EXHIBIT 10.21
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of October 5, 2001 by and
among CAN-CAL Resources, Ltd., a Nevada corporation (the "COMPANY"), and the
undersigned investors (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $8,000,000 to
purchase the Company's common stock, $.001 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as it may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as it may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREED UPON PROCEDURES REPORT" shall have the meaning specified in Section
2(o).
"AGREEMENT" shall mean this Investment Agreement.
"BRING DOWN COLD COMFORT LETTER" shall have the meaning specified in Section
2(n).
1
"BUY-IN" shall have the meaning specified in Section 6.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
"CLOSING" shall have the meaning specified in Section 2(h).
"CLOSING DATE" shall mean, as defined in Section 2(h), the date which is
thirteen (13) Trading Days following the Put Notice Date.
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"EFFECTIVE DATE" shall mean the date the SEC declares effective the Registration
Statement covering the transactions described in the Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(m).
"ESCROW AGENT" shall mean First Union National Bank.
"ESCROW AGREEMENT" shall mean the Escrow Agreement entered into between the
Company, Investor and Escrow Agent and attached as Exhibit C.
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"INVESTOR" shall mean the undersigned investors.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(g).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
2
"MATERIAL FACTS" shall have the meaning specified in Section 2(m).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(j).
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier of (i) the
date which is thirty-six (36) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(p).
"PARTIAL RELEASE FORM" shall have the meaning specified in Section 2(i).
"PRICING PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date.
"PRINCIPAL MARKET" shall have the meaning specified in Section 2(f).
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the total amount being paid by both Investors on a
particular Closing Date to purchase the Shares.
"PURCHASE PRICE" shall mean 93% of the average of the lowest closing bid price
of the Company's Common Stock during the first five (5) Trading Days of the
specified Pricing Period and the lowest closing bid price of the Company's
Common Stock during the second five (5) Trading Days of the specified Pricing
Period.
"PUT AMOUNT" shall mean, with respect to any single Put Notice, one hundred
seventy- five percent (175%) of the average daily volume for the forty (40)
Trading Days prior to the applicable Put Notice Date multiplied by ninety-three
(93%) of the lowest closing bid price during that period, but in no event more
than $1,000,000.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Put Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of Shares
issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time (receipt
being deemed to occur if the Company possess a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00
3
noon Eastern Time on a Trading Day (receipt being documented as described in (x)
above). No Put Notice may be deemed delivered on a day that is not a Trading
Day.
"REGISTRATION OPINION" shall have the meaning specified in Section 2(m).
"REGISTRATION OPINION DEADLINE" shall mean the date that is three (3) Trading
Days prior to each Put Notice Date.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of this transaction.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering this transaction.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"REPURCHASE EVENT" shall have the meaning specified in Section 2(p).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having a par value
of $.001 per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading.
"TRANSACTION DOCUMENTS" shall mean the Agreement, Registration Rights Agreement,
Escrow Agreement and each of the other agreements entered into by the parties
hereto in connection with the Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
4
"VOLUME WEIGHTED AVERAGE PRICE" shall be as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or if not available through Bloomberg because of
delisting, then the average of the bid prices of any market makers for the
Company's Common Stock as reported in the "pink sheets" by the National
Quotation Bureau, Inc.
2. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $8,000,000.
b. Delivery of Put Notices. Subject to the terms and conditions of the
Transaction Documents, and from time to time during the Open Period the Company
may, in its sole discretion, deliver a Put Notice to the Investor which states
the Put Amount of Shares which the Company intends to sell to the Investor
during the Pricing Period. In addition, the Put Amount designated by the Company
in a Put Notice shall be equal to one hundred seventy-five percent (175%) of the
average daily volume for the forty (40) Trading Days prior to the applicable Put
Notice Date multiplied by ninety-three (93%) of the lowest closing bid price
during that period, but in no event less than $25,000 nor more than $1,000,000.
Once the Put Notice is received by the Investor the Put Notice shall not be
terminated, withdrawn or otherwise revoked by the Company except as set forth in
this Agreement. During the Open Period, the Company shall not be entitled to
submit a Put Notice until after the previous closing has been completed. The
Purchase Price shall be equal to 93% of the average of the lowest closing bid
price of the Company's Common Stock during the first five (5) Trading Days of
the specified Pricing Period and the lowest closing bid price of the Company's
Common Stock during the second five (5) Trading Days of the specified Pricing
Period.
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Put
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company's
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. Interest. It is the intention of the parties that only interest that may
be payable under this Agreement shall not exceed the maximum amount permitted
under any applicable law. If a law, which applies to this Agreement which sets
the maximum interest amount, is finally interpreted so that the interest in
connection with this Agreement exceeds the permitted limits, then: (1) any such
interest shall be reduced by the amount necessary to
5
reduce the interest to the permitted limit; and (2) any sums already collected
(if any) from the Company which exceed the permitted limits will be refunded to
the Company. The Investor may choose to make this refund by reducing the amount
that the Company owes under this Agreement or by making a direct payment to the
Company. If a refund reduces the amount that the Company owes the Investor, the
reduction will be treated as a partial payment. In case any provision of this
Agreement is held by a court of competent jurisdiction to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Agreement will not in any way be affected or impaired thereby.
d. Investor's Obligation to Purchase Shares. Subject to the conditions set
forth in this Agreement, following the Investor's receipt of a validly delivered
Put Notice, the Investor shall be required to purchase from the Company during
the related Pricing Period that number of Shares having an aggregate Purchase
Price equal to the lesser of (i) the Put Amount set forth in the Put Notice, and
(ii) 15% of the aggregate trading volume during the applicable Pricing Period
times (x) the average of the lowest closing bid price of the Company's Common
Stock during the first five (5) Trading Days of the specified Pricing Period and
the lowest closing bid price of the Company's Common Stock during the second
five (5) Trading Days of the specified Pricing Period, but only if said Shares
bear no restrictive legend, are not subject to stop transfer instructions and
are being held in escrow, pursuant to Section 2(h), prior to the applicable
Closing Date. The Company acknowledges that there are two entities that will
sign as Investor and that each Put Notice will be divided between them equally.
DRH Investment Company, LLC shall be obligated to provide fifty percent (50%) of
the Put Amount of each Put Notice and Dutchess Private Equities Fund, L.P., a
Delaware limited partnership shall be obligated to provide fifty percent (50%)
of the Put Amount of each Put Notice.
e. Limitation on Investor's Obligation to Purchase Shares. Notwithstanding
anything to the contrary in this Agreement, in no event shall the Investor be
required to purchase, and the Company shall in no event sell to the Investor,
that number of Shares, which when added to the sum of the number of Shares
beneficially owned, (as such term is defined under Section 13(d) and Rule 13d-3
of the Securities Exchange Act of 1934, as may be amended, (the "1934 ACT")), by
the Investor, would exceed 4.99% of the number of Shares outstanding on the Put
Notice Date for such Pricing Period, as determined in accordance with Rule
13d-1(j) under the 1934 Act. In no event shall the Investor purchase Shares of
the Common Stock other than pursuant to this Agreement until such date as this
Agreement is terminated. Each Put Notice shall include a representation of the
Company as to the number of Shares of Common Stock outstanding on the related
Put Notice Date as determined in accordance with Section 13(d) of the 1934 Act.
In the event that the number of Shares of Common Stock outstanding as determined
in accordance with Section 13(d) of the 1934 Act is different on any date during
a Pricing Period than on the Put Notice Date associated with such Pricing
Period, then the number of Shares of Common Stock outstanding on such date
during such Pricing Period shall govern for purposes of
6
determining whether the Investor would be acquiring beneficial ownership of more
than 4.99% of the number of Shares of Common Stock outstanding during such
period.
f. Conditions to Investor's Obligation to Purchase Shares. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and require the Investor to purchase any Shares at a
Closing (as defined in Section 2(h)) unless each of the following conditions are
satisfied:
(i) a Registration Statement shall have been declared effective and
shall remain effective and available for the resale of all the
Registrable Securities (as defined in the Registration Rights Agreement)
at all times during the Pricing Period;
(ii) at all times during the period beginning on the related Put Notice
Date and ending on and including the related Closing Date, the Common
Stock shall have been listed on The American Stock Exchange, Inc. or The
New York Stock Exchange, Inc. or designated on the Nasdaq National
Market, The Nasdaq SmallCap Market, or the National Association of
Securities Dealer's, Inc. OTC electronic bulletin board (the "PRINCIPAL
MARKET") and shall not have been suspended from trading thereon for a
period of five (5) consecutive Trading Days during the Open Period and
the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock;
(iii) the Company has complied with its obligations and is otherwise not
in breach of a material provision, or in default under, this Agreement,
the Registration Rights Agreement or any other agreement executed in
connection herewith which has not been corrected prior to delivery of
the Put Notice Date;
(iv) no injunction shall have been issued, or action commenced by a
governmental authority, prohibiting the purchase or the issuance of the
Common Stock; and
(v) the issuance of the Common Stock will not violate the shareholder
approval requirements of Nasdaq.
If any of the events described in clauses (i) through (v) above occurs
during a Pricing Period, then the Investor shall have no obligation to
purchase the Put Amount of Common Stock set forth in the applicable Put
Notice.
g. For purposes of this Agreement, a "MAJOR TRANSACTION" shall be deemed to
have occurred at the closing of any of the following events: (i) the
consolidation, merger or other business combination of the Company with or into
another person (other than pursuant to a migratory merger effected solely for
the purposes of changing the
7
jurisdiction of incorporation of the Company) (ii) the sale or transfer of all
or substantially all of the Company's assets; or (iii) the consummation of a
purchase, tender or exchange offer made to, and accepted by, the holders of more
than 30% of the economic interest in, or the combined voting power of all
classes of voting stock of, the Company.
h. Mechanics of Purchase of Shares by Investor. Subject to the satisfaction
of the conditions set forth in Sections 2(f), 7 and 8, the closing of the
purchase by the Investor of Shares (a "CLOSING") shall occur on the date which
is thirteen (13) Trading Days following the Put Notice Date (a "CLOSING DATE").
Prior to each Closing Date, (i) the Company shall deliver to the Escrow Agent
pursuant to the Escrow Agreement, annexed hereto as Exhibit C, certificates
representing the Shares to be issued to the Investor on such date and registered
in the name of the Investor or deposit such Shares into the account(s) (with the
Investor receiving confirmation that the Shares are in such account(s))
designated by the Investor for the benefit of the Investor and (ii) the Investor
shall deliver to the Escrow Agent the Purchase Price to be paid for such Shares
(after receipt of confirmation of delivery of such Shares), determined as
aforesaid, by wire transfer. In lieu of delivering physical certificates
representing the Common Stock and provided that the Transfer Agent then is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Investor, the Company shall use
its commercially reasonable efforts to cause the Transfer Agent to
electronically transmit the shares of Common Stock by crediting the account of
each Investors' prime broker (which shall be specified by that Investor a
reasonably sufficient time in advance) with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system, and provide proof satisfactory to the Escrow
Agent of such delivery.
The Company understands that a delay in the issuance of Shares beyond the
Closing Date could result in economic loss to the Investor. After the Effective
Date, as compensation to the Investor for such loss, the Company agrees to pay
late payments to the Investor for late issuance of Shares in accordance with the
following schedule (where "No. of Days Late" is defined as the number of days
beyond the Closing Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 10
days
8
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right to
pursue actual damages for the Company's failure to issue and deliver the Shares
to the Investor, except to the extent that such late payments shall constitute
payment for and offset any such actual damages alleged by the Investor, and any
Buy In Adjustment Amount.
i. Partial Release of Shares. After Investor has received a Put Notice, but
prior to the related Closing Date, the Investor, may authorize the Escrow Agent
to release, every five (5) Trading Days, a portion of the Purchase Amount from
escrow to the Company in exchange for a fixed number of Shares, subject to the
following conditions:
(i) The Investor shall fill out and sign a Partial Release of
Purchase Amount and Shares (the "Partial Release Form"). The
Partial Release Form shall set forth the number of Shares to be
released to Investor and the dollar amount the Escrow Agent shall
wire to the Company.
(ii) The Partial Release Form shall be filled out and signed by the
appropriate Investor and faxed to the Company prior to 12:00 p.m.
New York City time.
The number of Shares stated in the Partial Release Form shall be equal to
the dollar amount to be released divided by 93% of the lowest closing bid price
during the first five (5) Trading Days of the Pricing Period.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in the Investment Agreement
shall be honored with the balance of the Purchase Amount being released to the
Company and the balance of the Shares owed to Investor being released to
Investor.
j. Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, if during the Open Period the Company becomes
listed on an exchange that limits the number of shares of Common Stock that may
be issued without shareholder approval, then the number of Shares issuable by
the Company and purchasable by the Investor, including the shares of Common
Stock issuable to the Investors pursuant to Section 11(b), shall not exceed that
number of the shares of Common Stock that may be issuable without shareholder
approval, subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock (the
"MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of Shares, including any
Common Stock to be issued to the Investors pursuant to Section 11(b), in excess
of the Maximum Common Stock Issuance shall first be approved by the Company's
shareholders in accordance with applicable law and the By-laws and Articles of
Incorporation of the Company, if such issuance of shares of Common Stock could
cause a delisting on the Principal Market. The parties understand and agree that
the Company's failure to seek or obtain such shareholder approval shall in no
way adversely affect the validity and due authorization of the issuance and sale
of Shares hereunder or the Investor's
9
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(j).
k. "VALUATION EVENT" shall mean an event in which the Company at any time
during a "Pricing Period" takes any of the following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other distribution
of its Common Stock, except for dividends paid with respect to
the Preferred Stock;
(iii) issues any options or other rights to subscribe for or purchase
Common Stock and the price per share for which Common Stock may
at any time thereafter be issuable pursuant to such options or
other rights shall be less than the Bid Price in effect
immediately prior to such issuance;
(iv) issues any securities convertible into or exchangeable for Common
Stock and the consideration per share for which shares of Common
Stock may at any time thereafter be issuable pursuant to the
terms of such convertible or exchangeable securities shall be
less than the Bid Price in effect immediately prior to such
issuance;
(v) issues shares of Common Stock otherwise than as provided in the
foregoing subsections (i) through (iv), at a price per share
less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without
consideration;
(vi) makes a distribution of its assets or evidences of indebtedness
to the holders of Common Stock as a dividend in liquidation or by
way of return of capital or other than as a dividend payable out
of earnings or surplus legally available for dividends under
applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the
foregoing subsections (i) through (v); or
(vii) takes any action affecting the number of shares of Common Stock
outstanding, other than an action described in any of the
foregoing subsections (i) through (vi) hereof, inclusive, which
in the opinion of the Company's Board of Directors, determined in
good faith, would
10
have a materially adverse effect upon the rights of Investor at
the time of a Put Notice is delivered to Investor.
l. The Company agrees that it shall not take any action that would result
in a Valuation Event occurring during a Pricing Period.
m. Accountant's Letter and Registration Opinion. Whenever reasonably
requested by Investor, the Company shall cause to be delivered to the Investor,
on or prior to each Registration Opinion Deadline, an opinion of the Company's
independent counsel, (the "REGISTRATION OPINION"), addressed to the Investor
stating, inter alia, that no facts ("MATERIAL FACTS") have come to such
counsel's attention that have caused it to believe that the Registration
Statement is subject to an Ineffective Period or to believe that the
Registration Statement, any supplemental Registration Statement (as each may be
amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Closing Date, the
Company acquires knowledge of such Material Facts or any Ineffective Period
occurs, the Company shall promptly notify the Investor.
n. (i) Whenever reasonably requested by Investor, the Company shall engage
its independent auditors to perform the procedures in accordance with the
provisions of Statement on Auditing Standards No. 71, as amended, as agreed to
by the parties hereto, and reports thereon (the "BRING DOWN COLD COMFORT
LETTERS") as shall have been reasonably requested by the Investor with respect
to certain financial information contained in the Registration Statement and
shall have delivered to the Investor such a report addressed to the Investor, on
or prior to each Registration Opinion Deadline;
(ii) in the event that the Investor shall have requested delivery of an
Agreed Upon Procedures Report pursuant to Section 2(o), the Company shall engage
its independent auditors to perform certain agreed upon procedures and report
thereon as shall have been reasonably requested by the Investor with respect to
certain financial information of the Company and the Company shall deliver to
the Investor a copy of such report addressed to the Investor. In the event that
the report required by this Section 2(n) cannot be delivered by the Company's
independent auditors, the Company shall, if necessary, promptly revise the
Registration Statement and the Company shall not deliver a Put Notice to
Investor until such report is delivered.
11
o. Procedure if Material Facts are Reasonably believed to be untrue or are
omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or (ii) if the Company disputes
the existence of any such material misstatement or omission, (x) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (y) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("AGREED UPON PROCEDURES REPORT")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
p. Delisting; Suspension. If at any time during the Open Period or within
thirty (30) calendar days after the end of the Open Period, (i) the Registration
Statement, after it has been declared effective, shall not remain effective and
available for sale of all the Registrable Securities, (ii) the Common Stock
shall not be listed on the Principal Market or shall have been suspended from
trading thereon (excluding suspensions of not more than one trading day
resulting from business announcements by the Company) or the Company shall have
been notified of any pending or threatened proceeding or other action to delist
or suspend the Common Stock, (iii) there shall have occurred a Major Transaction
(as defined in Section 2(g)) or the public announcement of a pending Major
Transaction which has not been abandoned or terminated, or (iv) the Registration
Statement is no longer effective or stale for a period of more than five (5)
Trading Days as a result of the Company to timely file its financials, the
Company shall repurchase within thirty (30) calendar days of the occurrence of
one of the events listed in clauses (i), (ii), (iii) or (iv)above (each a
"REPURCHASE EVENT") and subject to the limitations imposed by applicable federal
and state law, all or any part of the Shares issued to the Investor within the
sixty (60) Trading Days preceding the occurrence of the Repurchase Event and
then held by the Investor at a price per Share equal to the highest Volume
Weighted Average Price during the period beginning on the date of the Repurchase
Event and ending on and including the date on which the Investor is paid by the
Company for the repurchase of the Shares (the "PAYMENT AMOUNT"). If the Company
fails to pay to the Investor the full aggregate Payment Amount within ten (10)
calendar days of the occurrence of a Repurchase Event, the Company shall pay to
the Investor, on the first Trading Day following such tenth (10th) calendar day,
in addition to and not in lieu of the Payment Amount payable by the Company to
the Investor an amount equal to 2% of the aggregate Payment Amount then due and
payable to the Investor, in cash by wire transfer, plus compounded annual
interest of 18% on such Payment Amount during the period, beginning on the day
following such tenth calendar day, during which such Payment Amount, or any
portion thereof, is outstanding.
12
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
a. Sophisticated Investor. The Investor has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities.
b. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies..
c. Section 9 of the 1934 Act. During the Open Period, the Investor will
comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
d. Accredited Investor. Investor is an "Accredited Investor" as that term
is defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation or the By-laws or (ii) conflict with, or
constitute a material default (or an event which with notice or lapse of time or
both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or
13
indirectly, owns capital stock or holds an equity or similar interest) (a
complete list of which is set forth in Schedule 4(a)) are corporations duly
organized and validly existing in good standing under the laws of the respective
jurisdictions of their incorporation, and have the requisite corporate power and
authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Escrow Agreement
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Shares in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the reservation
for issuance and the issuance of the Shares pursuant to this Agreement, have
been duly and validly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors, or its shareholders, (iii) the Transaction Documents have been duly
and validly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 15,000,000 shares of Common Stock, of which as of
the date hereof, 9,372,791 shares are issued and outstanding, -0- shares of
Preferred Stock and approximately 100,000 (as of August 20, 2001) shares of
Common Stock are issuable upon the exercise of options, warrants and conversion
rights. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 4(c) which is attached hereto and made a part hereof, (i) no shares of
the Company's capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
14
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries, (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement, (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement and (viii) there is no dispute as to
the class of any shares of the Company's capital stock. The Company has
furnished to the Investor, or the Investor has had access through XXXXX to, true
and correct copies of the Company's Articles of Incorporation, as in effect on
the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as
in effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Shares. A sufficient number of Shares issuable pursuant to
this Agreement has been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement. Upon issuance in accordance with this Agreement, the
Securities will be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof. In the event the
Company cannot register a sufficient number of Shares, due to the remaining
number of authorized shares of Common Stock being insufficient, the Company will
use its best efforts to register the maximum number of shares it can based on
the remaining balance of authorized shares and will use its best efforts to
increase the number of its authorized shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Articles of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market
15
or principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or by-laws, respectively, or any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in
violation of any law, statute, ordinance, rule, order or regulation of any
governmental authority or agency, regulatory or self-regulatory agency, or
court, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act, the Company is not required to obtain any consent, authorization,
permit or order of, or make any filing or registration (except the filing of a
registration statement) with, any court, governmental authority or agency,
regulatory or self- regulatory agency or other third party in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. Except as disclosed in Schedule 4(e), the Company
and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not, and will not be, in violation
of the listing requirements of the Principal Market as in effect on the date
hereof and on each of the Closing Dates and is not aware of any facts which
would reasonably lead to delisting of the Common Stock by the Principal Market
in the foreseeable future.
f. SEC Documents; Financial Statements. Since February 1999, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Investor or its representatives,
or they have had access through XXXXX, true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included
16
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 4(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided the Investor
with any material, nonpublic information which was not publicly disclosed prior
to the date hereof and any material, nonpublic information provided to the
Investor by the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by the
Company prior to such Closing Date.
g. Absence of Certain Changes. Except as disclosed in Schedule 4(g) or the
SEC Documents filed at least five (5) days prior to the date hereof, since June
1, 2000, there has been no change or development in the business, properties,
assets, operations, financial condition, results of operations or prospects of
the Company or its Subsidiaries which has had or reasonably could have a
Material Adverse Effect. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. Absence of Litigation. Except as set forth in Schedule 4(h), there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, in which an
adverse decision could have a Material Adverse Effect.
i. Acknowledgment Regarding Investor's Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Investor or any of its respective representatives or agents in connection
17
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Investor's purchase of the Securities. The
Company further represents to the Investor that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or to its
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.
k. Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company's employ or
otherwise terminate such officer's employment with the Company.
l. Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 4(l), none of the Company's
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
necessary to conduct its business as now or as proposed to be conducted have
expired or terminated, or are expected to expire or terminate within two years
from the date of this Agreement. The Company and its Subsidiaries do not have
any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth on Schedule 4(l), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
18
m. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing cases, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.
n. Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 4(n) or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
o. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
p. Regulatory Permits. The Company and its Subsidiaries have in full force
and effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.
q. Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial
19
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
r. No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
s. Tax Status. The Company and each of its Subsidiaries has made or filed
all United States federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
t. Certain Transactions. Except as set forth on Schedule 4(t) and in the
SEC Documents filed at least ten days prior to the date hereof and except for
arm's length transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options disclosed on
Schedule 4(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
u. Dilutive Effect. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines during the period between the Effective Date and the end of the Open
Period. The Company's executive officers and directors have studied and fully
understand the nature of the transactions
20
contemplated by this Agreement and recognize that they have a potential dilutive
effect. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that, subject to such limitations as are
expressly set forth in the Transaction Documents, its obligation to issue shares
of Common Stock upon purchases pursuant to this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
v. Right of First Refusal. The Company shall not, directly or indirectly,
without the prior written consent of Investor offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or investment (a
"SUBSEQUENT FINANCING") for a period of one year after the Effective Date,
except (i) the granting of options or warrants to employees, officers, directors
and consultants, and the issuance of shares upon exercise of options granted,
under any stock option plan heretofore or hereinafter duly adopted by the
Company, (ii) shares issued upon exercise of any currently outstanding warrants
or options and upon conversion of any currently outstanding convertible
debenture or convertible preferred stock, in each case disclosed pursuant to
Section 4(c), (iii) securities issued in connection with the capitalization or
creation of a joint venture with a strategic partner, (iv) shares issued to pay
part or all of the purchase price for the acquisition by the Company of another
entity (which, for purposes of this clause (iv), shall not include an individual
or group of individuals), and (v) shares issued in a bona fide public offering
by the Company of its securities, unless (A) the Company delivers to Investor a
written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto and (B) Investor shall not have notified the
Company by 5:00 p.m. (New York time) on the fifth (5th) Trading Day after its
receipt of the Subsequent Financing Notice of its willingness to provide,
subject to completion of mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing Notice.
If Investor shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms set forth in the Subsequent Financing
Notice; PROVIDED THAT the Company shall provide Investor with a second
Subsequent Financing Notice, and Investor shall again have the right of first
refusal set forth above in this Section, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice. The
rights granted to Investor in this Section are not subject to any prior right of
first refusal given to any other person except as disclosed on Schedule 4(c).
21
w. Lock-up. The Company agrees to use its best efforts to have its
officers, directors and affiliates refrain from selling Common Stock during each
Pricing Period.
x. No General Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Common Stock offered hereby.
5. COVENANTS OF THE COMPANY
a. Best Efforts. The Company shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Section 7 of this
Agreement.
b. Blue Sky. The Company shall, at its sole cost and expense, on or before
each of the Closing Dates, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Investor at each of the Closings pursuant to
this Agreement under applicable securities or "Blue Sky" laws of such states of
the United States, as specified by Investor, and shall provide evidence of any
such action so taken to the Investor on or prior to the Closing Date. The
Company shall, at its sole cost and expense, make all filings and reports
relating to the offer and sale of the Securities required under the applicable
securities or "Blue Sky" laws of such states of the United States following each
of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the first date which is after
the date this Agreement is terminated pursuant to Section 9 and on which the
Holders (as that term is defined in the Registration Rights Agreement) may sell
all of the Securities acquired pursuant to this Agreement without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto),
or (ii) the date on which (A) the Holders shall have sold all the Securities
issuable hereunder and (B) this Agreement has been terminated pursuant to
Section 9 (the "REGISTRATION PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as a reporting company under the 1934 Act.
d. Use of Proceeds. The Company will use the proceeds from the sale of the
Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes.
e. Financial Information. The Company agrees to make available to the
Investor via XXXXX or other electronic means the following to the Investor
during the Registration Period: (i) within five (5) Trading Days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously
22
with the making available or giving thereof to the shareholders and (iv) within
two (2) calendar days of filing or delivery thereof, copies of all documents
filed with, and all correspondence sent to, the Principal Market, any securities
exchange or market, or the National Association of Securities Dealers, INC.
f. Reservation of Shares. Subject to the following sentence, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the issuance of the Securities hereunder. In the event that the
Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as described
in this Section 5(f), the Company shall use its best efforts to increase the
number of authorized shares of Common Stock by seeking shareholder approval for
the authorization of such additional shares.
g. Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
the Principal Market and each other national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by the Company). The Company shall promptly provide to the
Investor copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 5(g).
h. Transactions With Affiliates. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, shareholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment
23
or arrangement. "AFFILIATE" for purposes hereof means, with respect to any
person or entity, another person or entity that, directly or indirectly, (i) has
a 5% or more equity interest in that person or entity, (ii) has 5% or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
i. Filing of Form 8-K. On or before the date which is three (3) Trading
Days after the Execution Date, the Company shall file a Current Report on Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
j. Corporate Existence. The Company shall use its best efforts to preserve
and continue the corporate existence of the Company.
k. Notice of Certain Events Affecting Registration; Suspension of Right to
Make a Put. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (i) receipt of any request
for additional information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related prospectus;
(ii) the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to Investor any Put Notice
during the continuation of any of the foregoing events.
l. Reimbursement. If (i) Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if
24
Investor is impleaded in any such action, proceeding or investigation by any
person, or (ii) Investor, other than by reason of its gross negligence or
willful misconduct or by reason of its trading of the Common Stock in a manner
that is illegal under the federal securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC against
or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents, or
if Investor is impleaded in any such action, proceeding or investigation by any
person, then in any such case, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor, for the time of any officers or employees of Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees, attorneys, accountants, auditors and controlling
persons (if a), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor and any such affiliate and any such person.
6. COVER. If, the number of Shares represented by any Put Notices become
restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Investor purchases, in an open market transaction
or otherwise, the Company's Common Stock (the "Covering Shares") in order to
make delivery in satisfaction of a sale of Common Stock by the Investor (the
"Sold Shares"), which delivery such Investor anticipated to make using the
Shares represented by the Put Notice (a "Buy-In"), the Company shall pay to the
Investor the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (a) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (b) the net proceeds (after brokerage commissions, if any) received by the
Investor from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Investor in immediately available funds immediately
upon demand by the Investor. By way of illustration and not in limitation of the
foregoing, if the Investor purchases Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
the Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount which the Company will be required to pay to the Investor will be $1,000.
7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Shares to the
Investor is further subject to the satisfaction, at or before each Closing Date,
of each of the following
25
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
a. The Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Investor shall have delivered to the Company the Purchase Price for
the Shares being purchased by the Investor at the Closing (after receipt of
confirmation of delivery of such Shares) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.
c. The representations and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or
prior to such Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
e. No Valuation Event shall have occurred since the applicable Put Notice
Date.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to
the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of not
more than one Trading Day resulting from business announcements by the Company,
provided that such suspensions occur prior to the Company's delivery of the Put
Notice related to such Closing).
c. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for (i) representations and warranties that speak as
of a specific date and (ii) with
26
respect to the representations made in Sections 4(g), (h) and (j) and the third
sentence of Section 4(k) hereof, events which occur on or after the date of this
Agreement and are disclosed in SEC filings made by the Company at least ten (10)
Trading Days prior to the applicable Put Notice Date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company on or before such Closing Date. The Investor may request an
update as of such Closing Date regarding the representation contained in Section
4(c) above.
d. Investor shall have received an opinion letter of the Company's counsel
on or before the Execution Date.
e. The Company shall have executed and delivered to the Escrow Agent or
Investor the certificates representing, or have executed electronic book-entry
transfer of, the Shares, (in such denominations as such Investor shall request)
being purchased by the Investor at such Closing.
f. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above and in a form reasonably acceptable to
the Investor (the "RESOLUTIONS") and such Resolutions shall not have been
amended or rescinded prior to such Closing Date.
g. If requested by the Investor, the Investor shall receive a letter of the
type, in the form and with the substance of the letter described in Section 3(s)
of the Registration Rights Agreement from the Company's auditors.
h. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
i. The Registration Statement shall be effective on each Closing Date and
no stop order suspending the effectiveness of the Registration statement shall
be in effect or shall be pending or threatened. Furthermore, on each Closing
Date (i) neither the Company nor Investor shall have received notice that the
SEC has issued or intends to issue a stop order with respect to such
Registration Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been
addressed and Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action),and (ii) no other suspension of the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.
j. At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state
27
any material fact required to be stated therein or necessary to make the
statements therein not misleading or which would require public disclosure or an
update supplement to the prospectus.
k. There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.
l. If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(j).
m. The conditions to such Closing set forth in Section 2(f) shall have been
satisfied on or before such Closing Date.
n. The Company shall have certified to the Investor the number of shares of
Common Stock outstanding as of a date within five (5) Trading Days prior to such
Closing Date.
o. The Company shall have delivered to such Investor such other documents
relating to the transactions contemplated by this Agreement as such Investor or
its counsel may reasonably request upon reasonable advance notice.
9. TERMINATION. This Agreement shall terminate upon any of the following
events:
(i) when the Investor has purchased an aggregate of $8,000,000 in the
Common Stock of the Company pursuant to this Agreement; provided that
the Company's representations, warranties and covenants contained in
this Agreement insofar as applicable to the transactions consummated
hereunder prior to such termination, shall survive the termination of
this Agreement for the period of any applicable statute of limitations,
(ii) on the date which is thirty-six (36) months after the Effective
Date;
(iii) if the Company shall file or consent by answer or otherwise to the
entry of an order for relief or approving a petition for relief,
reorganization or arrangement or any other petition in bankruptcy for
liquidation or to take advantage of any bankruptcy or insolvency law of
any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian, receiver,
trustee or other officer with similar
28
powers of itself or of any substantial part of its property, or shall be
adjudicated a bankrupt or insolvent, or shall take corporate action for
the purpose of any of the foregoing, or if a court or governmental
authority of competent jurisdiction shall enter an order appointing a
custodian, receiver, trustee or other officer with similar powers with
respect to the Company or any substantial part of its property or an
order for relief or approving a petition for relief or reorganization or
any other petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy or insolvency law, or an order for the dissolution,
winding up or liquidation of the Company, or if any such petition shall
be filed against the Company;
(iv) if the Company shall issue or sell any equity securities or
securities convertible into, or exchangeable for, equity securities or
enter into any other equity financing facility during the Open Period,
other than in compliance with Section 4(v);
(v) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five (5) consecutive
Trading Days during the Open Period;
(vi) the Company shall not have filed with the SEC the initial
Registration Statement with respect to the resale of the Registrable
Securities in accordance with the terms of the initial Registration
Rights Agreement within sixty (60) calendar days of the date hereof or
the Registration Statement has not been declared effective within one
hundred eighty (180) calendar days of the date hereof; or
(vii) The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market; or
(viii) The Company requires shareholder approval under Nasdaq rules to
issue additional shares and such approval is not obtained within 60 days
from the date when the Company has issued its 19.9% maximum allowable
shares.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor.
10. INDEMNIFICATION. In consideration of the Investor's execution and
delivery of the this Agreement and the Registration Rights Agreement and
acquiring the Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of their shareholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions,
29
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES'), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby
(ii) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (iii) any cause of action, suit or
claim brought or made against such Indemnitee by a third party and arising out
of or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (iv) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (v) the status of the Investor or holder of the Shares as an
investor in the Company, except insofar as any such misrepresentation, breach or
any untrue statement, alleged untrue statement, omission or alleged omission is
made in reliance upon and in conformity with written information furnished to
the Company by the Investor which is specifically intended by the Investor for
use in the preparation of any such Registration Statement, preliminary
prospectus or prospectus. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The indemnity provisions
contained herein shall be in addition to any cause of action or similar rights
the Investor may have, and any liabilities the Investor may be subject to.
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada without regard to the principles
of conflict of laws. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or
30
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
b. Commitment Fees; Placement Agent Fees; Advisory Fees; Legal Fees; and
Escrow Fees.
(i) As an inducement to Dutchess Private Equities, L.P. to enter into
this Agreement, the Company has agreed to issue to Dutchess Private
Equities, L.P. as a commitment fee that number of shares of Common Stock
equal to $50,000 divided by the closing bid price of the Company's Common
Stock on the Execution Date. These shares will be registered in the current
offering and issued to Dutchess Private Equities, L.P. in certificate form
no later than two (2) Trading Days after the Execution Date.
(ii) The Company has agreed to issue to May Xxxxx Group, Inc., as part
of its placement fee, that number of shares of Common Stock equal to
$200,000 divided by the closing bid price of the Company's Common Stock on
the Execution Date. These shares will be registered in the current offering
and issuable to May Xxxxx Group, Inc. no later than ten (10) Trading Days
following the Execution Date.
(iii) On each Closing Date the Company shall pay to May Xxxxx Group,
Inc., a placement fee in an amount equal to 3.5% of the Purchase Amount,
which amount shall be deducted from the Purchase Amount by the Escrow Agent
and paid directly to May Xxxxx Group, Inc.
(iv) Dutchess Advisors, Ltd. is acting in an advisory capacity to one of
the Investors, Dutchess Private Equities Fund, L.P., and the Company has
agreed to pay an amount in cash and Common Stock for the advisory services
being rendered to that Investor. On each Closing Date the Company shall pay
to Dutchess Advisors, Ltd., as part of its advisory fee, an amount equal to
3.5% of the Purchase Amount, which amount shall be deducted form the
Purchase Amount by the Escrow Agent and paid directly to Dutchess Advisors,
Ltd. The Company shall also issue to Dutchess Advisors, Ltd., as part of
its advisory fee, that number of shares of Common Stock equal to $150,000
divided by the closing bid price of the Company's Common Stock on the
Execution Date. These shares will be registered in the current offering and
issued to Dutchess Advisors, Ltd. in certificate form no later than two (2)
Trading Days after the Execution Date.
(v) The Company shall issue to Investors' counsel, Xxxxxx X. XxXxxxx,
Esq., 37,000 shares of Common Stock. These shares will be registered in the
current offering and issued to Xxxxxx X. XxXxxxx, Esq. in certificate form
no later than two (2) Trading Days after the Execution Date.
(vi) The Company shall also pay the Escrow Agent for escrow services
pursuant to a separate escrow agreement.
31
(vii) The Company shall pay May Xxxxx Group, Inc. any National
Association of Securities Dealers, Inc. filing fees that may be associated
with his offering.
(viii) Except as otherwise set forth herein, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement. Any attorneys' fees and expenses incurred by either the Company
or by the Investor in connection with the preparation, negotiation,
execution and delivery of any amendments to this Agreement or relating to
the enforcement of the rights of any party, after the occurrence of any
breach of the terms of this Agreement by another party or any default by
another party in respect of the transactions contemplated hereunder, shall
be paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of any Securities
issued pursuant hereto.
c. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
d. Headings; Singular/Plural. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.
e. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
f. Entire Agreement; Amendments. This Agreement supersedes all other prior
oral or written agreements between the Investor, the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein (including the other
Transaction Documents) contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.
32
g. Notices. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
CAN-CAL RESOURCES, LTD.
Xxxxxx X. Xxxxx, President
0000 Xxxxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
And
The Law Office of Xxxxxxx X. Xxxxxx
0000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx XXX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
At the address listed in the Questionnaire
If to May Xxxxx Group, Inc.:
Hunter Singer
May Xxxxx Group, Inc.
Telephone:
Facsimile:
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
No Assignment. This Agreement may not be assigned.
i. No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
33
j. Survival. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings. The Investor shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
k. Publicity. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Investor without
the prior written consent of such Investor, except to the extent required by
law. Investor acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the Securities 1933 Act or the 1934 Act. Investor further
agrees that the status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation with its counsel.
l. Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
m. Placement Agent. Except as set forth in this Agreement, no fees or
commissions will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other person or
entity, with respect to the transactions contemplated by the Transaction
Documents. The Investor shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other persons or entities for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated by the Transaction Documents. The Company shall
indemnify and hold harmless the Investor, their employees, officers, directors,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses incurred in respect of any such claimed or
existing fees, as such fees and expenses are incurred.
n. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
34
o. Remedies. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any default
or breach of any provision of this Agreement, including the recovery of
reasonable attorneys fees and costs, and to exercise all other rights granted by
law.
p. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or the
Investor enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
q. The Company agrees that the Investors shall not be jointly and severally
liable for the representations, covenants and warranties made in this Agreement.
Also the Company agrees that the Investors shall not be jointly and severally
liable for any breaches of this Agreement, but rather each Investor shall bear
its own liability based on which Investor caused such breach.
35
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
COMPANY: CAN-CAL RESOURCES, LTD.
By: /s/ Xxxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President
DRH INVESTMENT COMPANY, LLC
By Del Rey Investments, LLC - A Managing Member
By: /s/ Xxxxxx Hannfeldt
-----------------------------------------
Name: Xxxxxx Hannfeldt
Title: Managing Member
DUTCHESS PRIVATE EQUITIES FUND, L.P.
By its General Partner Dutchess Capital Management, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
INVESTOR INFORMATION.
Contact Name
---------------------------------------------------------
Place of Organization
------------------------------------------------
Principal Business Address
------------------------------------------
City, State, Zip Code
------------------------------------------------
Phone Fax
----------------------------- --------------------------
INVESTOR INFORMATION.
Contact Name
---------------------------------------------------------
Place of Organization
------------------------------------------------
Principal Business Address
------------------------------------------
City, State, Zip Code
------------------------------------------------
Phone Fax
----------------------------- --------------------------
36
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C Escrow Agreement
EXHIBIT D Broker Representation Letter
EXHIBIT E Board Resolution
EXHIBIT F Put Notice
EXHIBIT G Partial Release of Put Amount and Shares
LIST OF SCHEDULES
-----------------
Schedule 4(a) Subsidiaries
Schedule 4(c) Capitalization
Schedule 4(e) Conflicts
Schedule 4(g) Material Changes
Schedule 4(h) Litigation
Schedule 4(l) Intellectual Property
Schedule 4(n) Liens
Schedule 4(t) Certain Transactions
37
CAN-CAL RESOURCES, LTD.
QUESTIONNAIRE
The information contained in this Questionnaire is being furnished in order
to determine whether the undersigned's subscription to purchase the Shares
described in this Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Securities is exempt
from registration under the 1933 Act, as amended. Further, the undersigned
understands that the offering may be required to be reported to the Securities
and Exchange Commission, NASDAQ and to various state securities and "blue sky"
regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, IF REQUESTED BY THE COMPANY, THE
UNDERSIGNED MUST COMPLETE FORM W-9.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES.
1. The undersigned: (a) has total assets in excess of $5,000,000; (b)
was not formed for the specific purpose of acquiring the securities and
(c) has its principal place of business in ___________.
2. The undersigned is a natural person whose individual net worth* or
joint net worth with his or her spouse exceeds $1,000,000.
3. The undersigned is a natural person who had an individual income* in
excess of $200,000 in each of the two most recent years and who
reasonably expects an individual income in excess of $200,000 in the
current year. Such income is solely that of the undersigned and
excludes the income of the undersigned's spouse.
4. The undersigned is a natural person who, together with his or her
spouse, has had a joint income* in excess of $300,000 in each of the
two most recent years and who reasonably expects a joint income in
excess of $300,000 in the current year.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining "income", an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to XXX or Xxxxx retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
38
5. The undersigned is:
(a) a bank as defined in Section 3(a)(2) of the 1933 Act; or
(b) a savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the 1933 Act whether acting in its
individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of the 1934
Act; or
(d) an insurance company as defined in Section 2(13) of the 1933
Act; or
(e) An investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940; or
(f) a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the Small
Business Investment Act of 1958; or
6. The undersigned is an entity in which all of the equity owners are
"accredited investors", as that term is defined in Rule 501(a)(3) of
Regulation D of the 1933 Act.
39
II. INVESTOR INFORMATION.
(A) IF THE UNDERSIGNED IS AN INDIVIDUAL:
Name
--------------------------------------------------
Xxxxxx Xxxxxxx
----------------------------------------
Xxxx, Xxxxx, Zip Code
---------------------------------
Phone Fax
------------------- ---------------------
Social Security Number
--------------------------------
Send Correspondence to:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(B) IF THE UNDERSIGNED IS NOT AN INDIVIDUAL:
Name of Entity
----------------------------------------
Person's Name Title
-------------------- -------------
State of Organization
---------------------------------
Principal Business Address
----------------------------
City, State, Zip Code
---------------------------------
Taxpayer Identification Number
------------------------
Phone Fax
------------------- ---------------------
Send Correspondence to:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
40
CAN-CAL RESOURCES, LTD.
SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be bound
by the Questionnaire, Subscription Agreement and Registration Rights Agreement.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the undersigned will notify
CAN-CAL RESOURCES, LTD. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned's subscription and
will promptly send CAN-CAL RESOURCES, LTD. written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Subscription Agreement and Questionnaire, and the
representations made by the undersigned in this Agreement and Questionnaire are
true and accurate.
-----------------------------------------
Date
By:
-------------------------------------
(Signature)
Name:
------------------------------------
(Please Type or Print)
Title:
----------------------------------
(Please Type or Print)
41
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted and agreed
to this ________ day of October, 2001.
CAN-CAL RESOURCES, LTD.
By
--------------------------------------------
Xxxxxx X. Xxxxx its President
42
EXHIBIT D
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
Re: CAN-CAL RESOURCES, LTD.
Dear :
------------------------------
It is our understanding that the Form________ Registration Statement bearing SEC
File Number ( ___-______) filed by CAN-CAL RESOURCES, LTD. on Form _____ on
__________, 2001 was declared effective on _____________, 200___.
This letter shall confirm that ______________ shares of the common stock of
CAN-CAL RESOURCES, LTD. are being sold on behalf of __________________ and that
we shall comply with the prospectus delivery requirements set forth in that
Registration Statement by filing the same with the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
cc: Xxxxxx X. XxXxxxx, Esq.
43
EXHIBIT F
PUT NOTICE NO. ______
CAN-CAL RESOURCES, LTD., a Nevada corporation (the "Company"), hereby elects to
exercise its right pursuant to the Investment Agreement to require Investor to
purchase shares of its common stock. The Company hereby certifies that:
1. The Put Amount is: $_______________.
2. The Pricing Period runs from __________________ to __________________.
3. The current number of shares of common stock issued and outstanding as
of __________________ are __________________________.
4. 93% of the average of the lowest closing bid price of the Company's
Common Stock during the first five (5) Trading Days of the specified Pricing
Period and the lowest closing bid price of the Company's Common Stock during the
second five (5) Trading Days of the specified Pricing Period ("Ave. Lowest") is
as follows:
Ave. Lowest x 93% = Purchase Price x (15% of Volume) = Total
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
___________ x 93% = __________ x _____________ = $__________
GRAND TOTALS _____________* $____________**
Number of Shares being Purchased (total of 15% volume column) _____________*
00
Xxxxxxxxx Xxxxxxxx Price of Shares $___________________________**
Less Escrow Fee -
--------------------------
Less Placement Agent Fee -
--------------------------
Less Advisor's Fee -
--------------------------
Amount to be wired to Company
==========================
The undersigned has executed this Put Notice as of
this ______ day of _______________, 200___.
CAN-CAL RESOURCES, LTD.
By:
----------------------------------------------
Name and title:
45
EXHIBIT G
PARTIAL RELEASE OF PURCHASE AMOUNT AND SHARES
To:
CAN-CAL Resources, Ltd.
0000 Xxxxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, President
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to:
The Law Office of Xxxxxxx X. Xxxxxx
0000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx XXX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
First Union National Bank
Corporate Trust Department
Xxx Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: 000-000-0000
Telecopier No.: 000-000-0000
Pursuant to the terms of the Investment Agreement the Investor requests the
release from the Company of __________ shares of the Company's Common Stock by
overnight delivery or DWAC, if available, and the Investor, upon confirmation of
receipt of the Shares by the Escrow Agent shall wire $____________ to the
Company within two (2) Trading Days of said confirmation at which time Escrow
Agent shall wire the funds to the Company and deliver the shares to the Investor
pursuant to the joint instructions given to the Escrow Agent by May Xxxxx Group,
Inc. and the Company.
INVESTOR
By:
--------------------------------
Note: The number of Shares stated in this PARTIAL RELEASE OF PUT AMOUNT AND
SHARES Form shall be equal to the dollar amount to be released divided by 93% of
the lowest closing bid price during the first five (5) Trading Days of the
Pricing Period.
46
SCHEDULE 4(a) SUBSIDIARIES
NONE.
47
SCHEDULE 4(c) CAPITALIZATION
THERE ARE CURRENTLY 15,000,000 COMMON SHARES AUTHORIZED, PAR VALUE
$0.001, WITH APPROXIMATELY 9,372,791 ISSUED AND OUTSTANDING. THERE ARE CURRENTLY
-0- PREFERRED SHARES AUTHORIZED, PAR VALUE $0.001, WITH APPROXIMATELY -0- ISSUED
AND OUTSTANDING AND APPROXIMATELY 100,000 (AS OF AUGUST 20, 2001) SHARES OF
COMMON STOCK ARE ISSUABLE UPON THE EXERCISE OF OPTIONS, WARRANTS AND CONVERSION
RIGHTS.
48
SCHEDULE 4(e) CONFLICTS
NONE.
49
SCHEDULE 4(g) MATERIAL CHANGES
NONE.
50
SCHEDULE 4(h) LITIGATION
NONE, EXCEPT AS DISCLOSED IN SEC FILINGS.
51
SCHEDULE 4(l) INTELLECTUAL PROPERTY
NONE.
52
SCHEDULE 4(n) LIENS
NONE.
53
SCHEDULE 4(t) CERTAIN TRANSACTIONS
NONE.
54
