SUBSCRIPTION AGREEMENT
DATED AS OF MARCH 7, 2000
BY AND BETWEEN
TITAN MOTORCYCLE CO. OF AMERICA
AND
ADVANTAGE FUND II LTD.
----------
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
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SUBSCRIPTION AGREEMENT
SERIES B CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
TITAN MOTORCYCLE CO. OF AMERICA
PAGE
1. AGREEMENT TO
SUBSCRIBE................................................................ 1
(a) Subscription......................................................... 1
(b) Closing.............................................................. 1
(c) Form of Payment...................................................... 2
2. BUYER REPRESENTATIONS, WARRANTIES, ETC................................... 2
(a) Purchase for Investment.............................................. 2
(b) Accredited Investor.................................................. 2
(c) Reoffers and Resales................................................ 2
(d) Company Reliance..................................................... 2
(e) Information Provided................................................. 2
(f) Absence of Approvals................................................. 3
(g) Subscription Agreement............................................... 3
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC................................. 3
(a) Organization and
Authority............................................................ 3
(b)
Capitalization....................................................... 3
(c) Concerning the Shares and the Common Stock........................... 5
(d) Subscription Agreement and Other Transaction Documents............... 5
(e) Non-contravention.................................................... 5
(f) Approvals............................................................ 6
(g) Information Provided................................................. 6
(h) Absence of Certain Changes........................................... 6
(i) Absence of Certain Proceedings....................................... 7
(j) Properties........................................................... 7
(k) Labor Relations...................................................... 8
(l) SEC Filings.......................................................... 8
(m) Absence of Brokers, Finders, Etc..................................... 8
(n) No Solicitation...................................................... 8
(o) Certain Issuances of Securities...................................... 9
(p) Absence of Rights Agreement.......................................... 9
4. CERTAIN COVENANTS AND
ACKNOWLEDGMENTS.......................................................... 9
(a) Transfer Restrictions................................................ 9
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(b) Restrictive Legend................................................... 9
(c) Registration Rights Agreement........................................ 11
(d) Form D............................................................... 11
(e) Authorization for Trading............................................ 11
(f) Use of Proceeds...................................................... 11
(g) Blue Sky Laws........................................................ 11
(h) Certain Expenses..................................................... 12
(i) Certain Issuances of Securities...................................... 12
(j) Certain Selling Restrictions......................................... 13
(k) Transactions with Affiliates......................................... 14
(l) Best Efforts......................................................... 14
5. TRANSFER AGENT AGREEMENT................................................. 14
(a) Transfer Agent Agreement............................................. 14
(b) Conversion Procedure................................................. 15
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE................. 15
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE......................... 15
8. MISCELLANEOUS............................................................ 16
(a) Governing Law........................................................ 16
(b) Counterparts......................................................... 16
(c) Headings, etc........................................................ 17
(d) Severability......................................................... 17
(e) Amendments........................................................... 17
(f) Waivers.............................................................. 17
(g) Notices.............................................................. 17
(h) Assignment........................................................... 17
(i) Survival of Representations and Warranties........................... 18
(j) Entire Agreement..................................................... 18
(k) Termination.......................................................... 18
(l) Further Assurances................................................... 18
(m) Public Statements, Press Releases, Etc............................... 18
(n) Construction......................................................... 19
SCHEDULES
Schedule 3(b) Convertible Securities
Schedule 3(h) Material Liabilities, Debts or Obligations
Schedule 3(i) Certain Proceedings
Schedule 3(j) Claims Against Company Proprietary Rights
Schedule 4(k) Transactions with Affiliates
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ANNEXES
Annex I Form of Certificate of Designations
Annex II Form of Common Stock Purchase Warrant
Annex III Form of Registration Rights Agreement
Annex IV Form of Transfer Agent Agreement
Annex V Form of Notice of Conversion of Series B Convertible Preferred Stock
Annex VI Form of Opinion of Counsel to Be Delivered on Closing Date
Annex VII Form of Opinion of Nevada Counsel to Be Delivered on Closing Date
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of March 7, 2000, by and between
TITAN MOTORCYCLE CO. OF AMERICA, a Nevada corporation (the "Company"), with
headquarters located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and
ADVANTAGE FUND II LTD., a British Virgin Islands corporation (the "Buyer").
WITNESSETH:
-----------
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of non-voting, convertible preferred stock
of the Company which will be convertible into shares of Common Stock, $.001 par
value (the "Common Stock"), of the Company and in connection therewith the
Company is to issue to the Buyer warrants to purchase shares of Common Stock as
provided in this Agreement; and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
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 SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the Company the
number of shares (the "Preferred Shares") of Series B Convertible Preferred
Stock, $.001 par value (the "Preferred Stock"), of the Company set forth on the
signature page of this Agreement, having the terms and conditions as set forth
in the form of the Certificate of Designations of the Series B Convertible
Preferred Stock attached hereto as ANNEX I (the "Certificate of Designations")
at the price per share and for the aggregate purchase price set forth on the
signature page of this Agreement (the "Purchase Price"). In connection with the
purchase of the Preferred Shares by the Buyer, the Company shall issue to the
Buyer Common Stock Purchase Warrants in the form attached hereto as ANNEX II
(the "Warrants") to purchase the number of shares of Common Stock set forth on
the signature page of this Agreement. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares." The
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Preferred Shares are referred to herein collectively as the "Common Shares." The
Common Shares and the Preferred Shares are referred to herein collectively as
the "Shares." The Shares and the Warrants are referred to herein collectively as
the "Securities." As used in this Agreement, the term "Business Day" means any
day other than a Saturday, Sunday or other day on which commercial banks in the
City of New York are authorized or required by law to remain closed.
(b) CLOSING. The issuance and sale of the Preferred Shares and the issuance
of the Warrants (the "Closing") shall occur at 12:00 noon, New York City time on
the date (the "Closing Date") on which the parties' respective conditions set
forth in Sections 6 and 7 have been satisfied or waived, or such other mutually
agreed to date and time. The Closing shall occur on the Closing Date at the
office of ▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. At the
Closing, upon the terms and subject to the conditions of this Agreement, (1) the
Company shall issue and deliver to the Buyer the Preferred Shares and the
Warrants against payment by the Buyer to the Company of an amount equal to the
Purchase Price, and (2) the Buyer shall pay to the Company an amount equal to
the Purchase Price against delivery by the Company to the Buyer of the Preferred
Shares and the Warrants. The certificates for the Preferred Shares and the
Warrants shall be registered in the name of the buyer or its nominee.
(c) FORM OF PAYMENT. Payment by the Buyer of the Purchase Price to the
Company on the Closing Date shall be made by wire transfer of immediately
available funds to:
Bank of America
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
ABA# ▇▇▇▇▇▇▇▇▇
For credit to account No. 000943061181
For credit to the account of Titan Motorcycle Co. of America
Reference: Advantage
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Preferred Shares
and acquiring the Warrants, and will acquire the Common Shares upon conversion
of the Preferred Shares or exercise of the Warrants, for its own account for
investment only and not with a view towards the public sale or distribution
thereof;
(b) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the 1933 Act
by reason of Rule 501(a)(3);
(c) REOFFERS AND RESALES. All subsequent offers and sales of the Securities
by the Buyer shall be made pursuant to registration of the Securities being
offered and sold under the 1933 Act or pursuant to an exemption from
registration;
(d) COMPANY RELIANCE. The Buyer understands that the Preferred Shares are
being offered and sold, the Warrants are being issued, and the Common Shares are
being offered, in each case to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
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availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Shares and the Warrants and to receive an offer of the Common Shares;
(e) INFORMATION PROVIDED. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Preferred
Shares and the issuance of the Warrants and the offer of the Common Shares which
have been requested by the Buyer; the Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
satisfactory answers to any such inquiries; without limiting the generality of
the foregoing, the Buyer has had the opportunity to obtain and to review the
Company's (1) Annual Report on Form 10-KSB for the fiscal year ended January 2,
1999 (as amended by Amendment No. 1 thereto on Form 10-KSB/A) (the "1998 10-K"),
(2) Quarterly Reports on Form 10-QSB for the fiscal quarters ended April 3,
1999, July 3, 1999 and October 2, 1999 (as amended by Amendment No. 1 thereto on
Form 10-QSB/A), (3) Current Reports on Form 8-K, dated December 28, 1998,
January 8, 1999 and September 17, 1999 and (4) definitive proxy statement for
the Company's 1999 Annual Meeting of Shareholders held on May 12, 1999, in each
case as filed with the SEC (collectively, the "SEC Reports"); and the Buyer
understands that its investment in the Shares involves a high degree of risk;
(f) ABSENCE OF APPROVALS. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Shares;
(g) SUBSCRIPTION AGREEMENT. This Agreement, the Registration Rights
Agreement, in the form attached hereto as ANNEX III (the "Registration Rights
Agreement"), and the Transfer Agent Agreement, in the form attached hereto as
ANNEX IV (the "Transfer Agent Agreement"), have been duly and validly authorized
by the Buyer, this Agreement has been duly executed and delivered by the Buyer,
and this Agreement is, and the Registration Rights Agreement and the Transfer
Agent Agreement, when executed and delivered by the Buyer, will be, valid and
binding agreements of the Buyer enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally; and
(h) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar person
engaged by the Buyer is entitled to any commission, fee or other compensation in
connection with the transactions contemplated by this Agreement and the Buyer
shall pay, and indemnify and hold harmless the Company from, any claim made
against the Company by any such person for any such commission, fee or other
compensation.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with, the
Buyer that:
(a) ORGANIZATION AND AUTHORITY. Each of the Company and its subsidiary,
Titan Motorcycle GmbH, a corporation organized under the laws of Germany (the
"Subsidiary"), is a corporation duly organized, validly existing and in good
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standing under the laws of its jurisdiction of incorporation, and has all
requisite corporate power and authority to (i) own, lease and operate its
properties and to carry on its business as now being conducted, and (ii) to
execute, deliver and perform its obligations under this Agreement, the
Certificate of Designations, the Warrants, the Registration Rights Agreement,
the Transfer Agent Agreement, and the other agreements to be executed and
delivered by the Company in connection herewith, and to consummate the
transactions contemplated hereby and thereby. Each of the Company and the
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiary, taken as a whole. The
Company has no subsidiaries or equity investment in any person other than the
Subsidiary.
(b) CAPITALIZATION. The authorized capital stock of the Company consists of
(1) 90,000,000 shares of Common Stock of which 17,181,187 shares were
outstanding on February 29, 2000, all of which are fully paid and nonassessable;
and (2) 10,000,000 shares of Preferred Stock, $.001 par value, of which (A)
4,000 shares are designated as Series A Convertible Preferred Stock, of which
3,973 shares are issued and outstanding and (B) 2,000 shares of which will be
designated as Series B Convertible Preferred Stock and will be issued pursuant
to this Agreement and the other subscription agreement for the purchase of
shares of Preferred Stock and the acquisition of common stock purchase warrants
being entered into in connection herewith (the "Other Subscription Agreement");
and on the Closing Date there will be (x) no material increase from February 29,
2000 in the number of shares of Common Stock outstanding and (y) no issuances of
preferred stock except as issued pursuant to this Agreement and the Other
Subscription Agreement. As of February 29, 2000, the Company had outstanding
options, warrants and similar rights entitling the holders to purchase 1,285,000
shares of Common Stock. Other than as set forth in the preceding, sentence and
on SCHEDULE 3(B) to this Agreement, the Company does not have outstanding any
material amount of securities (or obligations to issue any such securities)
convertible into, exchangeable for or otherwise entitling the holders thereof to
acquire shares of Common Stock, except as disclosed in the SEC Reports. The
Company has duly reserved from its authorized and unissued shares of Common
Stock the full number of shares required for (a) all options, warrants,
convertible securities and other rights to acquire shares of Common Stock which
are outstanding and (b) all shares of Common Stock and options and other rights
to acquire shares of Common Stock which may be issued or granted under the stock
option and similar plans which have been adopted by the Company or the
Subsidiary. No antidilution or similar adjustment affecting any outstanding
class or series of securities will arise by reason of the issuance or conversion
of the Preferred Shares or the issuance or exercise of the Warrants or the
issuance or conversion of the shares of Preferred Stock and the issuance or
exercise of the warrants to be issued pursuant to the Other Subscription
Agreement. The outstanding shares of Common Stock and outstanding options,
warrants and other securities convertible into, exchangeable for or otherwise
entitling the holder thereof to acquire shares of Common Stock have been duly
authorized and validly issued. None of such outstanding shares of Common Stock,
options, warrants and other securities has been issued in violation of the
preemptive rights of any securityholder of the Company. The offers and sales of
the outstanding shares of Common Stock and such options, warrants and other
securities were at all relevant times either registered under the 1933 Act and
applicable state securities laws or exempt from such requirements. Except as set
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forth on SCHEDULE 3(B), no holder of any of the Company's securities has any
rights, "demand," "piggy-back" or otherwise, to have such securities registered
by reason of the intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement).
(c) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been duly
authorized. The Preferred Shares, when issued and paid for in accordance with
this Agreement, and the Common Shares, when issued upon conversion of the
Preferred Shares or upon exercise of the Warrants, as the case may be, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder. There are
no preemptive or similar rights of any stockholder of the Company or any other
person to acquire any of the Shares. The Company has duly reserved 3,686,000
shares of Common Stock for conversion of the shares of Preferred Stock and
exercise of the Warrants and the warrants issuable in connection with the Other
Subscription Agreement, and such shares shall remain so reserved (subject to
reduction from time to time for shares of Common Stock issued upon conversion of
shares of Preferred Stock or redemption or other permitted retirement of shares
of Preferred Stock), and the Company shall from time to time reserve such
additional shares of Common Stock as shall be required to be reserved pursuant
to the Certificate of Designations, as long as the Preferred Stock is
convertible, and pursuant to the Warrants, as long as the Warrants are
exercisable. The Common Stock is listed for trading on the Nasdaq SmallCap
Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for
continued listing and trading on Nasdaq; (2) the Company has not been notified
since December 1, 1998 by Nasdaq of any failure or potential failure to meet the
criteria for continued listing and trading on Nasdaq and (3) no suspension of
trading in the Common Stock is in effect. The Company knows of no reason that
the Common Shares will not be eligible for listing on Nasdaq.
(d) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This Agreement,
the Certificate of Designations, the Registration Rights Agreement, the Warrants
and the Transfer Agent Agreement and the other agreements and instruments
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 Registration Rights Agreement, the Warrants and the
Transfer Agent Agreement and such other agreements, when executed and delivered
by the Company, will be, valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
(e) NON-CONTRAVENTION. The execution and delivery by the Company of this
Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of the issuance of the Preferred Shares and the
Warrants as contemplated by this Agreement, and the other transactions
contemplated by this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Warrants and the Transfer Agent Agreement do
not and will not, with or without the giving of notice or the lapse of time, or
both (i) result in any violation of any terms of the Articles of Incorporation,
as amended, or By-laws of the Company or the Subsidiary, (ii) conflict with or
result in a breach by the Company or the Subsidiary of any of the terms or
provisions of, or constitute a default under, or result in the modification,
-5-
amendment, termination or cancellation of, result in the acceleration of any
obligation of the Company or the Subsidiary under, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or the Subsidiary pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
or any of their respective properties or assets is bound or affected, except for
such matters as to which consents have been obtained, (iii) violate or
contravene any applicable law, rule or regulation or any applicable decree,
judgment or order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or the Subsidiary or any of their respective properties or assets or
(iv) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
or the Subsidiary to own or lease and operate any of their respective properties
or to conduct any of their respective businesses or the ability of the Company
or the Subsidiary to make use thereof.
(f) APPROVALS. No authorization, approval or consent of, or filing with,
any court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders of the Company is required to be
obtained or made by the Company for (1) the execution, delivery and performance
by the Company of this Agreement, the Registration Rights Agreement, the
Warrants, the Transfer Agent Agreement and the other agreements and instruments
contemplated hereby and thereby, (2) the execution, filing and performance by
the Company of the Certificate of Designations, (3) the issuance and sale of the
Preferred Shares and the issuance of the Warrants as contemplated by this
Agreement and (4) the issuance of Common Shares on conversion of the Preferred
Shares or upon the exercise of the Warrants, other than (v) the filing of the
notification for listing of additional shares with the Nasdaq pursuant to
Section 4(e), (w) the filing of the Certificate of Designations with the
Secretary of State of the State of Nevada, (x) registration of the resale of the
Common Shares under the 1933 Act as contemplated by the Registration Rights
Agreement, (y) as may be required under applicable state securities or "blue
sky" laws and (z) filing of one or more Forms D with respect to the Securities
as required under Regulation D.
(g) INFORMATION PROVIDED. The information referred to in Section 2(e) of
this Agreement does not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading, it
being understood that, for purposes of this Section 3(g), any statement
contained in such information shall be deemed to be modified or superseded for
purposes of this Section 3(g) to the extent that a statement in any document
included in such information which was prepared or filed with the SEC on a later
date modifies or replaces such statement, whether or not such later prepared or
filed statement so states. The Company has not filed any reports with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), since
January 2, 1999 other than the SEC Reports.
(h) ABSENCE OF CERTAIN CHANGES. Since January 2, 1999, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiary, taken as a whole, except as
disclosed in the SEC Reports. Except as permitted by the following sentence or
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as and to the extent disclosed, reflected or reserved against in the financial
statements of the Company and the notes thereto included in the SEC Reports or
on Schedule 3(h) to this Agreement, neither the Company nor the Subsidiary has
any material (individually or in the aggregate) liabilities, debts or
obligations whether accrued, absolute, contingent or otherwise, and whether due
or to become due. Subsequent to January 2, 1999, neither the Company nor the
Subsidiary has incurred any liabilities, debts or obligations of any nature
whatsoever which are individually or in the aggregate material to the Company
and the Subsidiary taken as a whole, other than those incurred in the ordinary
course of their respective businesses or disclosed in the SEC Reports.
(i) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC Reports
or on Schedule 3(i) to this Agreement, there is no action, suit, proceeding,
inquiry or investigation before or by any court, arbitrator, public board or
body or governmental agency (collectively, an "Action") pending or, to the
knowledge of the Company or the Subsidiary, threatened against the Company or
the Subsidiary, in any such case wherein an unfavorable decision, ruling or
finding would have a material adverse effect on business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company and the Subsidiary, taken as a whole, or the transactions
contemplated by this Agreement or any of the documents contemplated hereby or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this Agreement or
any of such other documents; neither the Company or the Subsidiary nor any
director or officer thereof is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty; the Company does not have pending before the
SEC any request for confidential treatment of information and to the best of the
Company's knowledge no such request will be made by the Company prior to the
time the Registration Statement relating to the Common Shares which is
contemplated by the Registration Rights Agreement is first ordered effective by
the SEC; and there has not been, and to the best of the Company's knowledge
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.
(j) PROPERTIES. The Company and the Subsidiary have good title to or
leasehold interests in all property real and personal (tangible and intangible)
and other assets owned by them, free and clear of all security interests,
charges, mortgages, liens or other encumbrances, except with respect to capital
lease obligations and protective filings by lessors and except such as are
described in the SEC Reports or such as do not materially interfere with the use
of such property made, or proposed to be made, by the Company or the Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and the Subsidiary lease, hold or are entitled to use any property, real or
personal, are valid, subsisting and enforceable with only such exceptions as do
not materially interfere with the use of such property made, or proposed to be
made, by the Company or the Subsidiary. Neither the Company nor the Subsidiary
has received notice of any material violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties. The
Company does not have any knowledge of, and the Company has not given or
received any notice of, any pending conflicts with or infringement of the rights
of others with respect to any Company Proprietary Rights (as defined herein) or
with respect to any license of Company Proprietary Rights. Except as set forth
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on Schedule 3(j) to this Agreement, no action, suit, arbitration, or legal,
administrative or other proceeding or investigation is pending, or, to the best
knowledge of the Company, threatened, which involves any Company Proprietary
Rights. Neither the Company nor the Subsidiary is subject to any judgment,
order, writ, injunction or decree of any court or any federal, state, local,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator, or has entered into or
is a party to any contract which restricts or impairs the use of any such
Company Proprietary Rights in a manner which would have a material adverse
effect on the use by the Company or the Subsidiary of any of the Company
Proprietary Rights. To the best knowledge of the Company, no Company Proprietary
Rights and no services or products sold by the Company or the Subsidiary,
conflict with or infringe upon any proprietary rights available to any third
party. Neither the Company nor the Subsidiary has received written notice of any
pending conflict with or infringement upon such third-party proprietary rights.
Neither the Company nor the Subsidiary has entered into any consent,
indemnification, forbearance to ▇▇▇ or settlement agreement with respect to
Company Proprietary Rights other than in the ordinary course of business. No
claims have been asserted by any person with respect to the validity of the
Company's or the Subsidiary's ownership or right to use the Company Proprietary
Rights and, to the best knowledge of the Company, there is no reasonable basis
for any such claim to be successful. To the best knowledge of the Company, the
Company Proprietary Rights are valid and enforceable. No registration relating
to the Company Proprietary Rights has lapsed, expired or been abandoned or
canceled or is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and are in good standing, except for such
lapses, expirations, abandonments, cancellations, adversarial proceedings or
failures to be in good standing which would not, singly or in the aggregate,
have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiary, taken as a whole. The Company and the Subsidiary
have complied, in all material respects, with their respective contractual
obligations relating to the protection of the Company Proprietary Rights used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Company Proprietary Rights. As used herein, the
term "Company Proprietary Rights" means all patents, patent applications,
inventions, trademarks, trade names, applications for registration of
trademarks, service marks, service ▇▇▇▇ applications, domain names, copyrights,
know-how, manufacturing processes, formulae, trade secrets, licenses and rights
in any thereof and any other intangible property and assets which are material
to the businesses of the Company and the Subsidiary as now conducted, as
proposed to be conducted or as described in this Agreement.
(k) LABOR RELATIONS. Except as disclosed in the SEC Reports, no material
labor problem exists or, to the knowledge of the Company or the Subsidiary, is
imminent with respect to any of the employees of the Company or the Subsidiary.
(l) SEC FILINGS. The Company has timely filed (subject to extensions
granted pursuant to Rule 12b-25 under the ▇▇▇▇ ▇▇▇) all required forms, reports
and other documents required to be filed by the Company with the SEC under the
1934 Act. All of such forms, reports and other documents complied, when filed,
in all material respects, with all applicable requirements of the 1933 Act and
the 1934 Act.
-8-
(m) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar person
is entitled to any commission, fee or other compensation by reason of the
transactions contemplated by this Agreement other than Reedland Capital Partners
and the Company shall pay, and indemnify and hold harmless the Buyer from, any
claim made against the Buyer by such entity or any other person for any such
commission, fee or other compensation.
(n) NO SOLICITATION. No form of general solicitation or general advertising
was used by the Company or, to the best of its knowledge, any other person
acting on behalf of the Company, in respect of or in connection with the offer
and sale of the Securities. Neither the Company nor, to its knowledge, any
person acting on behalf of the Company has, either directly or indirectly, sold
or offered for sale to any person any of the Preferred Shares or the Warrants
or, within the six months prior to the date hereof, any other similar security
of the Company except as contemplated by this Agreement and the Other
Subscription Agreement; and neither the Company nor any person authorized to act
on its behalf will sell or offer for sale any shares of Preferred Stock or
shares of Common Stock or Warrants, or solicit any offers to buy any shares of
Preferred Stock or shares of Common Stock or Warrants, in each case so as
thereby to cause the issuance or sale of any of the Shares or the issuance of
the Warrants to be in violation of Section 5 of the 1933 Act.
(o) CERTAIN ISSUANCES OF SECURITIES. The Company has not issued any shares
of Common Stock or shares of any series of preferred stock or other securities
convertible into, exchangeable for or otherwise entitling the holder to acquire
shares of Common Stock which are subject to Rule 4310(c)(25)(H) of the Nasdaq as
in effect from time to time or any successor, replacement or similar provision
thereof or of any other market on which the Common Stock is listed for trading
(the "Stockholder Approval Rule") and which would be integrated with the sale of
the Preferred Shares to the Buyer or the issuance of Common Shares upon
conversion thereof or upon exercise of the Warrants for purposes of the
Stockholder Approval Rule.
(p) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Company and the Buyer acknowledge and agree
that (1) the Preferred Shares and the Warrants have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in the
Registration Rights Agreement with respect to the resale of the Common Shares,
the Common Shares have not been and are not being registered for resale under
the 1933 Act, and the Securities may not be transferred unless (A) subsequently
registered for resale thereunder or (B) the Buyer shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any resale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any such resale of
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
-9-
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
(b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees that the
Preferred Shares shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the Preferred
Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel reasonably
acceptable to the Company that registration is not required under said Act.
The number of shares constituting the portion of the Maximum Share Amount,
as defined in the Certificate of Designations of the Series B Convertible
Preferred Stock (the "Certificate of Designations"), allocated to the
shares represented by this certificate for purposes of conversion thereof
is 2,577,000.
Section 10(b)(3)(a) of the Certificate of Designations permits a holder of
the securities represented by this certificate to convert such securities
in accordance with the Certificate of Designations without being required
to surrender this certificate to the Company unless all of the securities
represented hereby are so converted. Consequently, following conversion of
any of the securities represented by this certificate, the number of shares
represented by this certificate may be less than the number of shares
stated hereon. Upon request of any proposed transferee of this certificate,
the Company will provide confirmation of the number of shares evidenced by
this certificate.
(2) The Buyer further acknowledges and agrees that the Warrants shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel reasonably
acceptable to the Company that registration is not required under said Act.
(3) The Buyer further acknowledges and agrees that until such time as the
Common Shares have been registered for resale under the 1933 Act as contemplated
by the Registration Rights Agreement, the certificates for the Common Shares may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for the
Common Shares):
-10-
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel reasonably
acceptable to the Company that registration is not required under said Act.
(4) Once the Registration Statement required to be filed by the Company
pursuant to Section 2 of the Registration Rights Agreement has been declared
effective, thereafter (1) upon request of the Buyer the Company will substitute
certificates without restrictive legend for certificates for any Common Shares
issued prior to the date such Registration Statement is declared effective by
the SEC which bear such restrictive legend and remove any stop-transfer
restriction relating thereto promptly, but in no event later than three Trading
Days (as defined in the Certificate of Designations) after surrender of such
certificates by the Buyer and (2) the Company shall not place any restrictive
legend on certificates for Common Shares issued on conversion of the Preferred
Shares or upon exercise of the Warrants or impose any stop-transfer restriction
thereon.
(c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into
the Registration Rights Agreement in the form attached hereto as ANNEX III on or
before the Closing Date.
(d) FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the Company
in connection with such filing and, upon request of the Company, to provide all
information relating to the Buyer reasonably required for such filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before the Closing
Date, the Company shall file a notification for listing of additional shares
with the Nasdaq relating to the Common Shares and shall provide evidence of such
filing to the Buyer. So long as the Buyer beneficially owns any of the Preferred
Shares, the Warrants or the Common Shares, the Company shall file all reports
required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934
Act and, except for a sale of the Company, merger or other business combination
effected in accordance with the Certificate of Designations and the Warrants,
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
(f) USE OF PROCEEDS. Neither the Company nor the Subsidiary owns or has any
present intention of acquiring any "margin stock" as defined in Regulation G (12
CFR Part 207) of the Board of Governors of the Federal Reserve System ("margin
stock"). The proceeds of sale of the Preferred Shares will be used for general
working capital purposes and in the operation of the Company's business. None of
such proceeds will be used, directly or indirectly (1) to make any loan to or
investment in any other person (other than financing the Company's subsidiaries
in the ordinary course of business or in connection with an acquisition of
another corporation or business or assets of another corporation or business) or
(2) for the purpose, whether immediate, incidental or ultimate, of purchasing or
-11-
carrying any margin stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
stock that is currently a margin stock or for any other purpose which might
constitute the transactions contemplated by this Agreement a "purpose credit"
within the meaning of such Regulation G. Neither the Company nor any agent
acting on its behalf has taken or will take any action which might cause this
Agreement or the transactions contemplated hereby to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the 1934 Act, in each case as in effect now or as
the same may hereafter be in effect.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall take
such action as shall be necessary to qualify, or to obtain an exemption for, the
Preferred Shares for sale to the Buyer and the Warrants for issuance to the
Buyer pursuant to this Agreement and the Common Shares for issuance to the Buyer
on conversion of the Preferred Shares and exercise of the Warrants under such of
the securities or "blue sky" laws of jurisdictions as shall be applicable to the
sale of the Preferred Shares and the issuance of the Warrants pursuant to this
Agreement and the issuance to the Buyer of Common Shares on conversion of the
Preferred Shares and exercise of the Warrants. The Company shall furnish copies
of all filings, applications, orders and grants or confirmations of exemptions
relating to such securities or "blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. Whether or not the closing occurs, the Company shall
pay or reimburse the Buyer for all reasonable expenses (including, without
limitation, legal fees and expenses of counsel to the Buyer and the Buyer's due
diligence expenses) not in excess of $25,000 incurred by the Buyer in connection
with this Agreement and the transactions contemplated hereby (in addition to the
payment of the Buyer's expenses as provided in the Registration Rights
Agreement). In addition, the Company shall pay on demand all expenses incurred
by the Buyer, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (1) the negotiation, preparation or
execution of any amendment, modification or waiver of this Agreement, the
Certificate of Designations, the Registration Rights Agreement, the Warrants,
the Transfer Agent Agreement and the other agreements and instruments
contemplated hereby and thereby requested by the Company, (2) any default or
breach of any of the Company's obligations set forth in any of such agreements
or instruments and (3) the enforcement or restructuring of any right of,
including the collection of any payments due, the Buyer under any of such
agreements or instruments, including any action or proceeding relating to such
enforcement, or any order, injunction or other process seeking to restrain the
Company from paying any amount due the Buyer, in which the Buyer prevails.
(i) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company obtains the
Stockholder Approval (as defined in the Certificate of Designations) or a waiver
thereof from the Nasdaq, the Company will not issue any shares of Common Stock
or shares of any other series of preferred stock or other securities convertible
into, exchangeable for, or otherwise entitling the holder to acquire, shares of
Common Stock which would be subject to the requirements of the Stockholder
Approval Rule and which would be integrated with the sale of the Preferred
Shares and issuance of the Warrants to the Buyer or the issuance of Common
Shares upon conversion of the Preferred Shares or upon exercise of the Warrants
for purposes of the Stockholder Approval Rule.
-12-
(2) During the period from the date of this Agreement to the later of (i)
the date which is one year after the Closing Date and (ii) the date on which the
Registration Statement shall have been effective with the SEC for 270
consecutive days, the Company shall not offer, sell, contract to sell or issue
(or engage any person to assist the Company in taking any such action) (A) any
security (whether debt or equity) with conversion or exchange terms similar in
nature to the conversion rights of the Preferred Stock, (B) any equity
securities or securities convertible into, exchangeable for or otherwise
entitling the holder to acquire, any Common Stock at a price below the market
price of the Common Stock on the date of such issuance (or below an average
market price for a reasonable period prior to such issuance) or (C) any equity
securities or securities which by their terms are convertible into, exchangeable
for or otherwise entitle the holder to acquire, any Common Stock at a price
below the market price of the Common Stock on the date of conversion, exchange
or other exercise thereof (or below an average market price for a reasonable
period prior to such conversion, exchange or other exercise) (collectively,
"Equity Securities"); provided, however, that nothing in this Section 4(i)(2)
shall prohibit the Company from issuing securities (v) which are equity (not
debt) securities issued in a single transaction for aggregate gross
consideration of up to $5,000,000 and which (i) are purchased, for or are
convertible into or are exercisable for shares of Common Stock, at a fixed price
not more than 20% below the market price of the Common Stock on the date of
issuance (or below an average market price for a reasonable period prior to such
issuance), and (ii) are not subject to any future adjustment related to changes
in the market price of the Common Stock pursuant to which additional shares or
other securities may be issued, cash payments become due, or the conversion or
exercise price of any convertible security may be reduced, other than pursuant
to customary antidilution provisions for stock splits and similar events, (w)
pursuant to compensation plans or arrangements for employees, directors,
officers, advisers or consultants of the Company and in accordance with the
terms of such plans as in effect as of the date of this Agreement or as
thereafter approved by the Board of Directors of the Company, (x) upon exercise
of conversion, exchange, purchase or similar rights issued, granted or given by
the Company and outstanding as of the date of this Agreement and disclosed in
the SEC Reports or this Agreement, (y) pursuant to a public offering
underwritten on a firm commitment basis registered under the 1933 Act or (z) as
part of a transaction involving a strategic alliance, acquisition of stock or
assets, merger, collaboration, joint venture, partnership or other similar
arrangement of the Company with another corporation, partnership or other
business entity which is engaged in a business similar to or related to the
business of the Company, so long as in the case of this clause (z) the Board of
Directors by resolution duly adopted (and a copy of which shall be furnished to
the Buyer promptly after adoption) determines that such issuance is fair to the
holders of each class and series of capital stock of the Company and to the
Buyer in respect of its equity interest in the Company that is represented by
the Preferred Shares and the Warrants.
(3) Subject to the restrictions in Sections 4(i)(1) and 4(i)(2), during the
period from the date of execution and delivery of this Agreement to the date
which is 180 days after the later of (i) the date which is one year after the
Closing Date and (ii) the date on which the Registration Statement shall have
been effective with the SEC for 270 consecutive days, the Company shall not
-13-
offer, sell, contract to sell or issue (or engage any person to assist the
Company in taking any such action) any Equity Securities without giving the
Buyer the first right to acquire the Equity Securities on the same terms as the
Equity Securities are to be offered to other investors; provided, however, that
this Section 4(i)(3) shall not apply to the offer or sale of Equity Securities
by the Company in the transactions, and subject to the conditions, set forth in
clauses (v), (w), (x), (y) and (z) of the proviso to the first sentence of
Section 4(i)(2) above. The Company shall give notice to the Buyer of the
detailed terms of the Equity Securities proposed to be issued and, promptly
after being requested by the Buyer, such other information as reasonably
requested by the Buyer. Such request by the Buyer shall be made not later than
five Business Days after receipt of such notice from the Company. The Buyer may,
by notice to the Company, exercise such right of first refusal at any time until
the later of (x) ten Business Days after such notice from the Company to the
Buyer and (y) five Business Days after the Company provides such additional
information as shall have been requested by the Buyer.
(j) CERTAIN SELLING RESTRICTIONS. So long as the Company is in compliance
in all material respects with its obligations to the Buyer under this Agreement,
the Certificate of Designations, the Warrants and the Registration Rights
Agreement, during the 20 consecutive Trading Days (as defined in the Certificate
of Designations) immediately preceding the Initial Reset Date (as defined in the
Certificate of Designations) and each Biannual Reset Date (as defined in the
Certificate of Designations), the Buyer agrees on its behalf and on behalf of
its Affiliates (as defined in the Certificate of Designations) that it will not
(1) sell any shares of Common Stock on Nasdaq or any other market where the
Common Stock is then listed for trading unless such sale is made at or above
130% of the Fixed Conversion Price (as defined in the Certificate of
Designations) or (2) engage in any short sales or other hedging transactions
relating to the Common Stock.
(k) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 4(k) to
this Agreement, so long as any shares of Preferred Stock are outstanding the
Company will not, and will not permit any subsidiary of the Company, directly or
indirectly, to pay any funds to or for the account of, make any investment
(whether by acquisition of stock or indebtedness, by loan, advance, transfer of
property, guarantee or other agreement to pay, purchase or service, directly or
indirectly, any indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Company except on terms to the
Company or such subsidiary no less favorable than terms that could be obtained
by the Company or such subsidiary from a person that is not an Affiliate of the
Company, as determined in good faith by the Board of Directors of the Company.
(l) STOCKHOLDER APPROVAL. The Company shall seek and use its best efforts
to obtain at the earlier of (1) the Company's next regularly scheduled Annual
Meeting of Stockholders and (2) a special meeting of stockholders to be held on
or before June 15, 2000, Stockholder Approval of the issuance of all shares of
Preferred Stock issuable pursuant to the Certificate of Designations and all
shares of Common Stock issuable upon conversion of the Preferred Stock. The
Company shall prepare and file with the SEC at least 20 days prior to the
scheduled mailing of notice of such meeting preliminary proxy materials which
set forth a proposal to seek such Stockholder Approval. The Company shall
provide the Buyer an opportunity to consult with the Company regarding the
-14-
content of such proxy materials insofar as it relates to the Stockholder
Approval by providing copies of such preliminary proxy materials and any revised
preliminary proxy materials to the Buyer a reasonable period of time prior to
their filing with the SEC. The Company shall furnish to the Buyer and its
counsel a copy of its definitive proxy materials for such meeting and any
amendments or supplements thereto promptly after the same are mailed to
stockholders or filed with the SEC.
(m) BEST EFFORTS. Each of the parties shall use its best efforts timely to
satisfy each of the conditions to the other party's obligations to sell and
purchase the Preferred Shares set forth in Section 6 or 7, as the case may be,
of this Agreement on or before the Closing Date.
5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE.
(a) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the Company will
(1) execute and deliver the Transfer Agent Agreement in the form attached hereto
as ANNEX IV and thereby irrevocably instruct, Signature Stock Transfer, Inc., as
Transfer Agent and Registrar (the "Transfer Agent"), to issue certificates for
the Common Shares from time to time upon conversion of the Preferred Shares and
exercise of the Warrants in such amounts as specified from time to time to the
Transfer Agent in the Notices of Conversion surrendered in connection with such
conversions and referred to in Section 5(b) of this Agreement and the Form of
Subscription in the form attached to the Warrants and (2) appoint the Transfer
Agent the conversion agent for the Preferred Stock and the exercise agent for
the Warrants. The certificates for the Common Shares may bear the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
resale of the Common Shares under the 1933 Act. The certificates for the Common
Shares shall be registered in the name of the Buyer or its designee and in such
denominations to be specified by the Buyer in connection with each conversion of
Preferred Shares or exercise of the Warrants. The Company warrants that no
instruction other than (x) such instructions referred to in this Section 5, (y)
stop transfer instructions to give effect to Section 4(a) prior to registration
of the resale of the Common Shares under the 1933 Act and (z) the instructions
required by Section 3(n) of the Registration Rights Agreement will be given by
the Company to the Transfer Agent and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any way
the Buyer's obligations and agreement to comply with the registration
requirements of the 1933 Act upon resale of the Common Shares. If the Buyer
provides the Company with an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company and its legal counsel, that
registration of a resale by the Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer of such Securities
and, in the case of the Common Shares, in accordance with clause (1)(B) of
Section 4(a) of this Agreement, promptly instruct the Transfer Agent to issue
upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer within three Business Days after receipt
of such opinion. Nothing in this Section 5(a) shall limit the obligations of the
Company under Section 3(n) of the Registration Rights Agreement.
-15-
(b) CONVERSION PROCEDURE. In connection with the exercise of conversion
rights relating to the Preferred Shares, the Buyer or any subsequent holder of
the Preferred Shares shall complete, sign and furnish to the Transfer Agent a
Notice of Conversion of Series B Convertible Preferred Stock in the form
attached hereto as ANNEX V (a "Conversion Notice") and shall provide a copy
thereof to the Company, which actions shall be deemed to satisfy all
requirements of the Certificate of Designations.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the Preferred
Shares and issue the Warrants to the Buyer pursuant to this Agreement is
conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Company in its
sole discretion):
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel; and
(b) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement as if made on the Closing Date and the
performance by the Buyer on or before the Closing Date of all covenants and
agreements of the Buyer required to be performed on or before the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and acquire the Warrants on the Closing Date is conditioned
upon the satisfaction of the following conditions precedent on or before the
Closing Date (any or all of which may be waived by the Buyer in its sole
discretion):
(a) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before the Closing
Date, and receipt by the Buyer of a certificate, dated the Closing Date, of the
Chief Executive Officer of the Company confirming such matters and such other
matters as the Buyer may reasonably request;
(b) The receipt by the Buyer of confirmation of the filing with the
Secretary of State of the State of Nevada of the Certificate of Designations;
(c) The receipt by the Buyer of a certificate, dated the Closing Date, of
the Secretary of the Company certifying (1) the Articles of Incorporation, as
amended, and By-Laws of the Company as in effect on the Closing Date and (2) all
resolutions of the Board of Directors (and committees thereof) of the Company
relating to this Agreement and the transactions contemplated hereby;
-16-
(d) The Transfer Agent shall have executed and delivered the Transfer Agent
Agreement in the form attached hereto as ANNEX IV; and
(e) Receipt by the Buyer on the Closing Date of (i) an opinion of ▇▇▇▇▇ &
▇▇▇▇▇▇ L.L.P., counsel for the Company, dated the Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer, to the effect set forth in
ANNEX VI attached hereto and (ii) an opinion of ▇▇▇▇▇, Driggs, Walch, Santoro,
Kearney, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, Nevada counsel to the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer, to the
effect set forth in ANNEX VII attached hereto.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Arizona.
(b) COUNTERPARTS. This Agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall constitute
one and the same instrument. A facsimile transmission of this Agreement bearing
a signature on behalf of a party hereto shall be legal and binding on such
party. Although this Agreement is dated as of the date first set forth above,
the actual date of execution and delivery of this Agreement by each party is the
date set forth below such party's signature on the signature page hereof. Any
reference in this Agreement or in any of the documents executed and delivered by
the parties hereto in connection herewith to (1) the date of execution and
delivery of this Agreement by the Buyer shall be deemed a reference to the date
set forth below the Buyer's signature on the signature page hereof, (2) the date
of execution and delivery of this Agreement by the Company shall be deemed a
reference to the date set forth below the Company's signature on the signature
page hereof and (3) the date of execution and delivery of this Agreement or the
date of execution and delivery of this Agreement by the Buyer and the Company
shall be deemed a reference to the later of the dates set forth below the
signatures of the parties on the signature page hereof.
(c) HEADINGS, ETC. The headings, captions and footers of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) AMENDMENTS. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the Company and the holders of a majority
in interest of the outstanding shares of Preferred Stock, and then shall be
effective only in the specific instance and for the purpose for which given. No
course of dealing between the parties hereto shall operate as an amendment of
this Agreement.
-17-
(f) WAIVERS. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, nor shall any single or partial exercise
of any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
exercise of any other right or power.
(g) NOTICES. Any notices required or permitted to be given under the terms
of this Agreement shall be delivered personally (which shall include telephone
line facsimile transmission with answer back confirmation) or by courier and
shall be effective upon receipt, in the case of the Company addressed to the
Company at its address shown in the introductory paragraph of this Agreement,
Attention: Chief Executive Officer (telephone line facsimile transmission number
(▇▇▇) ▇▇▇-▇▇▇▇) or, in the case of the Buyer, at its address or telephone line
facsimile transmission number shown on the signature page of this Agreement,
with a copy to Genesee International, Inc., ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (telephone line facsimile transmission number
(▇▇▇) ▇▇▇-▇▇▇▇) or such other address or telephone line facsimile transmission
number as a party shall have provided by notice to the other party in accordance
with this provision. The Buyer hereby designates as its address for any notice
required or permitted to be given to the Buyer pursuant to the Certificate of
Designations the address shown on the signature page of this Agreement, with a
copy to: Advantage Fund II Ltd., c/o Genesee International, Inc., 10500 ▇.▇. ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (facsimile number (425)
462-4645), until the Buyer shall designate another address for such purpose.
(h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not assign its
rights and obligations under this Agreement. Any transfer of the Preferred
Shares or the Warrants by the Buyer after the Closing Date shall be made in
accordance with Section 4(a) and shall involve at least 200 shares of Preferred
Stock and Warrants to purchase at least 50,000 shares of Common Stock (unless a
lesser number of shares of Preferred Stock or Warrants is then outstanding);
provided, however, that there shall be no limitation on the number of shares of
Preferred Stock or the number of shares of Common Stock represented by Warrants
which are transferable to Affiliates of the Buyer. After the Closing Date, the
Buyer shall have the right to assign its rights and obligations under this
Agreement in connection with any transfer of the Buyer's rights under the
Registration Rights Agreement by compliance with the provisions of Section 9 of
the Registration Rights Agreement.
(i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of and
payment for the Preferred Shares and shall remain in full force and effect
regardless of any investigation made by or on behalf of them or any person
controlling or advising any of them.
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(j) ENTIRE AGREEMENT. This Agreement and its Schedules and Annexes set
forth the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
whether written or oral, with respect thereto.
(k) TERMINATION. Either party shall have the right to terminate this
Agreement by giving notice to the other party at any time at or prior to the
Closing Date if:
(1) the other party shall have failed, refused, or been unable at or prior
to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(2) any other condition of the terminating party's obligations hereunder is
not fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or before
March 10, 2000, other than solely by reason of a breach of this Agreement by the
terminating party.
Any such termination shall be effective upon the giving of notice thereof by the
terminating party. Upon such termination, neither party shall have any further
obligation to the other party hereunder; provided, however, that each party
shall remain liable for any breach of this Agreement or the other documents
contemplated hereby which occurred on or prior to the date of such termination.
(l) FURTHER ASSURANCES. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
(m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the Buyer shall
have the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law or Nasdaq regulation (although the
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
(n) CONSTRUCTION. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer and
the Company by their respective officers or other representatives thereunto duly
authorized on the respective dates set forth below.
NUMBER OF SHARES: 1,500
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $1,500,000.00
NUMBER OF WARRANT SHARES: 187,500
ADVANTAGE FUND II LTD.
By: Genesee International, Inc.,
as General Manager
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
Date: March 9, 2000
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Address: ▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Facsimile No.: 011-599-9732-2008
TITAN MOTORCYCLE CO. OF AMERICA
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
Date: March 7, 2000