Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of October 26,
1999 (this "Agreement"), is entered into by and between INTELLIQUIS
INTERNATIONAL, INC., a Nevada corporation (the "Company"), and ROBI Investors
LLC, a Delaware limited liability company.
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and
delivering this Agreement in reliance upon the exemptions from registration
provided by Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchaser wishes to purchase, and the Company
wishes to issue and sell, upon the terms and conditions of this Agreement for an
aggregate purchase price of two million dollars ($2,000,000), two thousand
(2,000) shares (the "Initial Shares") of the Company's 6% Convertible Series A
Preferred Stock, stated value one thousand dollars ($1,000) per share, par value
$.001 per share (the "Preferred Stock") which shall be subject to the
Certificate of Designation attached hereto as Exhibit A (the "Certificate of
Designation") and warrants ("Stock Purchase Warrants") to purchase one hundred
thousand (100,000) shares (the "Initial Warrants") of the Company's common
stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, the Series A Preferred Stock is convertible into
shares of the Company's Common Stock on the terms set forth in the Certificate
of Designation, and Stock Purchase Warrants (which shall be in substantially the
form attached as Exhibit B) may be exercised for the purchase of Common Stock,
on the terms set forth therein; and
WHEREAS, the Purchaser wishes to purchase, and the Company
wishes to issue and sell, upon the terms and subject to the conditions of this
Agreement for an aggregate purchase price of one hundred dollars ($100), a
warrant (the "Conditional Warrant"), to purchase for an aggregate purchase price
of three million dollars ($3,000,000) up to an additional three thousand (3,000)
shares of Series A Preferred Stock ("Additional Shares"), and Stock Purchase
Warrants to purchase up to an additional one hundred fifty thousand (150,000)
shares of Common Stock ("Additional Warrants"), which Conditional Warrant shall
be in substantially the form attached as Exhibit C
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
Purchase of Initial Shares and Warrants. Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to issue and
sell to the Purchaser, the Initial Shares and the Initial Warrants for an
aggregate purchase price of two million dollars
($2,000,000) which shall be payable on the Initial Closing Date (as defined
herein) in immediately available funds.
Purchase of Conditional Warrant. Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, the Conditional Warrant for a purchase price of one hundred
dollars ($100), which shall be payable on the Initial Closing Date in
immediately available funds.
Closings. The Initial Shares, the Initial Warrants and
Conditional Warrant to be purchased by Purchaser hereunder, in definitive form,
and in such denominations as Purchaser or its representative, if any, may
request upon at least twenty-four hours' prior notice to the Company, shall be
delivered by or on behalf of the Company for the account of Purchaser, against
payment by the Purchaser of the aggregate purchase price of two million one
hundred dollars ($2,000,100) therefor by wire transfer to an account of the
Company, all at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, New York time on the date hereof, or at such
other time and date as Purchaser or their representative, if any, and the
Company may agree upon in writing, such date being referred to herein as the
"Initial Closing Date." The Closing dates for the purchase of the Additional
Shares and the Additional Warrants are as set forth in the Conditional Warrant.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
a. The Purchaser and each of its equity owners is (i) experienced in
making investments of the kind described in this Agreement and the related
documents, (ii) able, by reason of the business and financial experience of its
management, to protect its own interests in connection with the transactions
described in this Agreement and the related documents (iii) is an accredited
investor as defined under Rule 501 of Regulation D of the Securities Act, (iv)
will be acquiring the Shares solely for the Purchaser's own account, for
investment and are not with a view to or for the resale, distribution,
subdivision or fractionalization thereof; and the Purchaser has no present plans
to enter into any such contract, undertaking, agreement or arrangement and (v)
able to afford the entire loss of its investment in the Initial Shares, the
Initial Warrants and the Conditional Warrant.
b. All subsequent offers and sales of the Initial Shares, the Initial
Warrants and the Conditional Warrant, and, if the Conditional Warrant shall be
exercised, the Additional Shares and the Additional Warrants and the Common
Stock issuable upon conversion or exercise of, or in lieu of dividend payments
on the Initial Shares and the Initial Warrants and, if the Conditional Warrant
is exercised, the Additional Shares and the Additional Warrants, it shall have
purchased, shall be made pursuant to an effective registration statement under
the Securities Act or pursuant to an applicable exemption from such
registration.
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c. The Purchaser understands that the Initial Shares, the Initial
Warrants and the Conditional Warrant are being offered and sold to it in
reliance upon exemptions from the registration requirements of the United States
federal securities laws, and that the Company is relying upon the truth and
accuracy of the Purchaser's representations and warranties, and the Purchaser's
compliance with its agreements, each as set forth herein, in order to determine
the availability of such exemptions and the eligibility of the Purchaser to
acquire the Initial Shares, the Initial Warrants and the Conditional Warrant.
d. The Purchaser: (A) has been provided with sufficient information
with respect to the business of the Company and such documents relating to the
Company as the Purchaser has requested and Purchaser has carefully reviewed the
same including, without limitation, the Company's Form 10-KSB for the fiscal
year ended December 31, 1998 filed with the Securities and Exchange Commission
(the "Commission"), (B) has been provided with such additional information with
respect to the Company and its business and financial condition as the
Purchaser, or the Purchaser's agent or attorney, has requested, and (C) has had
access to management of the Company and the opportunity to discuss the
information provided by management of the Company and any questions that the
Purchaser had with respect thereto have been answered to the full satisfaction
of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to
enter into this Agreement and the registration rights agreement, dated as of the
date hereof, between the Company and the Purchaser (the "Registration Rights
Agreement").
f. This Agreement and the Registration Rights Agreement and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser; and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. Each of the
Company's subsidiaries, if any, is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction.
Each of the Company and its subsidiaries, if any, is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Schedule 3(a) lists all subsidiaries of the Company and, except as noted
therein, all of the outstanding capital stock of all such subsidiaries is owned
of record and beneficially by the Company.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of 50,000,000 shares of Common Stock, par value $.001 per
share, of which 33,462,420
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shares are issued and outstanding and 5,000,000 shares of preferred stock, $.001
par value, none of which are outstanding. Schedule 3(b) sets forth all of the
options, warrants and convertible securities of the Company, and any other
rights to acquire securities of the Company (collectively, the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities and (vi) any
registration rights associated with such Derivative Securities or outstanding
Common Stock.
c. Concerning the Common Stock and the Warrants. The Initial Shares,
the Initial Warrants, and if the Conditional Warrant shall be exercised, the
Additional Shares and the Additional Warrants and Common Stock issuable upon (i)
conversion of, or in lieu of dividend payments on, the Initial Shares, and upon
exercise of the Initial Warrants, and (ii) if the Conditional Warrant is
exercised, conversion of, or in lieu of dividend payments on, the Additional
Shares, and upon exercise of the Additional Warrants when issued, shall be duly
and validly issued, fully paid and non-assessable, will not be subject to
preemptive rights and will not subject the holder thereof to personal liability
by reason of being such a holder. There are currently no preemptive rights of
any stockholder of the Company, as such, to acquire the Initial Shares, the
Initial Warrants or the Conditional Warrant, or the Common Stock issuable to the
Purchaser pursuant to the terms of the Initial Shares, the Initial Warrants,
and, if the Conditional Warrant is exercised, the Additional Shares and the
Additional Warrant.
d. Reporting Company Status. The Company has duly filed all materials
and documents required to be filed pursuant to all reporting obligations under
either Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), if any, prior to the offer and sale of the Units. The
Common Stock is listed and traded on the OTC Bulletin Board, and the Company is
not aware of any pending or contemplated action or proceeding of any kind to
suspend the trading of the Common Stock.
e. Authorized Shares. The Company has available a sufficient number of
authorized and unissued shares of Common Stock as may be necessary to effect (i)
the conversion of the Initial Shares and the exercise of the Initial Warrants,
and (ii) if the Conditional Warrant is exercised, the conversion of the
Additional Shares and the exercise of the Additional Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of shares of Common Stock upon the (i) conversion of the Initial
Shares and the exercise of the Initial Warrants, and (ii) if the Conditional
Warrant is exercised, the conversion of the Additional Shares and the exercise
of the Additional Warrants. The Company further acknowledges that its obligation
to issue shares of Common Stock upon (i) conversion of the Initial Shares and
upon exercise of the Initial Warrants, and (ii) if the Conditional Warrant is
exercised, the conversion of the Additional Shares and the exercise of the
Additional Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code").
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f. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement,
and to issue and deliver the Initial Shares, the Initial Warrants, the
Conditional Warrant and the Common Stock issuable upon conversion of, or in lieu
of dividend payments on, (i) the Initial Shares and the exercise of the Initial
Warrants, and (ii) if the Conditional Warrant is exercised, the conversion of
the Additional Shares and the Additional Warrants.
g. Transaction Agreements. This Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Conditional Warrant and the Stock
Purchase Warrants (collectively, the "Primary Documents"), and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the other Primary Documents, when executed and delivered
by the Company, will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to the extent that
enforcement of each of the Primary Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
h. Non-contravention. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
Articles of Incorporation or By-laws of the Company, or any material indenture,
mortgage, deed of trust or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which they or any of their properties
or assets are bound, or any existing applicable law, rule, or regulation or any
applicable decree, judgment or order of any court or United States or foreign
federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Except as set forth on Schedule 3(h), neither the
filing of the registration statement required to be filed by the Company
pursuant to the Registration Rights Agreement nor the offering or sale of the
Initial Shares, the Initial Warrants or the Conditional Warrant as contemplated
by this Agreement and if the Conditional Warrant is exercised, the Additional
Warrants and Additional Shares, and the shares of Common Stock into which all
such securities may be converted or exercised, as applicable, gives rise to any
rights, other than those which have been waived or satisfied on or prior to the
Initial Closing Date, for or relating to the registration of any shares of the
Common Stock.
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents.
j. SEC Filings. None of the reports or documents filed by the Company
with the Commission (the "SEC Documents") contained, at the time they were
filed, any untrue statement of a material fact or omitted to state any material
fact required to be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
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k. Stabilization. Neither the Company, nor any of its affiliates, has
taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock.
l. Absence of Certain Changes. Except as disclosed in the Company's SEC
Documents, since December 31, 1998, there has been no material adverse change
nor any material adverse development in the business, properties, operations,
financial condition, prospects, outstanding securities or results of operations
of the Company.
m. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser (i) that could reasonably be expected to
have a material adverse effect upon the condition (financial or otherwise) or
the earnings, business affairs, properties or assets of the Company or (ii) that
could reasonably be expected to materially and adversely affect the ability of
the Company to perform the obligations set forth in the Primary Documents. The
representations and warranties of the Company set forth in this Agreement (and
the schedules thereto) do not contain any untrue statement of a material fact or
omit any material fact necessary to make the statements contained herein, in
light of the circumstances under which they were made, not misleading.
n. Title to Properties; Liens and Encumbrances. The Company has good
and marketable title to all of its material properties and assets, both real and
personal, and has good title to all its leasehold interests, in each case
subject only to mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges created in the ordinary course of business.
o. Patents and Other Proprietary Rights. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and such business does not and would not conflict with or constitute
an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now conducted,
the lack of which would materially and adversely affect the business or
financial condition of the Company. The Company is not in default in any respect
under any of such franchises, permits, licenses or similar authority.
q. Absence of Litigation. Except as disclosed in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, in which an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the Primary
Documents, or which would adversely affect the
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validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in
default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. Transactions with Affiliates. Except as disclosed in the Company's
SEC Documents, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors or affiliates that, had
they existed on December 31, 1998, would have been required to be disclosed in
the Company's 1998 Annual Report to stockholders.
t. Employment Matters. The Company is in compliance in all respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
u. Insurance. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
covering the Company or any of its Subsidiaries presently in force.
v. Taxes. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been prepared and filed in compliance
with all applicable laws, or if not yet filed have been granted extensions of
the filing dates which extensions have not expired, and all taxes, assessments,
fees and other governmental charges upon the Company, its subsidiaries, or upon
any of their respective properties, income or franchises, shown in such returns
and on assessments received by the Company or its subsidiaries to be due and
payable have been paid, or adequate reserves therefor have been set up if any of
such taxes are being contested in good faith; or if any of such tax returns have
not been filed or if any such taxes have not been paid or so reserved for, the
failure to so file or to pay would not in the aggregate have a material adverse
effect on the business or financial condition of the Company and its
subsidiaries, taken as a whole.
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w. Foreign Corrupt Practices Act. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
x. Internal Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
y. Investment Company Act. The Company is not conducting, and will not
conduct, its business in a manner which would cause it to become, an "investment
company," as defined in Section 3(a) of the Investment Company Act of 1940, as
amended.
z. Agent Fees. Other than (i) the cash payments of seven and one-half
percent (7.5%) of the aggregate purchase price of (x) the Initial Shares and
Initial Warrants purchased by the Purchaser on the Initial Closing Date and (y)
upon exercise of the Conditional Warrant, the Additional Shares and Additional
Warrants and (ii) the issuance of (x) sixty thousand (60,000) Stock Purchase
Warrants on the Initial Closing Date and (y) upon the exercise of the
Conditional Warrant up to ninety thousand (90,000) Stock Purchase Warrants, as
payment to Next Millennium Capital Holdings, LLC as placement agent, the Company
has not incurred any liability for any finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the transactions
contemplated by this Agreement.
aa. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Initial Shares, the Initial Warrants and the
Conditional Warrant, (ii) the issuance of Common Stock in lieu of dividend
payments on the Initial Shares, and if the Conditional Warrant is exercised, the
Additional Warrants, (iii) if the Conditional Warrant is exercised, the issuance
of the Additional Shares and the Additional Warrants, and (iv) the conversion
and/or exercise of such securities into shares of Common Stock, each as
contemplated by the Primary Documents are exempt from the registration
requirements of the Securities Act. The Company agrees that neither the Company
nor anyone acting on its behalf will offer any of the Preferred Stock, the Stock
Purchase Warrants or the Conditional Warrant, or any similar securities for
issuance or sale, or solicit any offer to acquire any of the same from anyone so
as to render the issuance and sale of such securities subject to the
registration requirements of the Securities Act. The Company has not offered or
sold the Preferred Stock, the Stock Purchase Warrants or the Conditional Warrant
by any form of general solicitation or general advertising, as such terms are
used in Rule 502(c) under the Securities Act.
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bb. Year 2000 Processing. The computer systems used by the Company and
its subsidiaries (the "Systems"), both hardware and software, are in good
working order. The Company has taken steps that are reasonable to ensure that
the occurrence of the year 2000 will not materially and adversely affect the
Systems of the Company, its subsidiaries, or their business, and no material
expenditures in excess of currently budgeted items will be required in order to
cause such Systems to operate properly following the change of the year 1999 to
2000. The Company and its subsidiaries have resolved or are in the process of
resolving any issues discovered as a result of year 2000 inquires or compliance
testing or otherwise known to the Company, and the Company is not aware of any
fact that would lead one reasonably to conclude that the Company will be unable
to resolve any of such issues prior to December 31, 1999.
cc. Environmental Matters. Neither the Company and its subsidiaries,
nor any predecessor in interest nor, to the Company's knowledge, after due
inquiry, any other person has ever caused or permitted any Hazardous Material
(as defined below) to be released, treated or disposed of on, at, under or
within any real property owned, leased or operated by the Company and its
subsidiaries or any predecessor in interest, and no such real property has ever
been used (either by the Company and its subsidiaries, any predecessor in
interest or, to the Company's knowledge, after due inquiry, by any other person)
as a treatment, storage or disposal site for any Hazardous Material. The Company
has no liabilities with respect to Hazardous Materials, and to the knowledge of
the Company, after due inquiry, no facts or circumstances exist which could give
rise to liabilities with respect to Hazardous Materials, which could have any
reasonable likelihood of having a material adverse effect on the Company. For
purposes of this Agreement "Hazardous Materials" shall mean (a) any pollutants
or contaminations, (b) any asbestos or insulation or other material composed of
or containing asbestos and (c) any petroleum product and any hazardous, toxic or
dangerous waste, substance or material defined as such in, or for purposes of,
the Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or (d) any other applicable federal,
state, local or other statute, law, ordinance, code, rule, regulation, order or
decree concerning the protection of human health or the environment or otherwise
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material, as
now or at any time hereafter in effect.
dd. Intellectual Property. Except as set forth in the SEC Documents,
to the best of the Company's knowledge, each of the Company and its subsidiaries
owns or possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names and
copyrights which are described in the SEC Documents; except as set forth in the
SEC Documents, the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business of the Company and its subsidiaries, taken as a
whole, as presently conducted; and, except as set forth in the SEC Documents,
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with the asserted rights of others with respect to
any patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which, singly or
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in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, or business of the Company and its subsidiaries, taken as
a whole, as presently conducted.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
a. Transfer Restrictions. The Purchaser acknowledges that, except as provided in
the Registration Rights Agreement, (1) neither (i) the Initial Shares, the
Initial Warrants, the Conditional Warrant or the Common Stock issuable upon
conversion of, or in lieu of dividend payments on, the Initial Shares or upon
exercise of the Initial Warrants, nor (ii) if the Conditional Warrant is
exercised, the Additional Shares, the Additional Warrants or the Common Stock
issuable upon conversion of, or in lieu of dividend payments on, the Additional
Shares or upon exercise of the Additional Warrants, have been, or are being,
registered under the Securities Act, and such securities may not be transferred
unless (A) subsequently registered thereunder or (B) they are transferred
pursuant to an exemption from such registration; and (2) any sale of (i) the
Initial Shares, the Initial Warrants, the Conditional Warrant or the Common
Stock issuable upon conversion or exchange thereof (collectively, the "Initial
Securities") or (ii) if the Conditional Warrant is exercised, the Additional
Shares, the Additional Warrants or the Common Stock issuable upon conversion or
exchange thereof, (the "Additional Securities" and, collectively with the
Initial Securities, the "Securities") made in reliance upon Rule 144 under the
Securities Act may be made only in accordance with the terms of said Rule. The
provisions of Section 4(a) and 4(b) hereof, together with the rights of the
Purchaser under this Agreement and the other Primary Documents, shall be binding
upon any subsequent transferee of the Preferred Stock and the Stock Purchase
Warrants.
b. Restrictive Legend. The Purchaser acknowledges and agrees that, until such
time as the Securities shall have been registered under the Securities Act or
the Purchaser demonstrates to the reasonable satisfaction of the Company and its
counsel that such registration shall no longer be required, such Securities may
be subject to a stop-transfer order placed against the transfer of such
Securities, and such Securities shall bear a restrictive legend in substantially
the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO
LONGER BE REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by United States laws and regulations, or by any domestic securities
exchange or trading market, and if applicable, the filing of a notice on Form D
(at such time and in such manner as required by the Rules and
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Regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings.
d. NASDAQ Listing. Within forty-five (45) days of the date hereof, the
Company undertakes and agrees that it will file an application with the NASDAQ
market to list the Company's Common Stock (including, but not limited to, all of
the shares of Common Stock issuable upon conversion of, or in lieu of dividend
payments on, the Initial Shares and the Additional Shares and upon exercise of
the Initial Warrants and the Additional Warrants) on the NASDAQ SmallCap Market.
The Company further agrees and covenants that, once the Company's Common Stock
becomes listed on the NASDAQ SmallCap Market it will not seek to have the
trading of its Common Stock through the NASDAQ SmallCap Market suspended or
terminated, will use its best efforts to maintain its eligibility for trading on
the NASDAQ Small-Cap Market (including, the filing of a listing application with
NASDAQ to list all of the shares of Common Stock issuable upon conversion of, or
in lieu of dividend payments on, the Initial Shares and upon the exercise of the
Initial Warrants, and if the Conditional Warrant is exercised, upon conversion
of, or in lieu of dividend payments on, the Additional Shares and upon exercise
of the Additional Warrants and, if such trading of its Common Stock is suspended
or terminated, will use its best efforts to requalify its Common Stock or
otherwise cause such trading to resume. The Company shall promptly provide to
the Purchaser copies of any notices it receives from the Nasdaq SmallCap Market
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(d).
e. Reporting Status. So long as the Purchaser beneficially owns any of
the Securities or any shares of Common Stock issuable upon conversion thereof
(collectively with the Securities, the "Collective Securities"), the Company
shall timely file all reports required to be filed with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act and shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such termination.
f State Securities Filings. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may reasonably request to qualify the Collective Securities for
offering and sale under the securities laws (other than United States federal
securities laws) of the jurisdictions in the United States as shall be so
identified to the Company, and to comply with such laws so as to permit the
continuance of sales therein, provided that in connection therewith, the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to the service of process in any jurisdiction.
g. Use of Proceeds. The Company will use all of the net proceeds from
the issuance of the Collective Securities to enable the Company to meet and
maintain the net tangible asset requirements of Nasdaq (for its anticipated
listing), for acquisitions, and for general working capital and not for the
repayment of indebtedness or satisfaction of any judgments.
h. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Initial Shares and
the exercise of the Initial Warrants, if the Conditional Warrant is exercised,
for the conversion of the Additional Shares and the exercise of the
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Additional Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is no
less than the sum of (i) two (2) times the sum of (x) maximum number of shares
of Common Stock that could be issuable upon the conversion of the Initial Shares
and (y) the maximum number that could be issuable upon conversion of the
Additional Shares and (ii) the sum of the number of shares of Common Stock
issuable upon exercise in full of the Initial Warrants and the Additional
Warrant, in each case without regard to whether the Conditional Warrant shall
have been exercised.
i. Sales of Additional Shares. The Company shall not, directly or
indirectly, without the prior written consent of the Purchaser, such consent
shall not be unreasonably withheld, offer, sell, offer to sell, contract to sell
or otherwise dispose of any shares of its capital stock or any security or other
instrument convertible into or exchangeable for shares of Common Stock, in each
case for a period of two-hundred and seventy (270) days after the later of (A)
the Initial Closing Date, (B) any Conditional Closing Date (as defined in the
Conditional Warrant) or (C) the date on which a registration statement relating
to Common Stock issuable upon conversion of any of the Initial Shares, the
Initial Warrants, the Additional Shares, or the Additional Warrants is declared
effective by the Securities and Exchange Commission (the "Lock-Up Period"),
except that the Company may issue securities for the aggregate consideration of
at least ten million dollars in connection with a bona fide, firm commitment,
underwritten public offering under the Securities Act. In addition, the Company
agrees that it will not cause any shares of its capital stock that are issued in
connection with a transaction of the type contemplated by such clause (or upon
the conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with any financing,
acquisition or other transaction that occurred prior to the date of this
Agreement to be covered by a registration statement that is declared effective
by the Commission until the earlier to occur of (A) the expiration of the
Lock-Up Period or (B) the registration statement filed by the Company pursuant
to its obligations under the Registration Rights Agreement has been effective
under the Securities Act for a period of at least two-hundred and seventy (270)
days, during which two hundred seventy (270) day period the Company shall not
have notified the Purchaser that such registration statement or the prospectus
included in such registration statement includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
j. Right of First Refusal. Subject to Section 4(i), if during the
eighteen (18) month period following the Lock-Up Period the Company shall desire
to sell, offer to sell, contract to sell or otherwise dispose of any securities
or any security or other instrument convertible into or exchangeable for shares
of Common Stock (collectively, the "Offered Securities") to a prospective
investor (the "Prospective Investor"), the Company shall notify (the "Offer
Notice") the Purchaser in accordance with Section 10 hereof of the terms (the
"Third Party Terms") on which the Company proposes to sell, contract to sell or
otherwise dispose of the Offered Securities to the Prospective Investor. If,
within the five (5) day period following the Purchaser's receipt of the Offer
Notice, the Purchaser delivers a written notice (the "Acceptance Notice") to the
Company stating its desire to purchase all or any portion of the Offered
Securities on the Third Party Terms, the Company shall be required to sell the
Offered Securities (or any portion thereof so desired by the Purchaser) to the
Purchaser at the price and on the terms set forth in the Offer Notice and the
Company shall not be permitted to sell such Offered Securities
12
to the Prospective Investor. If the Purchaser does not deliver an Acceptance
Notice to the Company in such five (5) day period then for a period of sixty
(60) days following the date of the Offer Notice the Company may sell the
Offered Securities to the Prospective Investor on the terms set forth in the
Officer Notice.
k. Additional Registration Statements. At any time during the period
ending on the first date that follows a period of one hundred eighty (180)
consecutive days following the effectiveness of the Registration Statement (as
defined in the Registration Rights Agreement) during which there has been no
Blackout Event (as defined in the Registration Rights Agreement) relating to
such Registration Statement, the Company agrees that it will not cause any
registration statement (other than the Registration Statement) to be declared
effective by the Commission.
l. Stockholder Approval. If required in accordance with Nasdaq Rule
4310 or 4460, the Company agrees to use its best efforts (including obtaining
any vote of its stockholders required by applicable law or Nasdaq rules) to
authorize and approve the issuance of the Common Stock issuable upon conversion
of the Initial Shares, the Additional Shares and upon exercise of the Initial
Warrants and the Additional Warrants, to the extent that such conversion or
issuance results in the issuance of 20% or more of the Company's outstanding
Common Stock; provided, however, that the failure to obtain any such stockholder
approval shall not limit any of Purchaser's rights hereunder or pursuant to any
Primary Document.
m. Ownership. At no time shall the Purchaser (including its officers,
directors and affiliates) maintain in the aggregate beneficial ownership (as
defined for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended) of shares of Common Stock in excess of 9.9% of the Company's
outstanding Common Stock unless the Purchaser gives the Company at least
sixty-one (61) days notice that it intends to increase its ownership percentage.
n. Return of Certificates on Conversion and Stock Purchase Warrants on
Exercise. (i) Upon any conversion by Purchaser of less than all of the Shares of
Preferred Stock pursuant to the terms of the Certificate of Designations, the
Company shall issue and deliver to Purchaser within four (4) days of the Series
A Preferred Stock Conversion Date (as defined in the Certificate of
Designations), a new certificate or certificates for, as applicable, the total
number of shares of Preferred Stock, in each case, which Purchaser has not yet
elected to convert (with the number of and denomination of such new
certificate(s) designated by Purchaser).
(ii) Upon any partial exercise by Purchaser of Stock Purchase
Warrants, the Company shall issue and deliver to Purchaser within four (4) days
of the date on which such Stock Purchase Warrants are exercised, a new Stock
Purchase Warrant or Stock Purchase Warrants representing the number of adjusted
Shares covered thereby, in accordance with the terms thereof.
o. Replacement Certificates and Stock Purchase Warrants. (i) The
certificate(s) representing the shares of Preferred Stock, held by Purchaser
shall be exchangeable, at the option of Purchaser, at any time and from time to
time at the office of Company, for certificates with different denominations
representing, as applicable, an equal aggregate number of shares of
13
Preferred Stock, as requested by Purchaser upon surrendering the same. No
service charge will be made for such registration or transfer or exchange.
(ii) The Stock Purchase Warrants will be exchangeable, at the
option of Purchaser, at any time and from time to time at the office of the
Company, for other Stock Purchase Warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock as are purchasable under such Stock Purchase Warrants. No service
charge will be made for such transfer or exchange.
p. Dividends or Distributions; Purchases of Equity Securities. So long
as any portion of the Initial Shares, the Initial Warrants, the Conditional
Warrant, the Additional Shares, or the Additional Warrants remain outstanding,
the Company agrees that it shall not (a) declare or pay any dividends or make
any distributions to any holder or holders of Common Stock, or (b) purchase or
otherwise acquire for value, directly or indirectly, any shares of Common Stock
or equity security of the Company.
q. Bankruptcy Waiver. In the event the Company becomes a debtor under
the Bankruptcy Code, the Company hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of (i) the
conversion of the Initial Shares and the exercise of the Initial Warrants, and
(ii) if the Conditional Warrant is exercised, the conversion of the Additional
Shares and the exercise of the Additional Warrants. At the direction of
Purchaser, the Company agrees, without cost or expense to the Purchaser, to take
or consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss. 362.
s. Conversion Limitations. Notwithstanding anything herein or in the
Certificate of Designation to the contrary (i) during the first thirty (30) day
period after the date hereof, the Purchaser may convert up to a maximum of six
hundred sixty-six and sixty-six hundredths (666.66) shares of Preferred Stock
into shares of Common Stock; (ii) during the second thirty (30) day period after
the date hereof, the Purchaser may convert up to a maximum of one thousand three
hundred thirty-three and thirty-two hundredths (1,333.32) shares of Preferred
Stock into shares of Common Stock, inclusive of the number of shares of
Preferred Stock converted pursuant to clause (i) above; and (iii) during the
third thirty (30) day period after the date hereof, the Purchaser may convert
all two thousand (2,000) shares of Preferred Stock purchased hereunder into
shares of Common Stock.
5. TRANSFER AGENT INSTRUCTIONS
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale
under the Securities Act of the Common Stock issuable upon conversion of the
Initial Shares, the Additional Shares or the shares of Common Stock issuable
upon exercise of the Initial Warrants or the Additional Warrants, will be given
by the Company to the transfer agent and that the shares of Common Stock
issuable upon (i) conversion of, or in lieu of dividend payments on, the Initial
Shares or upon exercise of the Initial Warrants, (ii) if the Conditional Warrant
is exercised, the conversion of, or in lieu of dividend payments on the
Additional Shares or upon exercise of the Additional Warrants, shall otherwise
be freely transferable on the books and records of the Company as and to the
extent provided in this
14
Agreement, the Registration Rights Agreement and applicable law. Nothing in this
Section shall affect in any way the Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the Collective
Securities. If the Purchaser provides the Company with an opinion of counsel
that registration of a resale by the Purchaser of any of the Collective
Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is
not required under the Securities Act, the Company shall permit the transfer of
the Collective Securities and, in the case of the Common Stock, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without legend in such names and in such denominations as specified
by the Purchaser.
b. Purchaser shall exercise its right to (i) convert the Initial Shares
or to exercise the Initial Warrants or (ii) if the Conditional Warrant is
exercised, to convert the Additional Shares or to exercise the Additional
Warrants, by faxing an executed and completed Notice of Conversion or Form of
Election to Purchase, as applicable, to the Company, and delivering within four
(4) business days thereafter, the original Notice of Conversion (and the related
certificates representing the shares of Preferred Stock, as applicable) or Form
of Election to Purchase (and the related original Stock Purchase Warrants) to
the Company by hand delivery or by express courier, duly endorsed. Each date on
which a Notice of Conversion or Form of Election to Purchase is faxed in
accordance with the provisions hereof shall be deemed a "Conversion Date." The
Company will transmit the certificates representing the Common Stock issuable
upon conversion of any shares of Preferred Stock or upon exercise of any Stock
Purchase Warrants (together with the shares of Preferred Stock not so converted
or the Stock Purchase Warrants not so exercised) to the Purchaser via express
courier as soon as practicable, but in all events no later than four (4)
business days after the Conversion Date relating to shares of Preferred Stock or
Stock Purchase Warrants (each such delivery date, together with the Dividend
Delivery Date referred to in paragraph c below, is referred to herein as a
"Delivery Date"). For purposes of this Agreement, any conversion of the Initial
Shares, the Additional Shares or the exercise of the Initial Warrants or the
Additional Warrants shall be deemed to have been made immediately prior to the
close of business on the Conversion Date.
c. The Company will transmit the certificates representing the Common
Stock issuable in lieu of dividends payable on any shares of Preferred Stock to
the Purchaser via express courier as soon as practicable, but in all events no
later than four (4) business days after the dividend payment date applicable to
which such Common Stock is delivered (the "Dividend Delivery Date").
d. In lieu of delivering physical certificates representing the Common
Stock issuable upon the conversion of, or in lieu of dividends on, the Initial
Shares, the Additional Shares or upon the exercise of the Initial Warrants or
the Additional Warrants, provided the Company's transfer agent is participating
in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer
program, on the written request of the Purchaser, who shall have previously
instructed the Purchaser's prime broker to confirm such request to the Company's
transfer agent, the Company shall cause its transfer agent to electronically
transmit such Common Stock to the Purchaser by crediting the account of the
Purchaser's prime broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system no later than the applicable Delivery Date.
15
e. The Company understands that a delay in the issuance of Common Stock
beyond the applicable Delivery Date could result in an economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay to the Purchaser for late issuance of Common Stock upon conversion of, or in
lieu of dividend payments on, the Initial Shares or the Additional Shares or
upon exercise of the Initial Warrants or the Additional Warrants, the sum of
three thousand dollars ($3,000) per day for each (i) one hundred thousand
dollars ($100,000) of aggregate Stated Value (as defined in the Certificate of
Designation) amount of Initial Shares or Additional Shares that are being
converted, or (ii) twenty-five thousand (25,000) shares of Common Stock
purchased upon the exercise of Initial Warrants or Additional Warrants. The
Company shall pay any payments that are payable to the Purchaser pursuant to
this Section 5 in immediately available funds upon demand. Nothing herein shall
limit the Purchaser's right to pursue actual damages for the Company's failure
to so issue and deliver Common Stock to the Purchaser. Furthermore, in addition
to any other remedies which may be available to the Purchaser, in the event that
the Company fails for any reason to effect delivery of such Common Stock within
five (5) business days after the relevant Delivery Date, the Purchaser will be
entitled to revoke the relevant Notice of Conversion or Form of Election to
Purchase by delivering a notice to such effect to the Company, whereupon the
Company and the Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Form of Election
to Purchase. For purposes of this Section 5, "business day" shall mean any day
in which the financial markets of New York are officially open for the conduct
of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE INITIAL SHARES, THE
INITIAL WARRANTS AND THE CONDITIONAL WARRANT
The Purchaser understands that the Company's obligation to
issue the Initial Shares, the Initial Warrants and the Conditional Warrant on
the Initial Closing Date to the Purchaser pursuant to this Agreement is
conditioned upon:
a. The accuracy on the Initial Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Initial Closing Date and the performance by the Purchaser on or before the
Initial Closing Date of all covenants and agreements of the Purchaser required
to be performed on or before the Initial Closing Date.
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE INITIAL
SHARES, THE INITIAL WARRANTS AND THE CONDITIONAL WARRANT
The Company understands that the Purchaser's obligation to
purchase the Initial Shares, the Initial Warrants and the Conditional Warrant on
the Initial Closing Date is conditioned upon:
16
a. The Certificate of Designation shall have been filed with the
Secretary of State of the State of Nevada, and a copy thereof certified by such
Secretary of State shall have been delivered to the Purchaser.
b. The accuracy on the Initial Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Initial
Closing Date, and the performance by the Company on or before the Initial
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Initial Closing Date.
c. On the Initial Closing Date, the Purchaser shall have received an
opinion of counsel for the Company, dated the Initial Closing Date, in
substantially the form as attached in Exhibit E.
d. The Company shall have executed and delivered to the Purchaser (i) a
signed counterpart to the Registration Rights Agreement, (ii) the Initial
Shares, (iii) the Initial Warrants and (iv) the Conditional Warrant.
e. On the Initial Closing Date, the Purchaser shall have received a
certificate executed by the President or the Chairman of the Company and by the
Chief Financial Officer of the Company, stating that all of the representations
and warranties of the Company set forth in this Agreement are accurate as of the
Initial Closing Date and that the Company has performed all of its covenants and
agreements required to be performed under this Agreement on or before the
Initial Closing Date.
f. On the Initial Closing Date, the Purchaser shall have received from
the Company such other certificates and documents as it or its representatives,
if applicable, shall reasonably request, and all proceedings taken by the
Company in connection with the Primary Documents contemplated by this Agreement
and the other Primary Documents and all documents and papers relating to such
Primary Documents shall be satisfactory to the Purchaser.
g. On or prior to the Initial Closing Date, there shall not have
occurred any of the following: (i) a suspension or material limitation in the
trading of securities generally on the New York Stock Exchange, NASDAQ or the
NASDAQ Bulletin Board; (ii) a general moratorium on commercial banking
activities in New York declared by the applicable banking authorities; or (iii)
the outbreak or escalation of hostilities involving the United States, or the
declaration by the United States of a national emergency or war
h. The Company shall have delivered to the Purchaser reimbursement of
the Purchaser's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement (including fees and disbursements of
the Purchaser's legal counsel).
8. EXPENSES
The Company covenants and agrees with the Purchaser that the
Company will pay or cause to be paid the following: (a) the fees, disbursements
and expenses of the Purchaser and its counsel in connection with the issuance of
the Collective Securities payable on the Initial Closing Date up to a maximum of
twenty-five thousand dollars ($25,000), (b) all expenses in
17
connection with registration or qualification of the Collective Securities for
offering and sale under state securities laws as provided in Section 4(f)
hereof, and (c) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section 8, including the fees and disbursements of the Company's counsel,
accountants and other professional advisors, if any. If the Company fails to
satisfy its obligations or to satisfy any condition set forth in this Agreement,
as a result of which the Collective Securities are not delivered to the
Purchaser on the terms and conditions set forth herein, the Company shall
reimburse the Purchaser for any out-of-pocket expenses reasonably incurred in
making preparations for the purchase, sale and delivery of the Collective
Securities not so delivered.
9. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to principles
of conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of this
Agreement. This Agreement and each of the Primary Documents have been entered
into freely by each of the parties, following consultation with their respective
counsel, and shall be interpreted fairly in accordance with its respective
terms, without any construction in favor of or against either party. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
unenforceability of this Agreement in any other jurisdiction. This Agreement
shall inure to the benefit of, and be binding upon the successors and assigns of
each of the parties hereto, including any transferees of the Initial Shares, the
Initial Warrants, the Conditional Warrant, and, if the Conditional Warrant shall
be exercised, the Additional Shares and the Additional Warrants. This Agreement
may be amended only by an instrument in writing signed by the party to be
charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
10. NOTICES
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such
18
other addresses as a party may designate by five days advance written notice to
each of the other parties hereto.
(a) if to the Company, to: Intelliquis International, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ #▇▇▇
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with a copy to: Law Offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Purchaser to: ROBI Investors LLC
WEC Asset Management LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
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Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
11. SURVIVAL
The agreements, covenants representations and warranties of
the Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder.
12. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each
officer, director, employee, agent, partner, stockholder, member and affiliate
of the Purchaser (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all reasonable
out-of-pocket costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such Indemnified
Parties (all of which expenses periodically shall
19
be reimbursed as incurred), in each case, arising out of or suffered or incurred
in connection with any of the following: (a) any misrepresentation or any breach
of any warranty made by the Company herein or in any of the other Primary
Documents, (b) any breach or non-fulfillment of any covenant or agreement made
by the Company herein or in any of the other Primary Documents and (c) any claim
relating to or arising out of a violation of applicable federal or state
securities laws by the Company in connection with the sale or issuance of the
Initial Shares, Additional Shares, Initial Warrants, Additional Warrants or
Conditional Warrant by the Company to the Purchaser (collectively, the
"Indemnified Liabilities"). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS]
20
IN WITNESS WHEREOF, this Securities Purchase Agreement has
been duly executed by each of the undersigned.
INTELLIQUIS INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇
----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇
Title:President
ROBI INVESTORS LLC
By: WEC Asset Management LLC,
Manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Managing Director
21
EXHIBIT INDEX
EXHIBIT A FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT B FORM OF STOCK PURCHASE WARRANT
EXHIBIT C FORM OF CONDITIONAL WARRANT
EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E OPINION OF COUNSEL
SCHEDULE INDEX
SCHEDULE 3(a) LIST OF SUBSIDIARIES
SCHEDULE 3(b) CAPITALIZATION, DERIVATIVE SECURITIES AND
REGISTRATION RIGHTS
SCHEDULE 3(h) NON-CONTRAVENTION
SCHEDULE 3(a)
LIST OF SUBSIDIARIES
Direct Media Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ Fax
SCHEDULE 3(b)
CAPITALIZATION, DERIVATIVE SECURITIES AND REGISTRATION RIGHTS
Derivative Securities
Name Service Type Amount of Options Exercise Price
------------------ -------------------------- ----------------- --------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ Consulting 6,000 $4.00
Registration Rights
None
SCHEDULE 3(h)
NON-CONTRAVENTION
None
EXHIBIT 3.5
CERTIFICATE OF DESIGNATIONS OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK OF
INTELLIQUIS INTERNATIONAL, INC.
Pursuant to Section 78.1955 of the General
Corporation Law of the State of Nevada
The undersigned, ▇▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇, hereby certify
that:
I. They are the duly elected and acting President and
Secretary, respectively, of Intelliquis International, Inc., a Nevada
corporation (the "Corporation").
II. The Certificate of Incorporation of the Corporation
authorizes five million (5,000,000) shares of preferred stock, $0.001 par value
per share.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Corporation (the "Board of
Directors") on October 21, 1999 pursuant to the Articles of Incorporation of the
Corporation and in accordance with the provisions of the General Corporation Law
of the State of Nevada.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for
the issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Nevada, to establish
and issue one or more series of preferred stock with such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and with such qualifications,
limitations or restrictions thereon as the Board of Directors may determine.
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
A. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Series A 6% Convertible Preferred Stock (the
"Series A Preferred Stock"), and the number of shares so designated shall be
five thousand (5,000) (which shall not be subject to increase or decrease). Each
share of Series A Preferred Stock shall have a par value of $0.001 per share and
a stated value (the "Stated Value") of the Liquidation Preference (as
hereinafter defined in Section C(1)).
B. Dividends.
(1) Holders of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at a
rate equal to 6% (the "Dividend Rate") of the Liquidation Preference per share
per annum (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), and no more, payable in accordance with the provisions of this
Certificate of Designations.
(2) At the election of the Corporation, each dividend
on Series A Preferred Stock shall be paid either in shares of Common Stock of
the Corporation, $.001 par value per share ("Common Stock") or in cash on the
Delivery Date (as defined in Subsection G(2)(a) of this Certificate of
Designations) with respect to any shares of Series A Preferred Stock which are
the subject of a Notice of Conversion (as defined in Subsection G(2) of this
Certificate of Designations). Dividends paid in shares of Common Stock shall be
paid (based on an assumed value of $1,000 per share) in full shares only, with a
cash payment equal to the value of any fractional shares. Each dividend paid in
cash shall be mailed to the holders of record of the Series A Preferred Stock as
their names and addresses appear on the share register of the Corporation or at
the office of the transfer agent on the corresponding dividend payment date.
Holders of Series A Preferred Stock will receive written notification from the
Corporation or the transfer agent if a dividend is paid in kind, which
notification will specify the number of shares of Common Stock paid as a
dividend and the recipient's aggregate holdings of Common Stock as of that
dividend payment date and after giving effect to the dividend. All holders of
shares of Common Stock issued as dividends shall be entitled to all of the
rights and benefits relating to shares of Common Stock as set forth in the
Corporation's Articles of Incorporation, as amended, and By-laws.
(3) Holders of the Series A Preferred Stock shall be
entitled to payment of any dividends in preference and priority to any payment
of any cash dividend on Common Stock or any other class or series of capital
stock of the Corporation. Dividends on the Series A Preferred Stock shall accrue
with respect to each share of the Series A Preferred Stock from the date on
which such share is issued and outstanding and thereafter shall be deemed to
accrue from day to day whether or not earned or declared and whether or not
there exists profits, surplus or other funds legally available for the payment
of dividends, and shall be cumulative so that if such dividends on the Series A
Preferred Stock shall not have been paid, or declared and set apart for payment,
the deficiency shall be fully paid or declared and set apart for payment before
any dividend shall be paid or declared or set apart for any Common Stock or
other class or series of capital stock ranking junior to the Series A Preferred
Stock (such stock being collectively referred to herein as the "Junior Stock")
and before any purchase or acquisition of any Junior Stock is made by the
Corporation. At the earlier of: (1) the redemption or conversion of the Series A
Preferred Stock or (2) the liquidation of the Corporation, any accrued but
undeclared dividends shall be paid to the holders of record of outstanding
shares of the Series A Preferred Stock in accordance with the provisions of this
Certificate of Designations. No accumulation of dividends on the Series A
Preferred Stock shall bear interest.
2
C. Liquidation, Dissolution or Winding Up.
(1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of shares
of the Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount equal to one thousand dollars
($1,000) per share of Series A Preferred Stock (the "Liquidation Preference")
plus any accrued but unpaid dividends (whether or not declared). If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of the Series A Preferred Stock the
full amount to which they shall be entitled, the holders of shares of the Series
A Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(2) After the payment of all preferential amounts
required to be paid to the holders of the Series A Preferred Stock upon the
dissolution, liquidation, or winding up of the Corporation, all of the remaining
assets and funds of the Corporation available for distribution to its
stockholders shall be distributed ratably among the holders of the Series A
Preferred Stock and the Junior Stock, with each share of Series A Preferred
Stock being deemed, for such purpose, to be equal to the number of shares of
Common Stock, including fractions of a share, into which such share of Series A
Preferred Stock is convertible immediately prior to the close of business on the
business day fixed for such distribution.
D. Voting.
Except as specifically provided herein or in
accordance with the General Corporation Law of the State of Nevada, the holders
of shares of Series A Preferred Stock shall not be entitled to vote on matters
required or permitted to the submitted to the shareholders of the Corporation
for their approval.
E. Other Securities. Subject to any limitations
contained in this Certificate of Designations, the Corporation's Articles of
Incorporation and/or the Primary Documents (as defined in the Securities
Purchase Agreement, dated as of October 26, 1999, hereinafter the "Securities
Purchase Agreement"), the Board of Directors of the Corporation reserves the
right to establish additional classes and/or series of capital stock of the
Corporation and to designate the preferences, limitations and relative rights of
any such classes and/or series; provided, however, that no such class and/or
series may have preferences, limitations and relative rights which are superior
to or senior to the preferences, limitations and relative rights granted to the
holders of the Series A Preferred Stock.
F. Capital Reorganization. If the Corporation shall
at any time hereafter subdivide or combine its outstanding shares of Common
Stock, declare a dividend payable in Common Stock, or in case of any capital
reorganization or reclassification of the shares of Common Stock of the
Corporation, the number of shares of the Series A Preferred Stock and the
3
Stated Value of the Series A Preferred Stock shall be adjusted appropriately to
allow the holders of the Series A Preferred Stock, as nearly as reasonably
possible, to maintain (i) the aggregate Sated Value of the Series A Preferred
Stock and (ii) their pro rata interest in the Corporation and in the Common
Stock upon conversion of the Series A Preferred Stock, that each holder had
prior to any such subdivision, combination, stock dividend, reorganization or
reclassification.
G. Conversion.
(1) The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Series A Preferred Stock Conversion
Rights"):
(a) Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
and from time to time, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1,000, plus the
amount of any accrued and unpaid dividends the Corporation elects to
pay in Common Stock, by the Conversion Price (as defined below) in
effect at the time of conversion. The Conversion Price at which shares
of Common Stock shall be deliverable upon conversion of Series A
Preferred Stock without the payment of additional consideration by the
holder thereof (the "Conversion Price") shall be the lower of (i) 115%
of the average Closing Bid Price of the shares of Common Stock for the
five (5) trading days immediately preceding the Initial Closing Date
(as defined in the Securities Purchase Agreement) or (ii) 80% of the
average of the three lowest Closing Bid Prices of the shares of Common
Stock for the twenty (20) trading days immediately preceding the Series
A Preferred Stock Conversion Date (as hereinafter defined). For
purposes of these Articles of Amendment, the term "Closing Bid Price"
means, for any security as of any date, the closing bid price on the
principal securities exchange or trading market where the Common Stock
is listed or traded as reported by Bloomberg, L.P. ("Bloomberg") or, if
applicable, the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price is
reported for the Common Stock by Bloomberg, then the average of the bid
prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price
of the Common Stock can not be calculated on such date on any of the
foregoing bases, the Closing Bid Price of the Common Stock on such date
shall be the fair market value as determined by the holders of a
majority of the outstanding shares of Series A Preferred Stock being
converted for which the calculation of the Closing Bid Price is
required in order to determine the Conversion Price of such shares.
"Trading day" shall mean any day on which the Corporation's Common
Stock is traded for any period on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
If, during any period following October 26, 1999 (the "Original Issue
Date"), as a result of the occurrence of any of the events set forth in
Section 3(f) or 3(g) of the Registration Rights Agreement, dated as of
October 12, 1999, by and between the Corporation and the Purchaser set
forth therein (the "Registration Rights Agreement"), the Purchasers set
forth therein are not able to sell shares of Common Stock issuable upon
conversion of, or in lieu of dividends on, shares of Series A Preferred
Stock pursuant to a registration statement filed pursuant to such
agreement, the holders of shares of Series A Preferred Stock shall have
the right, for any purpose during such period and thereafter, to
designate
4
as the Conversion Price any Conversion Price that would have been
applicable during such period had such Series A Preferred Stock
shareholder delivered a Notice of Conversion with respect to any such
Series A Preferred Stock.
(b) In the event that the Corporation's
stock is listed on the Nasdaq SmallCap or National Market, at any time
that the number of shares of Common Stock issued (A) upon conversion of
the Series A Preferred Stock and (B) in lieu of dividend payments on
the Series A Preferred Stock, shall equal 20% or more of the
Corporation's outstanding Common Stock (a "Common Stock Redemption
Event"), the Corporation shall (x) redeem, at a price per share equal
to (A) the quotient of (i) the Liquidation Preference per share of
Series A Preferred Stock plus all accrued but unpaid dividends on such
shares of Series A Preferred Stock and (ii) the Conversion Price as if
the Series A Preferred Stock had been converted on the Series A
Preferred Stock Redemption Date multiplied by (B) the average Closing
Bid Price of shares of Common Stock for the five (5) trading days
immediately preceding the Series A Preferred Stock Redemption Date, all
of the outstanding Series A Preferred Stock or (y) call a special
meeting of its stockholders for the purpose of approving the
transactions contemplated by the Securities Purchase Agreement,
including the issuance of the Series A Preferred Stock on the terms set
forth therein, together with any other approvals that shall be required
so as to cause the transactions contemplated by the Securities Purchase
Agreement to remain in compliance with the Rules and Regulations of The
Nasdaq Stock Market (including Rules 4300 and 4310 of Nasdaq's
Non-Qualitative Designation Criteria in connection with conversions of
Series A Preferred Stock; such approvals are referred to herein as the
"Required Approvals"). The Corporation shall determine within five (5)
business days following the receipt of a Notice of Conversion which of
such actions it shall take, and shall promptly furnish notice to each
of the holders of Series A Preferred Stock as to such determination,
including, if applicable, a notice of redemption. In no event shall the
Corporation issue shares of Common Stock upon conversion of, or in lieu
of dividend payments on, the Series A Preferred Stock, after the
occurrence of a Common Stock Redemption Event until the Required
Approvals, if any, are obtained.
(c) If the Corporation elects to call a
special meeting of its stockholders pursuant to Subsection G(1)(b) of
this Certificate of Designations to obtain the Required Approvals, the
Corporation shall use its best efforts to obtain such Required
Approvals within thirty (30) days of the Initial Closing Date (such
forty five (45) day period is referred to herein as an "Approval
Period"). If the Corporation does not obtain the Required Approvals
within the Approval Period and the Corporation receives a Notice of
Conversion after the termination of the Approval Period, the
Corporation must redeem, in accordance with this Subsection G of this
Certificate of Designations, any shares of Series A Preferred Stock
outstanding after the Corporation has issued in excess of 6,692,484
shares of Common Stock in connection with conversions of the Series A
Preferred Stock.
(d) If the Corporation elects, pursuant to
this Subsection G, to redeem the Series A Preferred Stock on the
occurrence of a Common Stock Redemption Event, it shall redeem such
Series A Preferred Stock at the price determined in accordance with
Subsection G(1)(b) of this Certificate of Designations. If the
5
Corporation shall have elected, pursuant to this Subsection G(1), to
obtain the Required Approvals but shall not have done so by the later
of the occurrence of the Common Stock Redemption Event or the
expiration of the Approval Period, it shall furnish a redemption notice
to the Purchaser within three (3) business days after the expiration of
the Approval Period.
(2) The Series A Preferred Stock Conversion Rights
shall be exercised as follows:
(a) The Corporation will permit each holder
of Series A Preferred Stock to exercise its right to convert the Series
A Preferred Stock by faxing an executed and completed notice of
conversion (the "Notice of Conversion") to the Corporation, and
delivering within four (4) business days thereafter, the original
Notice of Conversion (and the certificates representing the related
shares of Series A Preferred Stock) to the Corporation by hand delivery
or by express courier, duly endorsed. Each date on which a Notice of
Conversion is faxed in accordance with the provisions hereof shall be
deemed a "Series A Preferred Stock Conversion Date." The Corporation
will transmit the certificates representing the Common Stock issuable
upon conversion of the Series A Preferred Stock (together with
certificates representing the related shares of Series A Preferred
Stock not so converted and, if applicable, a check representing any
fraction of a share not converted) to such holder via express courier
as soon as practicable, but in all events no later than (the "Delivery
Date") four (4) business days after the Series A Preferred Stock
Conversion Date. For purposes of this Certificate of Designations, such
conversion of the Series A Preferred Stock shall be deemed to have been
made immediately prior to the close of business on the Series A
Preferred Stock Conversion Date.
(b) In lieu of delivering physical
certificates representing the Common Stock issuable upon the conversion
of the Series A Preferred Stock, provided that the Corporation's
transfer agent is participating in the Depository Trust Corporation
("DTC") Fast Automated Securities Transfer program, on the written
request of a holder of Series A Preferred Stock who shall have
previously instructed such holder's prime broker to confirm such
request to the Corporation's transfer agent, the Corporation shall use
its best efforts to cause its transfer agent to electronically transmit
such Common Stock to such holder by crediting the account of the
holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission system no later than the applicable Delivery Date.
(c) The Corporation will at all times have
authorized and reserved for the purpose of issuance a sufficient number
of shares of Common Stock to provide for the conversion of the Series A
Preferred Stock. The Corporation will use its best efforts at all times
to maintain a number of shares of Common Stock so reserved for issuance
that is no less than the sum of (i) two (2) times the number that would
then actually be issuable upon the conversion of five thousand (5,000)
shares of Series A Preferred Stock and (ii) the exercise of the Initial
Warrants and the Additional Warrants (each as defined in the Securities
Purchase Agreement). Before taking any action which would cause an
adjustment reducing the Conversion Price below the established par
value
6
of the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, the Corporation shall take any corporate action which
may, in the opinion of its counsel or in the opinion of counsel to
holders of the Series A Preferred Stock, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(3) In the event of a liquidation of the Corporation,
the Series A Preferred Stock Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of any
amounts distributable on liquidation to the holders of the Series A Preferred
Stock.
(4) If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Series A Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of the sale
of securities.
(5) At no time shall any holder of the Series A
Preferred Stock convert such amount of Series A Preferred Stock as shall result
in such Purchaser's ownership, after such conversion, exceeding 9.9% of the
Corporation's outstanding Common Stock.
(6) No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. In lieu of fractional shares, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective and applicable Conversion Price.
(7) The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Certificate of Designations by
the Corporation, but will at all times in good faith assist in the carrying out
of all the provisions of this Certificate of Designations and in the taking of
all such action as may be necessary or appropriate in order to protect the
Series A Preferred Stock Conversion Rights of the holders of the Series A
Preferred Stock against impairment.
(8) In the event (a) that the Corporation declares a
dividend (or any other distribution) on its Common Stock payable in Common Stock
or other securities of the Corporation, (b) that the Corporation subdivides or
combines its outstanding shares of Common Stock, (c) of any reclassification of
the Common Stock of the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), (d) of any consolidation or merger of the Corporation into or with
another corporation, (e) of the sale of all or substantially all of the assets
of the Corporation, or (f) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation, then the Corporation shall cause
to be filed at its principal office or at the office of the transfer agent of
the Series A Preferred Stock, and shall cause to be mailed to each holder of the
Series A Preferred Stock at their last address as shown on the records of the
Corporation or such transfer
7
agent, at least ten (10) days prior to the record date specified in (i) below or
twenty (20) days before the date specified in (ii) below, a notice stating
(i) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or combination are
to be determined, or
(ii) the date on which such
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
H. Sinking Fund. There shall be no sinking fund for the
payment of dividends, or liquidation preferences on the Series A Preferred Stock
or the redemption of any shares thereof.
I. Redemption Events. In case one or more of the following
events each a redemption event shall have occurred:
(a) If the Corporation fails to have a
registration statement effective within one hundred eighty (180) days
of the date of the Stock Purchase Agreement, at the option of the
Purchaser, the Corporation shall redeem the outstanding shares of
Series A Preferred Stock at a redemption price of one hundred
twenty-five percent (125%) of the Stated Value per share plus accrued
and unpaid dividends thereon, if any; or
(b) failure to deliver the shares of Common
Stock required to be delivered upon conversion of the shares of Series
A Preferred Stock in the manner and at the time required by Section 5
of the Securities Purchase Agreement; or
(c) failure of the Corporation to have
authorized the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock or exercise of the
Stock Purchase Warrants (as defined in the Securities Purchase
Agreement), including conversion of any shares of Series A Preferred
Stock or exercise of any Stock Purchase Warrants, issuable upon
conversion of the Conditional Warrant (as defined in the Securities
Purchase Agreement); or
(d) failure on the part of the Corporation
to duly observe or perform any of the provisions of this Certificate of
Designations or any of its other covenants or agreements contained in
the Securities Purchase Agreement, or to cure any material breach in a
material representation or covenant contained in the Securities
Purchase Agreement or the Registration Rights Agreement for a period of
ten (10) days after the date on which written notice of such failure or
breach requiring the same to be remedied has been given by a registered
holder of shares of Series A Preferred Stock to
8
the Corporation; or
(e) a decree or order by a court having
jurisdiction has been entered adjudging the Corporation (or any
Material Subsidiary) a bankrupt or insolvent, or approving a petition
seeking reorganization of the Corporation (or any Material Subsidiary)
under any applicable bankruptcy law and such decree or order has
continued undischarged or unstayed for a period of sixty (60) days; or
a decree or order of a court having jurisdiction for the appointment of
a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Corporation (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation
of its affairs, has been entered, and has remained in force
undischarged or unstayed for a period of sixty (60) days; or
(f) the Corporation (or any Material
Subsidiary) institutes proceedings to be adjudicated a voluntary
bankrupt, or consents to the filing of a bankruptcy proceeding against
it, or files a petition or answer or consent seeking reorganization
under applicable law, or consents to the filing of any such petition or
to the appointment of a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they
become due; or if the Corporation (or any Material Subsidiary) shall
suffer any writ of attachment or execution or any similar process to be
issued or levied against it or any significant part of its property
which is not released, stayed, bonded or vacated within sixty (60) days
after its issue or levy; or if the Corporation (or any Material
Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) If any default shall occur under any
indenture, mortgage, agreement, instrument or commitment evidencing or
under which there is at the time outstanding any indebtedness of the
Corporation (or a Material Subsidiary, as hereinafter defined), in
excess of $50,000, or which results in such indebtedness, in an
aggregate amount (with other defaulted indebtedness) in excess of
$50,000 becoming due and payable prior to its due date and if such
indenture or instrument so requires, the holder or holders thereof (or
a trustee on their behalf) shall have declared such indebtedness due
and payable; or (h) If any of the Corporation or its subsidiaries shall
default in the observance or performance of any material term or
provision of a material agreement to which it is a party or by which it
is bound, and such default is not waived or cured within the applicable
grace period; or
(i) If a final judgment which, either alone
or together with other outstanding final judgments against the
Corporation and its subsidiaries, exceeds an aggregate of $50,000 shall
be rendered against the Corporation (or any Material Subsidiary) and
such judgment shall have continued undischarged or unstayed for thirty
(30) days after entry thereof; or
(j) If there shall occur a Change in Control
of the Corporation (as defined below). Nothing in this subsection shall
limit the right of a holder of Series A Preferred Stock to convert
their shares of Series A Preferred Stock on or prior to such
9
Change in Control. For purposes hereof, a "Change in Control" shall be
deemed to have occurred if (A) any person or group (as defined for
purposes of Regulation 13D of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) shall have become the beneficial owner or
owners of more than 50% of the outstanding voting stock of the
Corporation; (B) there shall have occurred a merger or consolidation in
which the Corporation or an affiliate of the Corporation is not the
survivor or in which holders of the Common Stock of the Corporation
shall have become entitled to receive cash, securities of the
Corporation other than voting common stock or securities of any other
person; (C) at any time persons constituting the Existing Board of
Directors cease for any reason whatsoever to constitute at least a
majority of the members of the Board of Directors of the Corporation;
or (D) there shall have occurred a sale of all or substantially all the
assets of the Corporation. For purposes hereof, the term "Existing
Board of Directors" shall mean the persons constituting the Board of
Directors of the Corporation on the date hereof, together with each new
director whose election, or nomination for election by the
Corporation's stockholders is approved by a vote of the majority of the
members of the Existing Board of Directors who are in office
immediately prior to the election or nomination of such director.
then, and in each and every such case, so
long as such redemption event has not been remedied, the holders of not
less than fifty-one percent (51%) of the shares of Series A Preferred
Stock then outstanding, by notice in writing to the Corporation (the
date of such notice the "Redemption Notice Date"), may demand that the
Corporation redeem, and the Corporation shall redeem, each share of
Series A Preferred Stock then outstanding at a price per share equal to
one hundred twenty-five percent (125%) of the sum of (x) the Stated
Value and (y) the aggregate accrued and unpaid dividends on such
Redemption Notice Date
For purposes of this Section I "Material Subsidiary" means any
subsidiary with respect to which the Corporation has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate amount
exceeding fifteen percent (15% ) of the Corporation's gross assets, or the
Corporation's proportionate share of the assets or net income of which (based on
the subsidiary's most recent financial statements) exceed fifteen percent (15%)
of the Corporation's gross assets or net income, respectively, or the gross
revenues of which exceed fifteen percent (15%) of the gross revenues of the
Corporation based upon the most recent financial statements of such subsidiary
and the Corporation.
J. Redemption by the Corporation.
(a) The Corporation shall be permitted to redeem for cash or
immediately available funds, to the extent permitted under law and provisions of
senior and subordinated debt agreements of the Corporation, at any time and from
time to time, any or all of the shares of Series A Preferred Stock then
outstanding at a price per share equal to the Redemption Price on the date of
redemption for which the holder of such Series A Preferred Stock has not
delivered Notice of Conversion to the Corporation. Any redemption by the
Corporation of less than all shares of Series A Preferred Stock than outstanding
shall be pro rata among the holders of the shares of Series A Preferred Stock
based upon the number of shares held by each such holder.
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(b) In connection with any redemption of shares pursuant to this
Section 5, the Corporation shall give at least fifteen (15) days but not more
than thirty (30) days' prior written notice of such redemption (a "Redemption
Notice"), by hand delivery, by registered or certified mail or nationwide
overnight delivery service (with charges prepaid) or sent via telecopier (if
within a reasonable period of time a permanent copy is given by any of the
methods described above), to all holders of record of Series A Preferred Stock,
as applicable, such notice to be addressed to each holder at its address as it
appears on the stock transfer books of the Corporation and to specify the
redemption date (the "Redemption Date") and the Redemption Price and to state
that the holders must surrender the certificates for their shares of Series A
Preferred Stock on or after the Redemption Date in order to receive payment of
the Redemption Price. Notwithstanding anything herein contained to the contrary,
all shares of Series A Preferred Stock may be converted, including shares of
Series A Preferred Stock subject to a Redemption Notice given pursuant to this
Section J, during the period from the date of such Redemption Notice through the
Redemption Date. Within five (5) days of delivery of such certificates subject
to a Redemption Notice by the holders of the Series A Preferred Stock, the
Corporation shall pay the aggregate Redemption Price in cash or immediately
available funds to such shareholder for the shares of Series A Preferred Stock
being redeemed. In the event the shareholders of such Series A Preferred Stock
does not receive such aggregate Redemption Price within such five (5) day
period, the Corporation pay interest on any unpaid amount payable at a rate of
ten percent (10%) per month. From and after the Redemption Date, except as set
forth below, any holder of shares of Series A Preferred Stock that has been
redeemed who has not duly surrendered its Series A Preferred Stock to be
redeemed shall cease to be entitled to any rights except the right to receive
payment of the Redemption Price. If the Corporation shall not legally have funds
available to make any such redemption provided for herein, the Corporation shall
take such action as may be lawfully permitted in order to enable the
Corporation, if possible, lawfully to redeem the Series A Preferred Stock.
Anything herein contained to the contrary notwithstanding, in the event and to
extent that the Corporation cannot or does not make or tender full payment
therefor, such shares shall continue to be outstanding, to the extent permitted
under law and provisions of senior and subordinated debt agreements of the
Corporation, and entitled to all rights and benefits of the Rights until full
payment is made or tendered therefor as aforesaid. Shares of Series A Preferred
Stock which have been redeemed may not be reissued by the Corporation as shares
of such series.
(c) For purposed of this Section J, "Redemption Price" shall mean as
follows:
(i) in the event that the Redemption date is less than forty-five (45)
days after the Initial Closing Date (as defined in the Securities Purchase
Agreement), an amount per share equal to the sum of (x) one hundred ten percent
(110%) of the Stated Value per share and (y) the amount of dividends which would
have accrued on such share pursuant to Section B if such share had been
outstanding for a full three (3) month period;
(ii) in the event that the Redemption Date is more than forty-four (44)
days and less than ninety (90) days after the Initial Closing Date, an amount
per share equal to the sum of (x) one hundred fifteen percent (115%) of the
Stated Value per share and (y) the amount of dividends which would have accrued
on such share pursuant to Section B if such share had been outstanding for a
full three (3) month period; and
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(iii) in the event that the Redemption Date is more than eighty-nine
(89) days after the Initial Closing Date, an amount per share equal to (A) the
quotient of (i) the Liquidation Preference per share of Series A Preferred Stock
plus all accrued but unpaid dividends on such shares of Series A Preferred Stock
and (ii) the Conversion Price as if the Series A Preferred Stock had been
converted on the Redemption Date multiplied by (B) the average Closing Bid Price
of shares of Common Stock for the five (5) trading days immediately preceding
the Redemption Notice Date, all of the outstanding Series A Preferred Stock
K. Amendment. This Certificate of Designations constitutes an
agreement between the Corporation and the holders of the Series A Preferred
Stock. The Corporation shall not amend this Certificate of Designations or alter
or repeal the preferences, rights, powers or other terms of the Series A
Preferred Stock so as to affect adversely the Series A Preferred Stock, without
the written consent or affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the then outstanding shares of Series A
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class.
IN WITNESS WHEREOF, Intelliquis International, Inc., has
caused its corporate seal to be hereunto affixed and this certificate to be
signed by ▇▇▇▇▇▇▇ ▇▇▇, its President, and attested by ▇▇▇▇ ▇▇▇▇▇▇▇, its
Secretary, this 26th day of October, 1999.
INTELLIQUIS INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇
-----------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇
Title: President
Attest:
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Secretary
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