SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of
September 21, 1999 (the "Agreement Date"), by and between FBR Capital
Corporation, a Nevada corporation (the "Company") with its principal offices at
00 Xxxx Xxxxxxxxxx, Xxxxx 000, Xxxxx, Xxxxxxx 00000 and Circle F Ventures, LLC,
a Georgia limited liability company ("Circle F") with its offices at 00000 X.
00xx Xxx, Xxxxxxxxxx, XX 00000.
SECTION 1
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
1.1 PURCHASE AND SALE COMMON STOCK AND WARRANTS. Circle F agrees to
purchase from the Company, and the Company agrees to issue and sell to Circle F,
on the terms and conditions set forth herein, up to an aggregate of 4,000,000
shares of common stock of the Company ("Common Stock") at a per share price of
$.25, together with one warrant to purchase Common Stock (the "Warrants") for
every two shares of Common Stock purchased. Circle F hereby agrees to execute a
Subscription Agreement and Investor Representation (the "Subscription
Agreement"), a copy of which is attached hereto as EXHIBIT A, The Warrants shall
have a term of three years and a per share exercise price of $.35. The Common
Stock and the Warrants are collectively referred to herein as the "Securities."
1.2 COMPANY PARTICIPATION. The Company agrees to obtain investors (the
"Insiders") that will commit to matching the amount invested by Circle F, such
that the total investment will comprise 85% from Circle F and 15% from the
Insiders, on the same terms as those offered to Circle F.
1.3 SCHEDULE OF FUNDING. The funding of Offering (as defined in the
Subscription Agreement) shall be as follows:
(a) On or before September 23, 1999, Circle F shall deliver an aggregate of
$255,000 to the Company and the Insiders shall deliver an aggregate of $45,000
to the Company.
(b) On October 8, 1999, Circle F shall deliver an aggregate of $170,000 to
the Company and the Insiders shall deliver an aggregate of $30,000 to the
Company.
(c) On or by January 15, 2000, Circle F hereby agrees to invest between a
minimum of $100,000 and a maximum of $425,000, in its sole discretion. The
Insiders shall be required to match Circle F's investment in the same percentage
as set forth in the first two fundings (approximately 17.7% of Circle F's
investment). This funding is subject to the purchase price and early termination
clauses as described below. In the event Circle F elects to fund less than
$425,000, the Insiders shall have the option to fund the difference between such
amount and the amount actually funded by Circle F.
1.4 PURCHASE PRICE MODIFICATION. If Circle F agrees to provide the third
funding ((c) above) between January 1 and January 15, 2000, the purchase price
shall be adjusted based on the Company's calendar fourth quarter revenues as
follows:
(a) REVENUES FOR THE QUARTER LESS THAN $450,000: The purchase price will be
adjusted to $.20 per share of common stock and the warrant exercise price
adjusted to $.28 per share.
(b) REVENUES FOR THE QUARTER GREATER THAN $550,000: The purchase price will
be adjusted to $.30 per share of common stock and the warrant exercise price
adjusted to $.42 per share.
(c) If revenues are between $450,000 and $550,000, no modification will be
made the purchase price.
All revenue figures will be determined by the Company based on standard
accounting practices for interim financial data.
1.5 EARLY TERMINATION OF THE THIRD FUNDING. The Company has the right to
terminate this Agreement anytime between the second funding, scheduled to close
on October 8, 1999, and December 31, 1999. If the Company chooses to terminate
this agreement between this time period, Circle F will have the right to provide
the third funding at the purchase price of $.25 per share for a period of 10
days following notification of the Company's desire to terminate this agreement.
If the Company chooses early termination and Circle F does not provide the third
funding, Circle F will not be obligated to meet the $100,000 minimum investment
of the third funding.
SECTION 2
CLOSING DATE: DELIVERY
2.1 CLOSING DATE. An initial closing of the purchase and sale of Common
Stock and Warrants will be held on or before September 23, 1999, and subsequent
closings of the purchase of Common Stock and Warrants will be held on October 8,
1999 and on or before January 15, 2000, on the terms and subject to the
conditions set forth herein and in the Subscription Agreement. Any such closing
is hereinafter referred to as a "Closing", and the date of any Closing under
this Agreement is hereinafter referred to as a "Closing Date."
2.2 DELIVERY. At each Closing, the Company will deliver to Circle F the
certificates evidencing the Securities paid for by Circle F in that Closing.
Such delivery shall be against payment of the purchase price for the Securities
(as set forth herein) by wire transfer of immediately available funds to the
Company's bank account (in accordance with instructions furnished by the
Company).
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SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Circle F as follows:
3.1 ORGANIZATION AND STANDING
The Company is a corporation duly organized and validly existing under and
by virtue of the laws of the State of Nevada and is in good standing as a
domestic corporation under the laws of said state, and has the requisite
corporate power and authority to own its properties and to carry on its business
as now being conducted. Except for Vitrix, Inc., the Company has no subsidiaries
or direct or indirect ownership in any firm, corporation or business which
either, individually or in the aggregate, is material to the business of the
Company. The Company is qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which its ownership of property or
conduct of business requires it so to be qualified and in which the failure to
so qualify would have a material adverse effect on the financial condition or
business of the Company.
3.2 CORPORATE POWER: AUTHORIZATION
The Company has taken all requisite corporate action to duly authorize,
execute and deliver this Agreement, to sell and issue the Securities and to
carry out and perform all of its obligations under and as contemplated by this
Agreement. This Agreement has been duly executed and delivered by an authorized
officer of the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization or similar laws relating to or
affecting the enforcement of creditors' rights generally, and except as limited
by equitable principles generally.
3.3 ISSUANCE AND DELIVERY
The Securities have been duly authorized in accordance with the terms of
the Company's Articles of Incorporation and, when issued and delivered in
compliance with this Agreement will be duly and validly issued and delivered and
will be outstanding, fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except as otherwise noted in
Section 9 hereof. No preemptive rights, or other rights to subscribe for or
purchase, exist with respect to the issuance and sale of the Securities by the
Company pursuant to this Agreement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Securities to be sold by the Company as contemplated
herein.
3.4 FINANCIAL STATEMENTS
The financial statements of the Company for the period ended June 30, 1999
(the "Financial Statements") have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") consistently applied and
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fairly present the financial position of the Company and any subsidiaries at the
dates thereof and the results of the Company's operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
adjustments, and to the fact that certain footnote disclosure required by GAAP
is not included with such unaudited statements).
3.5 GOVERNMENTAL CONSENTS
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state, or
local governmental authority on the part of the Company is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement.
3.6 EXEMPT TRANSACTIONS
Subject to the accuracy of Circle F's representations and warranties in
Section 4 of this Agreement and in the Subscription Agreement, the offer, sale
and issuance of the Securities in conformity with the terms of this Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act of 1933 (the "Securities Act") and from the registration
or qualification requirements of the laws of any applicable state or United
States jurisdiction.
3.7 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein, since
June 30, 1999 there have not been any changes in the assets, liabilities,
financial condition, business or operations of the Company from that reflected
in the Financial Statements except changes which have not, either individually
or in the aggregate had a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company and its subsidiaries
considered as a whole.
3.8 INTELLECTUAL PROPERTY
The Company owns or possesses all rights to use all patents, patent rights,
inventions, trademarks, trade names, copyrights, licenses, governmental
authorizations, trade secrets and know-how that are necessary for the conduct of
its business; neither the Company nor any of its subsidiaries has received any
notice of, or has any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent right, invention,
trademarks, trade names, copyrights, licenses, governmental authorizations,
trade secret or know-how that, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries considered as a whole.
3.9 AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company is as set forth in SCHEDULE 3.9
hereof. The issued and outstanding shares of capital stock of the Company have
been duly authorized, validly issued and are fully paid and nonassessable;
except as set forth in said SCHEDULE 3.9, no warrants, options or other rights
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to purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company.
3.10 LITIGATION
There are no actions, suits, proceedings or investigations pending or, to
the best of the Company's knowledge, threatened against the Company or any of
its properties before or by any court or arbitrator or any governmental body,
agency or official in which there is a reasonable likelihood (in the judgment of
the Company) of an adverse decision that (a) would have a material adverse
effect on the Company's properties or assets or the business of the Company as
presently conducted or proposed to be conducted or (b) would impair the ability
of the Company to perform in any material respect its obligations under this
Agreement. The Company is not in default with respect to any judgment, order or
decree of any court or governmental agency or instrumentality which,
individually or in the aggregate, would have a material adverse effect on the
assets, properties or business of the Company and its subsidiaries considered as
a whole.
3.11 PREEMPTIVE AND REGISTRATION RIGHTS
There are no preemptive rights, rights of first refusal, repurchase rights
or any other right of the Company or any third party as to the Securities which
have not been satisfied or waived.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS
The business and operations of the Company have been and are being
conducted in accordance with all applicable laws, rules and regulations of all
governmental authorities, except for such violations of applicable laws, rules
and regulations which would not, individually or in the aggregate, have a
material adverse effect on the assets, properties, financial condition or
business of the Company and its subsidiaries considered as a whole. Neither the
execution and delivery of, nor the performance or compliance with, this
Agreement and the transactions contemplated hereby, will, with or without the
giving of notice or the passage of time, (i) result in any breach of, or
constitute a default under, or result in the imposition of any lien or
encumbrance upon any asset or property of the Company pursuant to, any agreement
or other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or effected, or violate any law, rule,
regulation, judgment or decree, except for such breach or default or the
imposition of any such lien or encumbrance or violation which, either
individually or in the aggregate, would not have a material adverse effect on
the assets, properties, financial condition or business of the Company and its
subsidiaries considered as a whole or (ii) violate the Articles of Incorporation
or Bylaws of the Company. The Company is not in violation of its Articles of
Incorporation or Bylaws nor in violation of, or in default under, any lien,
indenture, mortgage, lease, agreement, instrument, commitment or arrangement,
except for such defaults which would not, individually or in the aggregate, have
a material adverse effect on the assets, properties, financial condition or
business of the Company and its subsidiaries considered as a whole, or subject
to any restriction which would prohibit the Company from entering into or
performing its obligations under the Agreement.
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3.13 BROKERS OR FINDERS
To the knowledge of the Company, no person, firm or corporation has or will
have, as a result of any act or omission of the Company, any right, interest or
valid claim against Circle F for any commission, fee or other compensation as a
finder or broker in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold Circle F harmless for any claims
made by any person claiming through the Company for any commission, fee or other
compensation concerning the purchase of the Securities.
3.14 COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company is not in material violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and,
to the best of the Company's knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
To the best of the Company's knowledge, the Company does not have any material
liability to any governmental authority or other third party arising under or as
a result of any such past or existing statute, law or regulation.
3.15 NO IMPLIED REPRESENTATIONS
All of the Company's representations and warranties are contained in this
Agreement and no other representations or warranties by the Company shall be
implied.
3.16 CONTRACTS
All contracts relating to the Company's business, properties and assets are
in full force and effect on the date hereof, except for contracts the
termination or expiration of which would, individually or in the aggregate, not
have a material adverse effect on the business, properties or assets of the
Company and its subsidiaries considered as a whole, and neither the Company nor
any of its subsidiaries, nor to the Company's knowledge, any other party is in
breach of or default under any of such contracts.
3.17 PROPERTIES
The Company has good and marketable title to all the properties and assets
reflected as owned in the Financial Statements, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except (i) those, if any, set forth in
the notes to such financial statements, or (ii) those which are not material in
amount and do not adversely affect the use made and promised to be made of such
property by the Company and its subsidiaries. The Company and any applicable
subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company and the subsidiaries. The Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to he conducted.
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3.18 COMPLIANCE
The Company has not been advised, and has no reason to believe, that either
it or any of its subsidiaries is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business; except where failure to so be in compliance would not
materially adversely affect the condition (financial or otherwise), business,
results of operations or prospects of the Company and its subsidiaries.
3.19 TAXES
The Company and its subsidiaries have filed all necessary federal, state
and foreign income and franchise tax returns and have paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of any tax deficiency
which has been or might be asserted or threatened against the Company or its
subsidiaries which could materially and adversely affect the business,
operations or properties of the Company and its subsidiaries taken as a whole.
3.20 TRANSFER TAXES
On the Closing Date, all stock transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and transfer of
the Securities to be sold to Circle F hereunder will be, or will have been,
fully paid or provided for by the Company and all laws imposing such taxes will
be or will have been complied with fully.
3.21 INVESTMENT COMPANY
The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.22 INSURANCE
Each of the Company and its subsidiaries maintains insurance of the types
and in the amounts generally deemed adequate for its business, including, but
not limited to, insurance covering all real and personal property owned or
leased by the Company and its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
3.23 CONTRIBUTIONS
Neither the Company nor any of its subsidiaries has, directly or
indirectly, at any time since April 15, 1999, (i) made any unlawful contribution
to any candidate for public office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
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3.24 NO MATERIAL MISSTATEMENTS. All reports filed by the Company with the
Securities and Exchange Commission ("SEC") since April 15, 1999, complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended, and none of such filings, 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 in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CIRCLE F
Circle F hereby represents and warrants to the Company as follows:
4.1 AUTHORIZATION
(i) Circle F has all requisite legal and corporate or other power and
capacity and has taken all requisite corporate or other action to execute and
deliver this Agreement to purchase the Securities to be purchased by it and to
carry out and perform all of its obligations under this Agreement; and (ii) this
Agreement constitutes the legal, valid and binding obligation of Circle F,
enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, or similar laws relating to or affecting
the enforcement of creditors' rights generally and (b) as limited by equitable
principles generally.
4.2 INVESTMENT EXPERIENCE
Circle F is an "accredited investor" as defined in Rule 501(a) under the
Securities Act. Circle F is aware of the Company's business affairs and
financial condition and has had access to and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to
acquire the Securities. Circle F has such business and financial experience as
is required to give it the capacity to protect its own interests in connection
with the purchase of the Securities.
4.3 INVESTMENT INTENT
Circle F is purchasing the Securities for its own account for investment
purposes only, and not with a present view to, or for, resale, distribution or
fractionalization thereof, in whole or in part, within the meaning of the
Securities Act. Circle F understands that its acquisition of the Securities has
not been registered under the Securities Act or registered or qualified under
any state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of Circle
F's investment intent as expressed herein. Circle F has completed or caused to
be completed Subscription Agreement attached hereto as Exhibit A, and the
responses provided therein shall be true and correct as of each Closing Date.
Circle F will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Securities except in compliance with the
Securities Act and the rules and regulations promulgated thereunder.
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4.4 REGISTRATION OR EXEMPTION REQUIREMENTS
Circle F further acknowledges and understands that the Securities may not
be resold or otherwise transferred except in a transaction registered under the
Securities Act or unless an exemption from such registration is available.
Circle F understands that the certificate(s) evidencing the Securities will be
imprinted with a legend that prohibits the transfer of such Securities unless
(i) they are registered or such registration is not required, and (ii) if the
transfer is pursuant to an exemption from registration other than Rule 144 under
the Securities Act and, if the Company shall so request in writing, an opinion
of counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
4.5 NO LEGAL, TAX OR INVESTMENT ADVICE
Circle F understands that nothing in this Agreement or any other materials
presented to Circle F in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Circle F has consulted such legal,
tax and investment advisors as it, in its sole discretion, has deemed necessary
or appropriate in connection with its purchase of the Securities.
SECTION 5
CONDITIONS TO CLOSING OF CIRCLE F
The obligation of Circle F to purchase the Securities at each Closing is
subject to the fulfillment as of each Closing Date of the following conditions
(in addition to such other conditions or may be set forth in the Subscription
Agreement):
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties made by the Company in Section 3 hereof
shall be true and correct in all material respects when made, and shall be true
and correct in all material respects on each Closing Date with the same force
and effect as if they had been made on and as of said date.
5.2 COVENANTS
All covenants, agreements and conditions contained in this Agreement to be
performed by the Company on or prior to each Closing Date shall have been
performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE
The President or Chief Financial Officer of the Company shall have
delivered to Circle F a certificate, dated as of each Closing Date, certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and
stating that since June 30, 1999 there shall has been no material adverse change
in the assets, liabilities, financial condition, business or operations of the
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Company and its subsidiaries considered as a whole from that reflected in the
Financial Statements except as shall have been disclosed to Circle F in writing
prior to such Closing Date.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Securities at each Closing
to Circle F is subject to the fulfillment or waiver of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties made by Circle F in Section 4 hereof
shall be true and correct in all material respects when made, and shall be true
and correct in all material respects on each Closing Date with the same force
and effect as if they had been made on and as of such date.
6.2 COVENANTS
All covenants, agreements and conditions contained in this Agreement to be
performed by Circle F on or prior to each Closing Date shall have been performed
or complied with in all material respects.
SECTION 7
CERTAIN CONTINUING COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1 COVENANTS
The Company covenants and agrees to furnish to Circle F upon request, to
and including any Closing hereunder and as long as Circle F owns any Common
Stock, copies of all periodic and other filings made by the Company pursuant to
the Securities Exchange Act of 1934.
7.2 BOARD MEMBER
If Circle F provides funding hereunder in the total amount of $825,000, at
Circle F's election, the Company will cause to be appointed to its Board of
Directors an individual designated by Circle F.
7.3 NOTICE OF LITIGATION AND DISPUTES
The Company will promptly notify Circle F of any material (i) suits,
assessments, litigation or governmental audits or investigations instituted
against it, and (ii) any reportable event under ERISA or any environmental law
arising out of any actor omission of the Company.
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7.4 CONTINUING EXISTENCE
The Company will maintain its corporate existence, business, assets (except
for dispositions in the ordinary course of business consistent with past
practice) and foreign qualifications in all necessary jurisdictions, except
where failure to maintain such qualifications would not reasonably be expected
to have a material adverse effect on the Company and its subsidiaries considered
as a whole.
7.5 COMPLIANCE
The Company will comply in all material respects with all applicable
statutes and governmental regulations, including, but not limited to, applicable
federal and state securities laws and ERISA laws, which if not complied with
would reasonably be expected to have a material adverse effect on the Company.
SECTION 8
INDEMNIFICATION
8.1 INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless Circle F from and
against any losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) to which Circle F may become subject insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any representation or warranty made by the
Company not being complete accurate or true on the Closing Date or the failure
of the Company to fulfill and fully perform each covenant or agreement hereunder
or under any other instrument or document executed and delivered by the Company
in connection herewith, and the Company will, as incurred, reimburse Circle F
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim.
(b) Circle F agrees to indemnify and hold harmless the Company from and
against any losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) to which the Company may become subject insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon, any representation or warranty made by Circle F
not being complete accurate or true on the Closing Date or the failure of the
Circle F to fulfill and fully perform each covenant or agreement hereunder or
under any other instrument or document executed and delivered by Circle F in
connection herewith, and Circle F will, as incurred, reimburse the Company for
any legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim.
(c) Promptly after receipt by any indemnified person of a notice of a claim
or the beginning of any action in respect of which indemnity is to be sought
against an indemnifying person pursuant to this Section 8.1, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
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commencement of such action, and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person and the
indemnifying person shall have been notified thereof, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall wish,
to assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the indemnified person for the same counsel to represent
both the indemnified person and such indemnifying person or any affiliate or
associate thereof, the indemnified person shall be entitled to retain its own
counsel at the expense of such indemnifying person.
SECTION 9
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES:
COMPLIANCE WITH SECURITIES ACT
9.1 RESTRICTIONS ON TRANSFERABILITY
The Securities shall not be transferable in the absence of a registration
under the Securities Act or an exemption therefrom or in the absence of
compliance with any term of this Agreement,
9.2 RESTRICTIVE LEGEND
Each certificate representing the Securities shall bear substantially the
following legends (in addition to any legends required under applicable
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT
TO CERTAIN RESTRICTIONS SPECIFIED IN THE PURCHASE AGREEMENT DATED
_______________, 1999 BETWEEN THE COMPANY AND CIRCLE F, AND NO TRANSFER OF
THE SECURITIES SHALL BE VALID OR EFFECTIVE ABSENT COMPLIANCE WITH SUCH
RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THESE SECURITIES WILL BE BOUND BY
CERTAIN OF THE TERMS OF THE AGREEMENT, INCLUDING SECTION 9.3 THEREOF.
COPIES OF THE PURCHASE AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE REGISTERED HOLDER OF THIS CERTIFICATE TO THE SECRETARY
OF THE COMPANY.
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9.3 TRANSFER OF SECURITIES AFTER REGISTRATION
Circle F hereby covenants with the Company not to make any sale of the
Securities, except either (i) in accordance with a Registration Statement, in
which case such Circle F covenants to comply with the requirement of delivering
a current prospectus, or (ii) in accordance with an exemption from the
registration requirements of the Securities Act.
SECTION 10
REGISTRATION RIGHTS
10.1 CERTAIN DEFINITIONS. As used in this Section 10, the following terms
shall have the following respective meanings:
"BLUE SKY LAWS" shall mean applicable state securities laws and the rules
and regulations thereunder, all as the same shall be in effect from time to
time.
"COMMISSION" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"CONVERTIBLE SECURITIES" shall mean securities of the Company convertible
into or exchangeable for Registrable Securities, including the Preferred Stock.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"FORM S-1" shall mean Form S-1 issued by the Commission or any
substantially similar form then in effect, including Form SB-2.
"FORM S-2" shall mean Form S-2 issued by the Commission or any
substantially similar form then in effect.
"FORM S-3" shall mean Form S-3 issued by the Commission or any
substantially similar form then in effect.
"PURCHASERS" shall mean, for purposes of this Section 10, Circle F and its
permitted assigns.
"REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock issued
to the Purchasers under this Agreement or issuable upon exercise of the Warrants
issued to the Purchasers under this Agreement or (ii) Common Stock issued
pursuant to stock splits, stock dividends and similar distributions with respect
to such shares; PROVIDED, HOWEVER, that shares of Common Stock which are
Registrable Securities shall cease to be Registrable Securities at such time,
and for so long as, such shares are eligible for sale pursuant to Rule 144(k)
13
under the Securities Act and the Company shall have delivered to the Purchasers
an opinion of counsel to such effect which opinion and counsel shall be
reasonably satisfactory to the Purchasers.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Corporation
in complying with Sections 10.2 or 10.3, including without limitation, all
Federal and state registration, qualification, delivery expenses and filing
fees, printing expenses, listing fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the fees and disbursements of the
independent certified public accountants of the Company, and fees and
disbursements of underwriters, selling brokers, dealers, managers or similar
securities industry professionals relating to the distribution of Registrable
Securities and the reasonable legal fees and expenses of any one special counsel
for the Purchasers reasonably acceptable to the Company (such legal fees and
expenses not to exceed $10,000), but shall not include Selling Expenses
(including underwriters' commissions).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and counsel fees, if any, in excess of the expenses of one special
counsel for the Purchasers paid for by the Company as provided in the definition
of "Registration Expenses", of the selling shareholders applicable to the sale
of Registrable Securities pursuant to this Agreement.
"UNDERWRITER'S REPRESENTATIVE" shall mean the representative of the
managing underwriter of a firmly underwritten public offering of securities by
the Company.
10.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION ON FORM OTHER THAN FORM S-3. After the first
anniversary of the initial Closing Date, and in the event that the Company shall
receive from the holders of a majority of the Registrable Securities a written
request that the Company effect any Registration with respect to Registrable
Securities on Form S-1 or Form S-2, the Company shall promptly give notice
thereof to all holders of Registrable Securities. Each holder of Registrable
Securities shall have the right, by giving notice to the Company within 15 days
following receipt by it of such notice from the Company, to elect to have
included in such Registration such of its Registrable Securities as such holder
shall request in such notice of election, subject to Section 10.2(c). The
Company shall use reasonable efforts to effect Registration of the Registrable
Securities specified in such request and notice of election. The Company shall
not be obligated to effect more than one registration pursuant to this Section
10.2(a); PROVIDED, that a Registration shall not be counted for this purpose if
(A)the Registration Statement does not become effective or (B) the requesting
holders are not able to sell at least 75% of the Registrable Securities
requested to be included in such Registration Statement.
(b) REQUEST FOR REGISTRATION ON FORM S-3. After the first anniversary of
the initial Closing Date, and in the event that the Company shall receive from
the holders of a majority of the Registrable Securities a written request that
the Company effect any Registration with respect to Registrable Securities on
14
Form S-3 (or any successor form to Form S-3 regardless of its designation) at a
time when the Company is eligible to register securities on Form S-3 (or any
successor form to Form S-3 regardless of its designation) for an offering of
Registrable Securities, the Company shall promptly give notice thereof to all
holders of Registrable Securities. Each holder of Registrable Securities shall
have the right, by giving notice to the Company within 15 days following receipt
by it of such notice from the Company, to elect to have included in such
Registration such of its Registrable Securities as such holder shall request in
such notice of election, subject to Section 10.2(c). The Company shall use
reasonable efforts to effect Registration of the Registrable Securities
specified in such request and notice of election.
(c) ALLOCATION OF SHARES IN REGISTRATION. In the event that the
underwriter's representative limits the number of shares to be included in a
Registration pursuant to Section 10.2(a) or (b), each Purchaser requesting
Registration shall be entitled to include a portion of the Registrable
Securities requested to be included in such registration PRO RATA (based on the
number of shares proposed to be included in such Registration, excluding shares
of any Purchaser that are eligible to be sold pursuant to Rule 144(k) under the
Securities Act.
(d) REGISTRATION OF OTHER SECURITIES IN DEMAND RIGHT. A Registration
pursuant to Section 10.2(a) or (b) may include securities other than Registrable
Securities included in such Registration in the Company's discretion.
(e) UNDERWRITING IN DEMAND REGISTRATION.
(i) NOTICE OF UNDERWRITING. If the Purchasers intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 10.2, and the Company shall include such information in the notice
referred to in Section 10.3(a).
(ii) SELECTION OF UNDERWRITER IN DEMAND REGISTRATION. The Company
shall, together with the Purchasers engaged in a Registration, enter into an
underwriting agreement with the representative ("UNDERWRITER'S REPRESENTATIVE")
of the underwriter or underwriters selected for such underwriting by a majority
of the Purchasers engaged in the Registration and approved by the Company.
(iii) RIGHT OF WITHDRAWAL IN DEMAND REGISTRATION. [Intentionally
deleted.]
(iv) COMPLIANCE WITH BLUE SKY LAWS IN DEMAND REGISTRATION. In the
event of any Registration pursuant to Section 10.2, the Company will exercise
its best efforts to Register and qualify the securities covered by the
Registration Statement under such other securities or Blue Sky Laws of such
jurisdictions as the Purchasers shall reasonably request and as shall be
reasonably appropriate for the distribution of such securities; PROVIDED,
HOWEVER, that (x) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions and (y) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
15
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable PRO RATA by selling shareholders.
(v) OPTIMAL REGISTRATION. The Purchasers agree that, in exercising
their rights under Section 10.2, they will permit the Registration of the
Registrable Securities on such forms issued by the Commission as will minimize
the Company's time and expense in effecting such Registration without affecting
the liquidity afforded by such Registration or otherwise adversely affecting the
Purchasers, in each case as reasonably determined by the Purchasers. If, for
example, the Purchasers wish to register Registrable Securities pursuant to
Section 10.2(a) at a time when the Company is eligible to use Form S-3 for
purposes of registering such Registrable Securities, the Purchasers will permit
the Company to fulfill its obligations under Section 10.2(a) by effecting such
Registration on Form S-3; PROVIDED, HOWEVER, that nothing in this Section
10.2(e)(v) will prohibit the Company to fulfill such obligation by using Form
XX-0, XX-0 or similar forms limited to "Small Business Issuers."
(vi) DELAY OF REGISTRATION. The Purchasers agree that for a period of
90 days following the date of the effectiveness of a Registration under Section
10.3 pursuant to which the Purchasers have sold not less than 75% of the
aggregate amount of the Registrable Securities that the Purchasers specified in
their notice to the Company pursuant to Section 10.3(a), they will not exercise
their right to demand a Registration pursuant to Section 10.2(a) or 10.2(b).
Upon the occurrence of a Potential Material Event, as hereinafter defined, the
Company may give the holders of Registrable Securities notice thereof and,
subject to the immediately following sentence of this Section 10.2(e)(vi), upon
receipt of such notice, the holders of Registrable Securities agree not to
exercise their right to demand Registration pursuant to Section 10.2(a) or
10.2(b) for a period commencing upon the date of such receipt and ending on the
earlier to occur of (A) the date 90 days following the date of such receipt or
(B) the expiration of the event or circumstances giving rise to the Potential
Material Event, PROVIDED that during such period the Company may not register
any of its Common Stock, whether for its own account or the account of any
security holder, and provided further that not more than one 90 day period may
occur in any 12 calendar months. The Company agrees to give the holders of
Registrable Securities immediate notice of such expiration. "POTENTIAL MATERIAL
EVENT" shall mean any of the following: (aa) the possession by the Company of
material information not ripe for disclosure in a registration statement, which
shall be evidenced by determinations in good faith by the Board of Directors of
the Company that disclosure of such information would be materially detrimental
to the business and affairs of the Company and that the registration statement
would be materially misleading absent the inclusion of such information; or (bb)
any material engagement or activity by the Company which would, in the good
faith determination of the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be materially
misleading absent the inclusion of such information.
16
10.3 PIGGYBACK REGISTRATION.
(a) NOTICE OF PIGGYBACK REGISTRATION AND INCLUSION OF REGISTRABLE
SECURITIES. Subject to the terms of this Agreement, in the event the Company
decides to Register any of its securities (either for its own account or the
account of a Purchaser or other security holder exercising demand registration
rights), other than (i) a Registration Statement which exclusively relates to
the Registration of securities under an employee stock option, purchase, bonus
or other benefit plan, or (ii) a Registration relating solely to a transaction
under Rule 145 promulgated by the Commission, the Company will: (A) promptly
give the Purchasers written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable Blue Sky Laws) and (B) include in such Registration (and
any related qualification under Blue Sky Laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request delivered to the Company by the Purchasers within 15 days after
delivery of such written notice from the Company (subject to allocation as set
forth below).
(b) UNDERWRITING IN PIGGYBACK REGISTRATION.
(i) NOTICE OF UNDERWRITING. If the Registration of which the Company
gives notice is a Registered public offering involving an underwriting, the
Company shall so advise the Purchasers as a part of the written notice given
pursuant to Section 10.3(a). In such event the right of the Purchasers to
Registration shall be conditioned upon such underwriting and the inclusion of a
Purchaser's Registrable Securities in such underwriting to the extent provided
in this Section 10.3. The Purchasers shall, together with the Company, enter
into an underwriting agreement in customary form with the Underwriter's
Representative for such offering. The Purchasers shall have no right to
participate in the selection of the underwriters for an offering pursuant to
this Section 10.3.
(ii) MARKETING LIMITATION IN PIGGYBACK REGISTRATION. In the event the
Underwriter's Representative advises the Company and the Purchasers engaged in a
Registration under Section 10.3(a) in writing that market factors (including,
without limitation, the aggregate number of shares of Common Stock requested to
be Registered, the general condition of the market, and the status of the
persons proposing to sell securities pursuant to the Registration) require a
limitation of the number of shares to be underwritten, the Underwriter's
Representative (subject to the allocation priority set forth in clause (iii)
below) may exclude some or all of the Registrable Securities from such
registration and underwriting.
(iii) ALLOCATION OF SHARES IN PIGGYBACK REGISTRATION. In the event
that the Underwriter's Representative limits the number of shares to be included
in a Registration pursuant to Section 10.3(a), each Purchaser requesting
Registration shall be entitled to include a portion of the Registrable
Securities requested to be included in such registration PRO RATA (based on the
number of shares held) with all other requesting Purchasers and other persons
(excluding shares such Purchasers and other persons may sell pursuant to Rule
144(k) under the Securities Act) currently holding in writing similar piggyback
registration rights requesting Registration pursuant to such piggyback
registration rights. Unless all Registrable Securities and such other
17
piggybacking shares requested to be included in such Registration are so
included, no other securities may be included in the Registration Statement.
(iv) WITHDRAWAL IN PIGGYBACK REGISTRATION. If any Purchaser
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom at no cost to such Purchaser by written notice to the Company and the
underwriter delivered at least five days prior to the effective date of the
Registration Statement, provided that such Purchaser has received reasonable
notice from the Company of such effective date. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such Registration.
(v) BLUE SKY IN PIGGYBACK REGISTRATION. In the event of any
Registration of Registrable Securities pursuant to Section 10.3(a), the Company
will exercise its best efforts to Register and qualify the securities covered by
the Registration Statement under the Blue Sky laws of such jurisdictions as the
Purchaser shall reasonably request and as shall be reasonably appropriate for
the distribution of such securities; PROVIDED, HOWEVER, that (a) the Company
shall not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions and (b) notwithstanding
anything in this Agreement to the contrary, in the event any jurisdiction in
which the securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the securities be born
by selling shareholders, such expenses shall be payable pro rata by selling
shareholders.
(vi) TERMINATION OR POSTPONEMENT. Without any obligation to the
Purchasers, upon notice to the Purchasers the Company may terminate or postpone
any Registration commenced by it under Section 10.3.
(vii) COOPERATION BY PURCHASERS. The Purchasers agree to comply with
all reasonable requests of the Underwriter's Representative made in connection
with any public offering in which such Purchasers participate, including, but
not limited to, the execution of lock-up agreements and the making of reasonable
representations and warranties related to such Purchaser, provided, however,
that such lock-up agreements are also entered into by the Company's executive
officers and directors and are for a period of no more than 120 days.
10.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any Registration hereunder shall be borne by the Company.
Selling Expenses to be borne by the selling shareholders shall be borne PRO RATA
on the basis of the number of Registrable Securities registered by such selling
shareholder.
10.5 REGISTRATION GENERALLY. If and when the Company shall be required to
effect the registration of Registrable Securities under the Securities Act
pursuant to this Section 10, the Company will use its best efforts to effect
such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto it will, as expeditiously as possible:
18
(a) before filing a Registration Statement or prospectus or any amendments
or supplements thereto, furnish to the holders of the Registrable Securities
covered by such Registration Statement and the underwriters, if any, copies of
all such documents proposed to be filed, which documents will be made available,
on a timely basis, for review by such holders and underwriters and their
respective legal counsel, and, with respect to any Registration Statement filed
pursuant to the provisions of Section 10.2, the Company will not file any
Registration Statement or amendment thereto or any prospectus of any supplement
thereto to which a majority of the holders of the Registrable Securities covered
by such Registration Statement or the underwriters, if any, shall reasonably
object;
(b) prepare and file with the Commission such amendments and post-effective
amendments to any Registration Statement, and such supplements to the
prospectus, as may be reasonably requested by any holder of Registrable
Securities or any underwriter of Registrable Securities or as may be required by
the rules, regulations or instructions applicable to the registration form
utilized by the Company or by the Securities Act, the Exchange Act or otherwise
necessary to keep such Registration Statement effective for not less than one
year (excluding any lock-up period) following the effective date of the
respective Registration Statement and cause the prospectus as so supplemented to
be filed pursuant to Rule 424 under the Securities Act; and
(c) notify the selling holders of Registrable Securities and the managing
underwriters, if any, promptly and (if requested by any such person) confirm
such advice in writing.
10.6 INFORMATION FURNISHED BY PURCHASER. It shall be a condition precedent
of the Company's obligations under this Section 10 that the Purchasers furnish
to the Company such information regarding the Purchasers and the distribution
proposed by the Purchasers as the Company may reasonably request to effect any
such Registration and as are customarily provided by selling shareholders.
10.7 CURRENT PUBLIC INFORMATION. At all times after the Company has filed a
Registration Statement pursuant to the Securities Act, the Company will use its
best efforts to file all reports required under the Securities Act or the
Exchange Act and will take such further action as may be reasonably required to
enable any holder of "restricted securities" (as defined in Rule 144 adopted by
the Commission under the Securities Act) to sell such securities pursuant to
Rule 144, as amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
SECTION 11
MISCELLANEOUS
11.1 WAIVERS AND AMENDMENTS. Neither this Agreement nor any provisions
hereof shall be waived, modified, changed or discharged or terminated except by
an instrument in writing signed by the party against whom any waiver,
modification, change, discharge or termination is sought.
19
11.2 BROKER'S FEE. Each of the parties hereto hereby represents that, on
the basis of any actions and agreements by it there are no brokers or finders
entitled to compensation in connection with the sale of the Securities to Circle
F.
11.3 GOVERNING LAW. This Agreement shall be governed in all respects by and
construed in accordance with the laws of the State of Arizona without any regard
to conflicts of laws principles.
11.4 SURVIVAL. The representations, warranties, covenants and agreements
made in this Agreement shall survive any investigation made by the Company or
Circle F and each Closing.
11.5 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement.
11.6 ENTIRE AGREEMENT. This Agreement, including all exhibits, schedules
and appendices hereto, constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
11.7 NOTICES. All notices and other communications required or permitted
under this Agreement shall be effective upon receipt and shall be in writing and
may be delivered in person, by telecopy, overnight delivery service or
registered or certified United States mail, addressed to the Company or Circle
F, as the case may be, at their respective addresses set forth at the beginning
of this Agreement, or at such other address as the Company or Circle F shall
have furnished to the other party in writing. All notices and other
communications shall be effective upon the earlier of actual receipt thereof by
the person to whom notice is directed or (i) in the case of notices and
communications sent by personal delivery or telecopy, one business day after
such notice or communication arrives at the applicable address or was
successfully sent to the applicable telecopy number, (ii) in the case of notices
and communications sent by overnight delivery service, at noon (local time) on
the second business day following the day such notice or communication was sent,
and (iii) in the case of notices and communications sent by United States mail,
seven days after such notice or communication shall have been deposited in the
United States mail.
11.8 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
11.9 COUNTERPARTS. This Agreement maybe executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.10 FURTHER ASSURANCES. Each party to this Agreement 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 hereto may reasonably request in order to carry out
20
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
11.11 EXPENSES. The Company shall bear its own expenses incurred on its
behalf with respect to this Agreement and the transactions contemplated hereby
and shall reimburse Circle F for Circle F's expenses (including reasonable
attorneys' fees and accounting fees) incurred in connection with consummating
the transactions contemplated hereby up to an aggregate of $3,000.
[signature page follows]
21
The foregoing agreement is hereby executed as of the date first above
written.
FBR CAPITAL CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------
Title: President & CEO
CIRCLE F VENTURES, LLC
By: /s/ Xxx Xxxxxxxxxx
---------------------------
Title: Chief Financial Officer
