEC Documents" shall mean the Company's latest Form 20-F
(and all amendments thereto), all Form 8-Ks, 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 1.37 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the issuance of the
Initial Shares and Warrants shall have been fulfilled.
Section 1.38 "Trading Day" shall mean any day during which the then
Principal Market shall be open for business.
Section 1.39 "Warrants" shall mean the Common Stock Purchase Warrants
annexed hereto as Exhibit C.
Section 1.40 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
ARTICLE II
Purchase and Sale of the Common Stock and Warrants
Section 2.1 Closing. The Company will sell, and the Investor will buy, on
the Closing Dates of the two tranches as set forth in Section 2.6 below, an
aggregate of up to $6,000,000 worth of Common Stock, and shall acquire Warrants
to purchase that number of Warrant Shares as set forth in Section 2.5 below, in
exchange for the Purchase Price, provided each of the conditions set forth in
Section 2.7 below have been satisfied or waived in writing.
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Section 2.2 Form of Payment. The Investor shall pay the Purchase Price by
delivering good funds in United States Dollars by wire transfer to the Escrow
Agent, against delivery of the original shares of Common Stock and Warrants as
per the terms of the Escrow Agreement.
Section 2.3 Liquidated Damages. In addition to any other provisions for
liquidated damages in this Agreement or any Exhibit annexed hereto, in the event
that the Company does not deliver unlegended Common Stock in connection with the
sale of such Common Stock by the Investor as set forth in Article VIII below
within five Business Days of surrender by the Investor of the Common Stock
certificate in accordance with the terms and conditions set forth in Article
VIII below (such date of receipt is referred to as the "Receipt Date"), the
Company shall pay to the Investor, in immediately available funds, upon demand,
as liquidated damages for such failure and not as a penalty, one quarter of one
percent of the value of the Common Stock undelivered (based upon the Bid Price
of the Common Stock on the Receipt Date) for every day thereafter for the first
ten days and two percent for every day thereafter that the unlegended shares of
Common Stock are not delivered, which liquidated damages shall run from the
sixth Business Day after the Receipt Date. The parties hereto acknowledge and
agree that the sum payable pursuant to the Registration Rights Agreement and as
set forth above, and the obligation to issue Registrable Securities, shall
constitute liquidated damages and not penalties. The parties further acknowledge
that the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, and the parties are sophisticated business
parties and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length. Any and all payments
required pursuant to this paragraph shall be payable only in cash, and any
payment hereunder shall not relieve the Company of its delivery obligations
under this Section.
Section 2.4 Additional Shares. In the event that a "blackout period"
occurs, during a Repricing Period or within twenty Trading Days after receipt by
the Company of a Repricing Notice, which is defined as any period in which the
effectiveness of an Amendment is suspended for a reason other than a suspension
of the Registration Statement arising in the event the Company possesses
material non-public information or if caused by the investigation by the SEC
into the distribution by the Investor of the Securities, and 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
the number of additional Repricing Shares equal to the difference between (y)
the product of (i) the number of Initial Shares subject to such repricing held
by the Investor during such "blackout period" that are or were not otherwise
freely tradable and (ii) the Old Bid Price, divided by the New Bid Price and (z)
the number of Initial Shares subject to repricing held by the Investor during
such "blackout period" that were not otherwise freely tradable during such
blackout period.
Section 2.5 Warrants. On the Subscription Date, the Company will issue to
the Investor Warrants exercisable beginning on the Subscription Date and then
exercisable any time over the five year period thereafter, to purchase 110,769
Warrant Shares at an Exercise Price (as defined in the Warrant) equal to 125% of
the average Bid Prices of the Common Stock during the five consecutive Trading
Days immediately preceding the Issuance Date (as defined in the
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Warrants) of the Warrants. The Warrant shall be delivered by the Company to the
Escrow Agent, and delivered to the Investor pursuant to the terms of this
Agreement and the Escrow Agreement. The Warrant Shares shall be registered for
resale pursuant to the Registration Rights Agreement.
Section 2.6 Closings. The Company agrees to sell and the Investor agrees
to purchase up to an aggregate of $6,000,000 principal amount of Common Stock in
two separate tranches of $4,000,000, and up to $2,000,000, as is more fully set
forth in (a) and (b) below.
(a) First Tranche. On the Subscription Date, the Company will sell
and the Investor will buy (in the amounts set forth on Schedule A), in reliance
upon the representations and warranties contained in this Agreement, and upon
the terms and satisfaction of each of the conditions set forth below, that
number of Initial Shares derived from dividing the First Tranche Purchase Price
by the Issuance Price.
The conditions precedent to the sale of the Initial Shares and
Warrants are as follows:
(A) Acceptance by each of the Investor of a satisfactory
Common Stock Purchase Agreement and due execution by all parties of
this Agreement and the Exhibits annexed hereto;
(B) Delivery into escrow by the Company of the original
Initial Shares and the original Warrants, as more fully set forth in
the Escrow Agreement;
(C) All representations and warranties of the Company
contained herein shall remain true and correct in all material
respects as of the First Tranche Closing Date;
(D) The Investor shall have received an opinion of counsel
substantially in the form of Exhibit D annexed hereto; and
(E) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Initial Shares, and Warrants, or shall have the availability of
exemptions therefrom. At the First Tranche Closing Date, the sale
and issuance of the Initial Shares and Warrants shall be legally
permitted by all laws and regulations to which the Company and the
Investor is subject.
(b) Second Tranche. At the Company's option (which must be in the
form of written notice to the Investor at least five Business Days prior to the
Closing of the Second Tranche setting forth the dollar amount which shall be a
maximum of $2,000,000) the Company will sell and the Investor will buy, in
reliance upon the representations and warranties contained in this Agreement,
and upon the terms and satisfaction of each of the conditions set forth below,
that number of Secondary Shares derived from dividing the dollar amount set
forth in the Company's option notice by the Issuance Price, after the earlier to
occur of (y) 180 calendar days
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after the Subscription Date, and (z) 20 Trading Days after the expiration of the
second Reset Period for the Initial Shares (the Company must exercise this
option within 20 calendar days after the earlier of (y) and (z) herein). The
maximum principal dollar amount of Secondary Shares that the Company may sell to
the Investor in connection with the second tranche shall be subject to the
following: (i) if the average Bid Price of the Common Stock during the 20
consecutive Trading Days immediately preceding the notice by the Company of its
intention to proceed with the second tranche, and during the five Trading Days
immediately preceding the Second Tranche Closing Date (both periods are
hereinafter collectively referred to as the "Second Tranche Pricing Period") is
lower than $5.00 per share, the Company may not serve such written notice, (ii)
if the average Bid Price for the Common Stock during the Second Tranche Pricing
Period is equal to, or greater than, $5.00 per share but less than $6.00 per
share than the Company's option for the second tranche shall be a maximum of
$1,000,000, and (iii) if the average Bid Price of the Common Stock during the
Second Tranche Pricing Period is equal to, or greater than $6.00 per share than
the Company's option for the second tranche shall be a maximum of $2,000,000. In
the event the Company wishes to serve a notice for the second tranche it must
provide ten Trading Days notice of its intention to proceed with the second
tranche. The Company's right to proceed with the second tranche is subject to
the satisfaction or written waiver of each of the following conditions:
(A) Delivery into escrow by the Company of the original
Secondary Shares, as more fully set forth in the Escrow Agreement
attached hereto;
(B) The Investor shall have received an opinion of counsel of
the Company as set forth in Exhibit D annexed to this Agreement,
dated on the Second Tranche Closing Date;
(C) The Registration Statement (which includes at least 150%
of the Initial Shares which have not yet been subject to a Reset
Period, 100% of the Initial Shares that were subject to a Reset
Period, 150% of the Secondary Shares, and 100% of the Warrant
Shares) has previously become effective and remains effective for at
least 50 calendar days, and remains effective during the ten (10)
Trading Days immediately prior to the Company's notice for the
Second Tranche and the Second Tranche Closing Date, and (A) 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 (B) no other suspension of the use
or withdrawal of the effectiveness of the Registration Statement or
related prospectus shall exist;
(D) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Secondary Shares, or shall have the availability of exemptions
therefrom. The sale and issuance of the Secondary Shares shall be
legally permitted by all laws and regulations to which the Company
is subject;
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(E) The Investor shall have received written certification
that the representations and warranties of the Company contained in
this Agreement and all Exhibits annexed hereto are true and correct
in all material respects as of the Second Tranche Closing Date as
though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect
to all periods, and as to all events and circumstances occurring or
existing to and including the Second Tranche Closing Date;
(F) The Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements and
conditions required by this Agreement, the Escrow Agreement, the
Registration Rights Agreement and the Warrants, to be performed,
satisfied or complied with by the Company at or prior to the Second
Tranche Closing Date;
(G) 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 or the Exhibits
annexed hereto, 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 or the Exhibits annexed
hereto;
(H) The trading of the Common Stock shall not have been
suspended by the SEC or the Principal Market, and the Common Stock
shall not have been delisted from the Small Cap Stock Market since
the First Tranche Closing Date (except for normal and customary
information dissemination). As of the Secondary Shares Closing Date
the Company currently meets all applicable listing requirements of
the Principal Market;
(I) No "Change of Control" in the Company shall have occurred.
Where "Change of Control" shall mean the occurrence of any of (a) an
acquisition after the Subscription Date by a Person of in excess of
50% of the voting securities of the Company, (b) a replacement of
more than one half of the board of directors in place as of the
Subscription Date which is not approved by those individuals who are
members of the board of directors on the Subscription Date in one or
a series of transactions, (c) the merger of the Company with, or
into another entity, consolidation or sale of all or substantially
all of the assets of the Company in one or a series of related
transactions, or (d) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for
any of the events set forth in (a), (b) or (c) herein;
(J) The average Bid Price of the Common Stock during the
Second Tranche Pricing Period shall be greater than $5.00;
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(K) The average daily trading volume for the Common Stock as
reported by Bloomberg, LP during the Second Tranche Pricing Period
shall be a minimum of 30,000;
(L) The issuance of the Secondary Shares will not violate the
rules and regulations of the Principal Market;
(M) No Material Adverse Effect shall have occurred since the
First Tranche Closing Date, and no Material Adverse Effect shall be
in existence as of the Second Tranche Closing Date; and
(N) The Investor, in the event of the Closing of the Secondary
Shares would not own or be deemed beneficially to own, more than
9.99% of the outstanding shares of Common Stock.
Notwithstanding the foregoing, the Investor will not be obligated to
purchase the Secondary Shares in the event the Registration Statement has not
been declared effective by the SEC prior to six months after the First Tranche
Closing Date.
Section 2.8 Repricing.
(a) There will be two "Reset Periods" per tranche. Each Reset Period
will consist of 30 Trading Days. The first Reset Period for the Initial Shares
will expire on the 30th Trading Day after the Effective Date and will cover
fifty percent (50%) of the Initial Shares. The second Reset Period for the
Initial Shares will expire on the 30th Trading Day after the expiration of the
first Reset Period for the Initial Shares, for the remaining fifty percent (50%)
of the Initial Shares. The first Reset Period for the Secondary Shares will
expire on the 30th Trading Day after the Closing Date for the Secondary Shares
and will cover fifty percent (50%) of the Secondary Shares. The second Reset
Period for the Secondary Shares will expire on the 30th Trading Day after the
expiration of the first Reset Period for the Secondary Shares, and cover the
remaining fifty percent (50%) of the Secondary Shares.
(b) For each Reset Period, the "Reset Price" shall be equal to the
average of the lowest twelve (12) Bid Prices of the Common Stock during each
reset Period. The number of shares of Common Stock (the "Reset Shares") to be
issued upon the expiration of each Reset Period shall be calculated by the
following formula:
((# of shares subject to repricing as set forth above) x
(Purchase Price of shares subject to repricing x 115% - Reset
Price)) / Reset Price
Upon the expiration of each Reset Period the Company agrees to issue that
number of Reset Shares (if any) resulting from the above formula. Such shares
shall be delivered within five Business Days following the expiration of the
applicable Reset Period. In the event that the Company does not deliver Reset
Shares within five Business Days after the expiration of a Reset Period (if so
required pursuant to the terms herein), the Company shall pay to the Investor,
in
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immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, two percent of the value of the Reset Shares undelivered
(based upon the Bid Price of the Common Stock on the Receipt Date) for every day
thereafter for the first ten calendar days and two percent per calendar day
thereafter that the Reset Shares are not delivered, which liquidated damages
shall run from the sixth Business Day after the expiration of the applicable
Reset Period. The parties hereto acknowledge and agree that the sum payable
herein, shall constitute liquidated damages and not penalties. The parties
further acknowledge that the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, and the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
Any and all payments required pursuant to this paragraph shall be payable only
in cash, and any payment hereunder shall not relieve the Company of its delivery
obligations under this Section. All Reset Shares shall be included in the
Registration Statement.
(c) In the event the Company is obligated to issue Reset Shares, and
the Reset Price is lower than sixty percent (60%) of the Issuance Price
(hereinafter the "Floor Price"), then the Company shall have the option, in lieu
of issuing such Reset, of paying to the Investor the cash value of said Reset
Shares based upon the Bid Price of the Common Stock on the Trading Day of the
expiration of the applicable Reset Period. Such cash payment must be wired
transferred to the Investor within five Business Days after the expiration of
such Reset Period, if it is not, then the Company will be obligated to pay to
the Investor liquidated damages for such failure and not as a penalty, two
percent of the amount due to the Investor for every day thereafter for the first
ten calendar days and two percent per calendar day thereafter that the funds are
not delivered, which liquidated damages shall run from the sixth Business Day
after the expiration of the applicable Reset Period.
(d) In the event the Company is obligated to issue Reset Shares, but
the Investor then owns more than 9.99% of the then outstanding shares of Common
Stock, the Company will issue such Reset Shares at such time as the Investor
owns less than 9.99% of the then outstanding shares of Common Stock.
(e) The Reset Shares shall be included in the Registration Statement
as per the terms of the Registration Rights Agreement.
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ARTICLE III
Representations and Warranties of the Investor
The Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and 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 reserve 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 the Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Initial Shares, Secondary Shares,
Reset Shares, and Warrants. The Investor acknowledges that an investment in the
Common Stock is speculative and involves a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and validly
executed and delivered by the Investor and is a valid and binding agreement of
the Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is neither 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. The Investor is duly organized,
validly existing, and in good standing under the laws of the countries and/or
states of their incorporation or organization. None of such companies, or
officers, directors, or principal stockholders thereof are the subject or have
been the subject of any criminal or material regulatory discipline related to
securities.
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 the Investor is a party or are subject, or by which the
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
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contract, agreement, instrument, relationship or legal obligation to which any
of the Investors is subject or to which any of their assets, operations or
management may be subject.
Section 3.7 Disclosure; Access to Information. The Investors has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor, including the
opportunity to ask questions and receive answers. The Company is subject to the
periodic reporting requirements of the Exchange Act as they apply to foreign
issuers, and the Investor has reviewed or received copies of any such reports
that have been requested by it. The Investor represents that it has reviewed the
Company's, Form 20-F for the year ended December 31, 1997.
Section 3.8 Manner of Sale. At no time was the 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 Registration or Exemption Requirements. The Investor further
acknowledges and understands that the Securities may not be transferred, resold
or otherwise disposed of except in a transaction registered under the Securities
Act and any applicable state securities laws, or unless an exemption from such
registration is available. The Investor understands that the certificate(s)
evidencing the Initial Shares, Secondary Shares, Reset Shares, and Warrants will
be imprinted with a legend that prohibits the transfer of these securities
unless (i) they are registered or such registration is not required, and (ii) if
the transfer is pursuant to an exemption from registration.
Section 3.10 No Legal, Tax or Investment Advice. The Investor understands
that nothing in this Agreement or any other materials presented to the Investor
in connection with the purchase and sale of the Initial Shares, Secondary
Shares, Reset Shares, and Warrants constitutes legal, tax or investment advice.
The Investor has relied on, and have consulted with, such legal, tax and
investment advisors as they, in their sole discretion, have deemed necessary or
appropriate in connection with their purchase of the Initial Shares, Secondary
Shares, Reset Shares, and Warrants.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation duly
incorporated and validly existing under the laws of the Province of Ontario,
Canada, and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted except as described in the SEC
Documents. The Company is duly qualified to do business as a foreign corporation
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not reasonably be
expected to have a Material Adverse Effect.
12
Section 4.2 Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
and all Exhibits annexed hereto, and to issue the Initial Shares, Secondary
Shares, Reset Shares, Warrants, Additional Shares, and the Warrant Shares, (ii)
the execution, issuance and delivery of this Agreement, and all Exhibits annexed
hereto, 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, and (iii) this Agreement, and all Exhibits annexed hereto, have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. Upon their issuance and delivery pursuant to this
Agreement, the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares and Additional Shares, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances other than those
created hereunder or by the actions of the Investor; provided, however, that the
Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares and
Additional Shares are subject to restrictions on transfer under state and/or
federal securities laws. The issuance and sale of the Initial Shares, Secondary
Shares, Reset Shares, Warrants, Warrant Shares and Additional Shares hereunder
will not give rise to any preemptive right or right of first refusal or right of
participation on behalf of any person.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of an unlimited number of shares of Common Stock, no par value per
share, of which approximately 5,664,375 shares are issued and outstanding, and
no shares of Preferred Stock. The Company has no present intention of creating a
series or class of preferred stock. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable. No shares of Common Stock are entitled to
preemptive or similar rights. Except as specifically disclosed in Schedule 4.3
annexed hereto, there are no outstanding options, warrants, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or, except as
a result of the purchase and sale of the Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, and the Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or securities or rights
convertible or exchangeable into shares of Common Stock. Except as disclosed in
the SEC Documents, to the knowledge of the Company, no Person or group of
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with or by
obligation binding upon the Company beneficial ownership of in excess of five
percent of the Common Stock.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and such Common Stock is currently
listed or quoted on the NASDAQ Small
13
Cap Market, and the Company is in full compliance with all of the listing
requirements of the NASDAQ Small Cap Market.
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents filed by the Company
with the SEC during the twelve (12) months immediately preceding the
Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to the Investor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company, but which has
not been so disclosed. The SEC Documents comply in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and rules and regulations of the SEC promulgated thereunder and none of the SEC
Documents contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form 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. 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 may not include
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.
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, and the Additional Shares, sold to the Investor will be duly and validly
issued, fully paid, and nonassessable. Neither the issuance of the Initial
Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares, and Additional
Shares, to the Investor, pursuant to, nor the Company's performance of its
obligations under this Agreement, and all Exhibits annexed hereto will (i)
result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon the Initial Shares, Secondary Shares, Reset
Shares, Warrants, Warrant Shares, or Additional Shares, issued to the Investor,
or any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe to or acquire the
Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Initial Shares, Secondary
Shares, Reset Shares, Additional Shares, Warrants, or Warrant Shares, or (ii)
made any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Initial
Shares, Secondary Shares, Reset Shares, Additional Shares, Warrants, or Warrant
Shares under the Securities Act.
14
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof, and the Company's
by-laws, as amended and in effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Initial
Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares and Additional
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, 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 property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, conflict with or in default under any of the
foregoing as would not reasonably be expected to 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 reasonably be expected to have a Material Adverse Effect. Except for
the Company's obligations to make the SEC Reports, the Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement (including all Exhibits annexed hereto) or to
issue and sell the Initial Shares, Secondary Shares, Reset Shares, Warrants,
Warrant Shares, or Additional Shares in accordance with the terms hereof;
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 4.10 No Material Adverse Change. Since December 31, 1998, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents, or as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, that are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
set forth in the Company's financial statements or as incurred in the ordinary
course of the Company's businesses since December 31, 1998, and which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December 31,
1998, 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
15
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 4.13 Integration. The Company, any of its affiliates, or any
person acting on its or their behalf has not, shall not, and shall use its best
efforts to ensure that no affiliate shall, directly or indirectly, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security of the Company that would be integrated with the offer or sale of the
Initial Shares, Secondary Shares, and Warrants in a manner that would require
the registration under the Securities Act of the issue, offer or sale of the
Initial Shares, Secondary Shares, and Warrants to the Investor. The Initial
Shares, Secondary Shares, and Warrants are being offered and sold pursuant to
the terms hereunder, are not being offered and sold as part of a previously
commenced private placement of securities.
Section 4.14 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would reasonably be 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, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material Adverse Effect. A summary of the
Company's material legal proceedings is attached hereto as Schedule 4.14.
Section 4.15 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations for foreign
issuers under either Section 12(b), 12(g) or 15(d) of the Exchange Act. The
Company is a "foreign issuer" as that term is defined in the Exchange Act. The
Company has registered its Common Stock pursuant to Section 12 of the Exchange
Act and the Common Stock is listed and trades on the NASDAQ Small Cap Market.
The Company has complied in all material respects and to the extent applicable
with all reporting obligations, under either Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve (12) months immediately preceding
the offer and sale of the Initial Shares, Secondary Shares, and Warrants (or for
such shorter period that the Company has been required to file such material).
Section 4.16 The Company is aware and acknowledges that issuance of
Initial Shares, Secondary Shares, Additional Shares, Reset Shares, and/or
exercise of the Warrants, may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue (i) Additional
Shares, (ii) Reset Shares, and (iii) the Warrant Shares in accordance with the
Warrants is unconditional and absolute regardless of the effect of any such
dilution, except that it has been agreed by the Investor and the Company that in
no event will the Company be required to issue more than 20% of its total
outstanding securities at a discount to the market price without first obtaining
stockholder approval.
16
Section 4.17 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.18 Environmental Laws. The Company is (i) in compliance with any
and all 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 and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct its business, and (iii) is in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.19 Insurance. The Company is 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 is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not cause a Material
Adverse Effect.
Section 4.20 Board Approval. The board of directors of the Company has
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.21 Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with its
business or which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property Rights.
The Company has not received any notice from any third party of any claim of
infringement by the Company of any of the Intellectual Property Rights, and has
no reason to believe there is any basis for any such claim. To the best
knowledge of the Company, there is no existing infringement by another Person on
any of the Intellectual Property Rights.
Section 4.22 Use of Proceeds. The Company represents that the net proceeds
from this offering will be used for working capital purposes, and not for the
repayment of any outstanding judgments against the Company (including any
affiliate or subsidiary) or any officer, director or employee of the Company.
Section 4.23 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
17
Section 4.24 No Private Placements. The Company has not conducted a
private placement of its Common Stock or of any debt or equity instrument
convertible into Common Stock within one year prior to the Closing Date. Except
for the transactions contemplated hereby and as disclosed in the SEC Documents,
there are no outstanding securities issued by the Company that are entitled to
registration rights under the Securities Act. Except as disclosed in the SEC
Documents, there are no outstanding securities issued by the Company that are
directly or indirectly convertible into, exercisable into, or exchangeable for,
shares of Common Stock, that have anti-dilution or similar rights that would be
affected by the issuance of the Initial Shares, Secondary Shares, Warrants,
Warrant Shares, and/or Additional Shares.
Section 4.25 Permits; Compliance. The Company and each of its subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits except for such Company
Permits, the failure of which to possess, or the cancellation, or suspension of
which, would not, individually or in the aggregate, have a Material Adverse
Effect. To the Company's knowledge, neither the Company nor any of its
subsidiaries is in material conflict with, or in material default or material
violation of, any of the Company Permits. Since January 1, 1999 neither the
Company nor any of its subsidiaries has received any notification with respect
to possible material conflicts, material defaults or material violations of
applicable laws.
Section 4.26 Taxes. All federal, provincial, city and other tax returns,
reports and declarations required to be filed by or on behalf of the Company
have been filed and such returns are complete and accurate and disclose all
taxes (whether based upon income, operations, purchases, sales, payroll,
licenses, compensation, business, capital, properties or assets or otherwise)
required to be paid in the periods covered thereby.
Section 4.27 No Bankruptcy. The Company is aware of no facts or claims
against it which would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4.28 Material Contracts. Except as set forth in the SEC Documents,
the agreements to which the Company is a party described in the SEC Documents
are valid agreements, in full force and effect. The Company is not in material
breach or material default under any of such agreements, except where such
breach or default would not cause a Material Adverse Effect.
Section 4.29 Title to Assets. Except as set forth in SEC Documents, the
Company has good and marketable title to all properties and material assets
described in the SEC Documents as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as would not cause a Material Adverse Effect.
18
Section 4.30 Filings. Except for the filing of a Form D within 15 days
after the Closing Date (which the Company agrees it will file), and such other
form(s) required by "blue sky" laws, the Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Preferred Stock, or Warrants, in
accordance with the terms hereof; 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.
ARTICLE V
Covenants of the Investor
Section 5.1 Additional Agreements. The Investor consents to its inclusion
in the Registration Statement, or Registration Statements, required to be filed
by the Company pursuant to this Agreement and the Registration Rights Agreement.
The Investor covenants and agrees that it will (i) timely supply the Company
with all information reasonably required by the Company in connection with the
preparation and filing of such Registration Statements or any supplements or
amendments thereto, and (ii) make, and permit the inclusion in such Registration
Statements or supplements or amendments thereto, all disclosures and filings
required by the SEC to be made in connection with such Registration Statements
or supplements or amendments thereto. The Investor will comply with the
prospectus delivery requirements of the Securities Act.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to issue
the Additional Shares, Initial Shares, Secondary Shares, Reset Shares, and
Warrant Shares. The number of shares so reserved shall be increased or decreased
to reflect potential increases or decreases in the Common Stock that the Company
may thereafter be so obligated to issue by reason of adjustments to the
Warrants.
Section 6.3 Listing of Common Stock. If required by the Principal Market,
the Company shall (a) not later than the fifth Business Day following the date
the Principal Market requires, prepare and file with the Principal Market (as
well as any other national securities
19
exchange, market or trading facility on which the Common Stock is then listed)
an additional shares listing application covering at least the sum of (i)
Initial Shares, and Secondary Shares and (ii) the Warrant Shares issuable upon
exercise in full of the Warrants, (b) take all steps necessary to cause such
shares to be approved for listing on the Principal Market (as well as on any
other national securities exchange, market or trading facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Investor evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange or market. If required by the
Principal Market, the Company shall (a) not later than the fifth Business Day
following the issuance of the Reset Shares and/or Additional Shares (if issued
pursuant to the terms of this Agreement) prepare and file with the Principal
Market (as well as any other national securities exchange, market or trading
facility on which the Common Stock is then listed) an additional shares listing
application covering at least the sum of Reset Shares and Additional Shares so
issued, (b) take all steps necessary to cause such shares to be approved for
listing on the Principal Market (as well as on any other national securities
exchange, market or trading facility on which the Common Stock is then listed)
as soon as possible thereafter, and (c) provide to the Investor evidence of such
listing, and the Company shall maintain the listing of its Common Stock on such
exchange or market. In addition, if at any time the number of shares of Common
Stock issuable hereunder, and upon exercise in full of the Warrants is greater
than the number of shares of Common Stock theretofore listed with the Principal
Market (and any such other national securities exchange, market or trading
facility), the Company shall promptly take such action (including the actions
described in the preceding sentence) to file an additional shares listing
application with the Principal Market (and any such other national securities
exchange, market or trading facility) covering such number of shares of Common
Stock as would be necessary. The Company (i) has not received any notice, oral
or written, affecting its continued listing on the NASDAQ Small Cap Market, and
(ii) is in full compliance with the requirements for continued listing on the
NASDAQ Small Cap Market. The Company will take no action which would impact its
continued listing or eligibility of the Company for such listing (except as set
forth in Section 6.11 below). The Company will comply with the listing and
trading requirements of its Common Stock on a Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market. In the event the Company receives
notification from the Principal Market or any other controlling entity stating
that the Company is not in compliance with the listing qualifications of such
Principal Market, the Company will take all action necessary to bring the
Company within compliance with all applicable listing standards of the Principal
Market.
Section 6.4 Exchange Act Registration. The Company will maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
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 the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act, for so long as the Registrable Securities are owned by the
Investor.
Section 6.5 Legends. The Initial Shares, Secondary Shares, Warrants,
Warrant Shares, and Additional Shares to be issued by the Company pursuant to
this Agreement shall be free of legends, except as set forth in Article VIII.
20
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
will immediately notify the Investor within three Business Days after the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in 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 (the Company shall not
be required to notify the Investor in this case in the event such notification
would be deemed the release of nonpublic information); and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate. The Company will, within three Business Days of
when filed with the SEC make available to the Investor any such supplement or
amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of Warrant Shares. The issuance of the Warrant Shares
pursuant to exercise of the Warrants shall be made in accordance with the
provisions and requirements of Section 4(2) of the Securities Act, or Regulation
D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investor upon execution of this Agreement, an opinion in the form
of Exhibit D annexed hereto. The Company will obtain for the Investor, at the
Company's expense, any and all opinions of
21
counsel which may be reasonably required in order to remove the Legend from the
Initial Shares, Secondary Shares, and Warrant Shares, as such opinion can be
given under applicable law.
Section 6.11 Issuance Limitation. At no point in time will the Company be
obligated to issue more than 20% of the number of shares of Common Stock
outstanding as of the Closing Date, unless the Company has obtained shareholder
approval to the extent such shareholder approval is required. In lieu of such
issuance(s) (and in the event the Company is otherwise unable to issue shares of
Common Stock to the Investor as they become due pursuant to the terms of this
Agreement) the Company shall pay to the Investor the cash value of such shares
(the "20% Shares") within five Business Days of when such issuance is due based
upon the Bid Price of the Common Stock on the Trading Date of when due (or such
next Trading Day if such day is not a Trading Day, such date referred to as the
"Payment Date"). In the event the Company is obligated to make such payment and
does not do so in a timely fashion, the Company agrees that it shall call a
shareholders meeting within 20 days after the Payment Date (the "Meeting Date")
seeking authorization to issue more than 20% of the outstanding shares of Common
Stock pursuant to the terms hereunder. In the event the Company obtains
shareholder approval it shall issue such 20% Shares within five Business Days
after the Meeting Date. If the Bid Price of the Common Stock at such time is
lower at such time than on the Payment Date the Company shall issue shares of
Common Stock in addition to the 20% Shares equal to the following: (number of
20% Shares due times Bid Price on Payment Date) - (number of 20% Shares due
times Bid Price on Meeting Date) divided by the Bid Price on the Meeting Date.
Section 6.12 Exercise of Warrants. The Company will permit the Investor to
exercise the Warrants, by telecopying an executed and completed Notice of
Exercise to the Company, and the payment of the Exercise Price, as is set forth
in the Warrant.
Section 6.13 Increase in Authorized Shares. At such time as the Company
would be, if a notice of exercise were to be delivered on such date, precluded
from honoring the exercise in full of the Warrants, due to the unavailability of
a sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 60 calendar days from such date) hold a shareholders meeting in which the
shareholders would vote for authorization to amend the Company's certificate of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least a number of shares equal to the sum of (i)
all shares of Common Stock then outstanding, (ii) the number of shares of Common
Stock issuable on account of all outstanding warrants, options and convertible
securities (other than the Warrants) and on account of all shares reserved under
any stock option, stock purchase, warrant or similar plan, and (iv) such number
of Warrant Shares as would then be issuable upon the exercise in full of the
Warrants. In connection therewith, the Board of Directors shall promptly (x)
adopt proper resolutions authorizing such increase, (y) recommend to and
otherwise use its best efforts to promptly and duly obtain shareholder approval
to carry out such resolutions and (z) within three Business Days of obtaining
such shareholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase. In no way shall the
aforementioned be deemed a waiver of the Company's obligations contained in
Section 6.2 above.
22
Section 6.14 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such date. However, no disclosure by
either party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in this Agreement or any
Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the
Company shall promptly notify the Investor of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement or any Exhibit
annexed hereto, violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to the Investor a copy of any written statement in support of or
relating to such claim or notice.
Section 6.15 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business or in connection with the sale of all
or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any intellectual property rights, or
allow its intellectual property rights to become subject to any liens, or fail
to renew such intellectual property rights (if renewable and would otherwise
expire).
Section 6.16 Notices. The Company agrees to provide the Investor with
copies of all notices and information, including without limitation notices and
proxy statements in connection with any meetings, that are provided to the
holders of shares of Common Stock, contemporaneously with the delivery of such
notices or information to such Common Stock holders.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the
23
sole purpose of enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company has not disclosed, and hereafter 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, and
its 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 each of the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any
investor(s) 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 shall be construed
to mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
Legends
Section 8.1 Legends. The Investor agrees to the imprinting, so long
as is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investor and its counsel, the parties
agreeing that any unacceptable legended securities shall be replaced promptly by
and at the Company's cost) on the securities:
24
[FOR WARRANTS AND INITIAL SHARES] NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
[ONLY FOR RESET SHARES, WARRANT SHARES TO THE EXTENT THE RESALE
THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT AT THE TIME
OF ISSUANCE OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
The Warrant Shares and Reset Shares shall not contain the legend set forth
above or any other restrictive legend if the exercise of Warrants, occurs at any
time while a Registration Statement is effective under the Securities Act in
connection with the resale of the shares of Common Stock or, in the event there
is not an effective Registration Statement at such time, if in the opinion of
counsel to the Company such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company agrees that it will provide
the Investor, upon request, with a certificate or certificates representing the
Reset Shares and/or Warrant Shares, free from such legend at such time as such
legend is no longer required hereunder. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit E hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon
25
transfer of Registrable Securities by the Investor to issue certificates
evidencing such Registrable Securities free of the Legend during the following
periods and under the following circumstances and except as provided below,
without consultation by the transfer agent with the Company or its counsel and
without the need for any further advice or instruction or documentation to the
transfer agent by or from the Company or its counsel or the Investor (in the
event such advice and/or instruction is needed the Company agrees that it will
have its counsel provide same):
(a) at any time after the Effective Date, upon surrender of one or
more certificates evidencing the Warrants, Initial Shares, Reset Shares,
Additional Shares, Secondary Shares, or Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor confirm to the transfer agent
that the Investor has complied with the prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of such legend to replace those surrendered and containing representations that
(i) the Investor is permitted to dispose of such Registrable Securities, without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such Registrable Securities, in
a manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities. The Company shall have counsel provide any and all opinions
necessary for the sale under Rule 144, as permitted under applicable law.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in this Article has been or shall be placed on the
share certificates representing the Common Stock, 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 other than as expressly set forth in this Article.
Section 8.3 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 Common Stock.
26
ARTICLE IX
Choice of Law
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
construed and enforced in accordance with and exclusively governed by the laws
of the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York sitting in Manhattan 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 conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
ARTICLE X
Assignment; Termination
Section 10.1 Assignment. The Investor's interest in this Agreement and its
ownership of Initial Shares, Secondary Shares, Additional Shares, Reset Shares,
and Warrants may be assigned or transferred at any time, in whole or in part, to
any other person or entity (including any affiliate of the Investor) provided
that the Company must consent to such assignment or transfer (which consent
shall not be unreasonably withheld), and such assignee or transferee must agree
to, and truthfully, make the representations and warranties contained in Article
III, agree to be bound by the covenants of Article V, and has the financial
capabilities to fund the Second Tranche. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
shares of Initial Shares, Secondary Shares, Additional Shares, Reset Shares,
and/or Warrants purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person. In the event the Investor transfers or
assigns as set forth herein, the Investor shall remain liable under this
Agreement up until the time such transfer or assignment is completed, and shall
remain liable after the transfer or assignment is completed for its actions
taken prior to such assignment or transfer.
Section 10.2 Termination. This Agreement shall terminate upon the earliest
of (i) the date that all the Registrable Securities have been sold by the
Investor pursuant to the Registration Statement; (ii) the date the Investor
receives an opinion from counsel to the Company that all of the Registrable
Securities may be sold under the provisions of Rule 144, without volume
limitation; or (iii) five years after the expiration of the last Reset Period.
27
ARTICLE XI
Notices
Section 11.1 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 the Company:
D.G. Jewellery of Canada, Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Gerstein, Savage & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
28
If to the Investor, at the address listed on Schedule A.
with a copy to:
The ▇▇▇▇▇▇▇▇▇ Law Group, P.C.
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and hold
harmless the Investor and each officer, director of the Investor or person, if
any, who controls the Investor within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach of any term of this Agreement by the Company. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
The Investor agrees that it will indemnify and hold harmless the Company,
and each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this Agreement
by the Investor. This indemnity agreement will be in addition to any liability
which the Investor or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
29
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investor, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Investor and the indemnifying party and the Investor shall have been advised by
such counsel that there may be one or more legal defenses available to the
indemnifying party in conflict with any legal defenses which may be available to
the Investor (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Investor, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Investor, which firm shall be designated in writing by the
Investor). No settlement of any action against an indemnified party shall be
made without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11.2 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the Investor shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in Section 11.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent misrepresentation.
30
ARTICLE XII
Miscellaneous
Section 12.1 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 the Company on the one hand, and the Investor, on the other hand.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or Attachments
hereto, which include, but are not limited to the Warrant, the Escrow Agreement,
and the Registration Rights Agreement, set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Attachments
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as if fully set forth herein.
Section 12.3 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
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.4 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 12.5 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 and all
Exhibits 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 12.6 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 Initial Shares, Secondary Shares,
Reset Shares, Warrants, Warrant Shares, or Additional 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
31
to the Company, 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 12.7 Fees and Expenses. Each of the parties shall pay its own fees
and expenses (including the fees of any attorneys, accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on (a) the
First Tranche Closing Date to ▇▇▇▇▇ ▇▇▇▇▇ & Son Incorporated (A) the sum equal
to six percent of the First Tranche Purchase Price payable in cash out of
escrow, (B) Warrants to purchase 61,539 Warrant Shares, and (b) on the Second
Tranche Closing Date, (i) the sum of $5,000, in cash, out of escrow, to the
Escrow Agent for legal, administrative, and escrow fees, and (ii) to ▇▇▇▇▇ ▇▇▇▇▇
& Son Incorporated (A) the sum equal to six percent of the Second Tranche
Purchase Price payable in cash out of escrow, (B) Warrants to purchase that
number of Warrant Shares equal to 10% of the number of shares of number of
shares of Common Stock issued to the Investor in the Second Tranche.
Section 12.8 Publicity. The Company and the Investor shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the names
of the Investor without the prior written consent of the Investor, except to the
extent required by law or in response to a written SEC request, in which case
the Company shall provide the Investor with prior written notice of such public
disclosure.
Section 12.9 Currency. All references to currency in this Agreement and
all Exhibits annexed hereto shall be in United States currency.
SCHEDULES:
A: Investor Information
4.3: Outstanding Warrants, Options, etc.
4.14: Litigation and Other Proceedings
EXHIBITS:
A: Escrow Agreement
B: Registration Rights Agreement
C: Common Stock Purchase Warrant
32
D: Opinion of Counsel
E: Instruction to Transfer Agent
33
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
D.G. JEWELLERY OF CANADA, LTD.
By ________________________________
HAYMARKET LLC
By______________________________________
SCHEDULE A
INVESTOR:
Haymarket LLC
c/o Citco Trustees Cayman Limited
Commercial Centre
PO Box 31106SMB
Grand Cayman, Cayman Islands
British West Indies
Attention: ▇▇▇▇▇▇▇ ▇▇▇
Facsimile: ▇▇▇ ▇▇▇-▇▇▇▇
Telephone: 345 949-3977First Tranche Investment Amount: $4,000,000
SCHEDULE 4.3
Outstanding Warrants, Options, etc.
SCHEDULE 4.14
Litigation and Other Proceedings