EXHIBIT 10.3
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of August 23, 2002 by and
between FTS Apparel, Inc., a Colorado corporation (the "COMPANY"), and Dutchess
Private Equities Fund, L.P., a Delaware limited partnership (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $6,000,000 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; and
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, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, 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).
"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 Xxxxxx X. XxXxxxx.
"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 Dutchess Private Equities Fund, L.P., a Delaware limited
partnership.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(g).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
"MATERIAL FACTS" shall have the meaning specified in Section 2(m).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(j).
"MINIMUM ACCEPTABLE PRICE" with respect to any Put Notice Date shall mean 75% of
the Volume Weighted Average Price for the fifteen (15) Trading Day period
immediately preceding such Put Notice Date.
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur 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 mean the National Association of Securities Dealer's,
Inc. OTC electronic bulletin board or, if the Common Stock ceases to be traded
on the electronic bulletin board, the American Stock Exchange, Inc., the Nasdaq
National Market System or the Nasdaq SmallCap Market, whichever is the principal
market on which the Common Stock is listed.
"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 the Investor on a
particular Closing Date to purchase the Shares.
"PURCHASE PRICE" shall mean 92% of the average of the three (3) lowest closing
bid prices of the Company's Common Stock during ten (10) Trading Day Pricing
Period.
"PUT AMOUNT" shall have the meaning set forth in Section 2(b) hereof.
"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 possesses 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 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).
"VOLUME WEIGHTED AVERAGE PRICE" shall be the daily volume average weighted price
of the Common Stock on the Principal Market between the hours of 9:00 a.m. and
4:00 p.m. on a Trading Day as reported by Bloomberg Financial Markets
("BLOOMBERG"), or if not available through Bloomberg because of delisting, then
the average of the bid prices for the Common Stock of any market makers for the
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 $6,000,000.
b. Delivery of Put Notices. (i) 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(designated in shares of Common Stock) which the Company
intends to sell to the Investor during the Pricing Period. The Put Notice shall
be in the form attached hereto as Exhibit "F" and incorporated herein by
reference. The Company shall deliver a copy of the Put Notice to the Escrow
Agent. The Put Amount designated by the Company in a Put Notice shall be equal
to two hundred fifty percent (250%) of the average daily volume (U.S. market
only) of the Common Stock for the twenty (20) Trading Days prior to the
applicable Put Notice Date multiplied by the average of the three (3) daily
closing bid prices immediately preceding the Put Date, but in no event 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 Section (b)(ii) of 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 for the Common Stock identified
in the Put Notice shall be equal to 92% of the average of the three (3) lowest
closing bid prices of the Company's Common Stock during the ten (10) Trading Day
Pricing Period.
(ii) The Company shall, in its sole discretion, be entitled to terminate
the balance of the current Put Notice, if the closing bid price during the
applicable Pricing Period with respect to that Put Notice is less than
seventy-five percent (75%) of the Volume Weighted Average Price of the Common
Stock for the fifteen (15) Trading Days prior to the Put Notice Date ("MINIMUM
ACCEPTABLE PRICE"). In the event that the closing bid price for the applicable
Pricing Period is less than the Minimum
Acceptable Price, the Company may elect, by sending written notice to the
Investor via facsimile with a copy to the Escrow Agent, to cancel that portion
of the Put Notice remaining for that number of Trading Days remaining after the
written cancellation notice remaining for that number of Trading Days remaining
after the written cancellation notice is deemed received by the Investors. The
written notice shall be deemed received by the Investors on (i) the Trading Day
it is received by facsimile or otherwise by the Investors if such notice is
received on or prior to 12:00 noon New York time, or (ii) the immediately
succeeding Trading Day if it is received by facsimile after 12:00 noon New York
time on a Trading Day or at anytime on a day which is not a Trading Day. The
Company shall still be responsible however, for delivering that number of shares
of Common Stock to the Escrow Agent that were sold by the Investors through and
including the end of the Trading Day the written cancellation notice is deemed
received by the Investors.
(iii) 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 any 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 reduce the interest to the
legally permitted limit; and (2) any sums already collected (if any) from the
Company which exceed the legally 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, including the Company's right to cancel any Put Notice
in accordance with the provisions of Section 2(b)(ii), on the Closing Date
related to that particular Put Notice, 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) 25% of the aggregate
trading volume of the Common Stock during the applicable Pricing Period times
(x) 92% of the average of the three (3) lowest closing bid prices of the
Company's Common Stock during 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.
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) promulgated 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. In the event that the number of Shares of Common Stock
outstanding is different on any date during a Pricing Period than the number of
shares of Common Stock outstanding 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 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 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 and remain in force, or
action commenced by a governmental authority which has not been stayed
or abandoned, prohibiting the purchase or the issuance of the Common
Stock pursuant to this Agreement; and
(v) the issuance of the Common Stock will not violate the shareholder
approval requirements of the Principal Market.
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 upon 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 jurisdiction of incorporation of the Company or
other than a transaction in which the Company is the surviving corporation) (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 applicable Put Notice Date (each
"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 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 set
forth in Section 2(b) and (d), by wire transfer. In lieu of delivering physical
certificates representing the Common Stock and provided that the Company's
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 its
transfer agent to electronically transmit the Shares by crediting the account of
the Escrow Agent's prime broker (which shall be specified by the Escrow Agent a
reasonably sufficient time in advance) with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system.
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 (delivery of Shares
after the applicable Closing Date) 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
------------------- --------------------------
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Over 10 $1,000 + $200 for each
Business Day late beyond 100
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
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 92% of the lowest closing bid price
during that number of Trading Days of the Pricing Period that have expired.
The Company and Investor agree that on the related Closing Date, an
adjustment shall be made so that the terms set forth in this Agreement shall be
honored with the balance of the Purchase Amount being released to the Company
and the balance of the Shares owed to the 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 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 ("Options") and the price per share for which
Common Stock may at any time thereafter be issuable pursuant to
such Options shall be less than the Bid Price in effect
immediately prior to such issuance of such Options;
(iv) issues any securities convertible into or exchangeable for Common
Stock ("Convertible Securities") 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 Securities
shall be less than the Bid Price in effect immediately prior to
such issuance of the Convertible Securities;
(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 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 material 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 Compa(ny 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.
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," which shall not
require any more than the SAS 71 review described above 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 for a period exceeding 10 calendar
days, (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"s
failure to timely file its financial statements, 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.
3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
a. Sophisticated Investor. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (A) evaluating the merits and risks of an investment in the Shares
and making an informed investment decision, (B) protecting its own interest and
(C) bearing the economic risk of such investment for an indefinite period of
time
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.
The Investor also agrees that so long as this Agreement is in effect, it shall
not sell any Shares of Common Stock "short," either directly or indirectly,
through any affiliate, subsidiary, or other third party; provided that the
foregoing prohibition shall not apply to any Shares that are the subject of a
Put Notice following receipt by the Investor of that Put Notice from the
Company.
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, the By-laws or other organizational documents
of the Investor; (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.
f. The Investor further understands that, except as provided in the
Registration Rights Agreement, the Company will have no obligation to register
the Shares under the 1933 Act or any state securities laws or to take any action
that would make available any exemption from the registration requirements of
such laws. The Investor hereby acknowledges that, because of the restrictions on
transfer and assignment of the Shares, the Investor may have to bear the
economic risk of the investment in the Shares for an indefinite period of time.
The Investor further
understands that the certificates representing the Shares will bear the
following legend and agrees to hold such Shares subject to such legend:
"THE SECURITIES EVIDENCED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), NOR
REGISTERED UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION, AND HAVE BEEN
TAKEN FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO THE DISTRIBUTION
THEREOF, AND, EXCEPT AS STATED IN AN
AGREEMENT BETWEEN THE HOLDER OF THIS
CERTIFICATE, OR ITS PREDECESSOR IN
INTEREST, AND THE ISSUER CORPORATION,
SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES OR THE ISSUER
CORPORATION RECEIVES AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE
ISSUER CORPORATION), WHICH OPINION AND
COUNSEL ARE REASONABLY SATISFACTORY TO
THE ISSUER CORPORATION, STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
The requirement that the above securities legend be placed upon certificates
evidencing the Shares shall cease and terminate upon the earliest of the
following events: (i) when such Shares are transferred in an underwritten public
offering pursuant to Section 5 of the 1933 Act; (ii) when such Shares are
transferred pursuant to Rule 144 under the Securities Act; (iii) when such
Shares are transferred in any other transaction if the seller delivers to the
Company an opinion of seller's counsel to the effect that such legend is no
longer necessary in order to protect the Company against a violation by it of
the 1933 Act upon any sale or other disposition of such Shares without
registration thereunder or (iv) the date the Shares are registered.
The Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company's management; The Investor is
purchasing the Shares for its own account for investment purposes and not with a
view towards distribution
and has no present arrangement or intention to sell the Shares; provided,
however, that by making the representations herein, the Investor does not agree
to hold any of the Shares for any minimum or other specific term and reserves
the right to dispose of the Shares at any time in accordance with or pursuant to
a registration statement or an exemption under applicable state and/or federal
securities law;
The Investor understands that, except for transfers to affiliates or
in-kind distributions to the respective legal or beneficial owners of the
Investor, if any, the Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration;
The Shareholder does not have a present need for liquidity in connection
with its purchase of the Shares; and
The purchase of the Shares is consistent with the general investment objectives
of the Investor, whcih understands that the purchase of the Shares involves a
high degree of risk in view of the fact that, among other things, the Company is
an early stage enterprise, and there is a very limited trading market for the
Shares.
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 is a corporation duly
organized and validly existing in good standing under the laws of its
jurisdiction, and has the requisite corporate power and authorization to own its
properties and to carry on its 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). The Company has no
subsidiaries.
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) 25,000,000 shares of Common Stock, of which as of
the date hereof, 11,149,284 shares are issued and outstanding, 150,000 shares of
Preferred Stock, of which 50,000 shares are issued and outstanding and
approximately [598,000] (as of June 24, 2002) 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 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 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 January 2001, 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 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. As disclosed in Schedule 4(g) the
Company intends to change the business operations of the Company. 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 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.
Since July 20, 2002, 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.
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 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 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).
w. Lock-up. The Company agrees to use its best efforts to have its
officers, insiders, directors, affiliates or other related parties 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 reasonably 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 to occur 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), and (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, but
not to pay down debt.
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 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., unless such information is material nonpublic
information.
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 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, willful misconduct or any untrue statement of material fact or
failure to state a material fact in any registration statement or prospectus
relating to the Investor or the proposed resale of any of the Shares, 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 Investor is impleaded in any such action, proceeding or investigation by any
person, or (ii) Investor, other than by reason of its gross negligence, willful
misconduct, any untrue statement of material fact or failure to state a material
fact in any registration statement or prospectus relating to the Investor or the
proposed sale of the Shares 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 any), 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 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 Escrow Agent 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
Escrow Agent.
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.
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 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 (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 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 $6,000,000 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 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, 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 or based on illegal or alleged illegal trading of the
Shares by the Investor. 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 Colorado 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 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.
Investor Fees; Legal Fees; and Escrow Fees.
(i) As an inducement to Dutchess Private Equities Fund, L.P. to enter
into this Agreement, the Company has agreed to issue to Dutchess Private
Equities, L.P. as a commitment fee 600,000 shares of its Common Stock.
These shares will be registered in the current offering and shall be issued
to Dutchess Private Equities Fund, L.P. in certificate form on the
Execution Date.
(ii) On each Closing Date the Company shall pay to Dutchess Private
Equities Fund, L.P., an amount equal to 8.0% of the Purchase Amount being
paid by the Investor which amount shall be deducted from the Purchase
Amount by the Escrow Agent and paid directly to Dutchess Private Equities
Fund, L.P.
(iii) The Company shall pay Investor's counsel, Xxxxxx X. XxXxxxx,
Esq., for document preparation and review of the registration statement to
be prepared by the Company's counsel. Xxxxxx X. XxXxxxx, Esq. has already
received $2,500 and shall receive __________ shares, which shares shall be
registered in the next registration statement to be filed by the Company.
(iv) The Company shall also pay the Escrow Agent for escrow services
pursuant to a separate escrow agreement.
(v) 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.
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:
FTS Apparel, Inc.
0000 Xxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx, CEO
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to
Xxxxx Xxxxxxx, Esq.
0000 X. Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to the Investor:
At the address listed in the Questionnaire
With a copy to:
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 00000
Telephone No.: 000-000-0000
Telecopier No.: 000-000-0000
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
h. 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.
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.
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. Unless 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.
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.
[Balance of this page intentionally left blank.]
FTS APPAREL, INC.
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.
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.
II. INVESTOR INFORMATION.
(a) IF THE UNDERSIGNED IS AN INDIVIDUAL:
Name _________________________________________________
Street Address ______________________________________
City, State, 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:
_______________________________________________________
_______________________________________________________
_______________________________________________________
FTS APPAREL, INC.
SIGNATURE PAGE
Your signature on this Signature Page evidences your agreement to be bound
by the terms and conditions of the Investment Agreement, Registration Rights
Agreement and the Questionaire.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the undersigned will
notify FTS Apparel, Inc. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned's subscription and
will promptly send FTS Apparel, Inc. written confirmation of such change.
2. The undersigned signatory hereby certifies that he/she has read and
understands the Investment Agreement and Questionnaire, and the representations
made by the undersigned in this Investment Agreement and Questionnaire are true
and accurate.
3. The undersigned agrees to indemnify and defend the Company for any
breach of any representation or covenant contained in this Questionaire.
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
August 23, 2002 /s/ Xxxxxxx X. Xxxxxxxx
____________________________ By: __________________________________
Date Name: Xxxxxxx X. Xxxxxxxx
Title: A Managing Member
COMPANY ACCEPTANCE PAGE
This Investment Agreement accepted and agreed
to this 23 day of August, 2002.
FTS APPAREL, INC.
/s/ Xxxxx Xxxxxxxxx
By__________________________________
Xxxxx Xxxxxxxxx, its CEO
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
EXHIBITG 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
EXHIBIT D
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
_____________________
_____________________
_____________________
Re: FTS APPAREL, INC.
Dear __________________:
It is our understanding that the Form______ Registration Statement bearing SEC
File Number ( ___-______) filed by FTS APPAREL, INC. on Form _____ on
__________, 2001 was declared effective on _________, 200_.
This letter shall confirm that ______________ shares of the common stock of FTS
APPAREL, INC. 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.
EXHIBIT F
PUT NOTICE NO. ______
FTS APPAREL, INC., a Colorado 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. The Minimum Acceptable Bid Price is $____________.
5. 92% of the average of the three (3) lowest closing bid prices of the
Company's Common Stock during the ten (10) Trading Day Pricing Period ("3 Ave.
Lowest") is as follows:
3 Ave. Lowest x 92% = Purchase Price x (25% of Volume) = Total
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
_____________ x 92% = ______________ x ______________ = $ ___________
GRAND TOTALS ______________ = $ ___________**
Number of Shares being Purchased (total of 25% volume column) _____________*
Aggregate Purchase Price of Shares $__________________**
Less Escrow Fee - ___________________
Less Investor's Fee - ___________________
Amount to be wired to Company
=============================
The undersigned has executed this Put Notice as of this ___ day of ____,
200__.
FTS APPAREL, INC.
By:_______________________________________
Name and title:
EXHIBIT G
PARTIAL RELEASE OF PURCHASE AMOUNT AND SHARES
To:
FTS Apparel, Inc.
0000 Xxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx, CEO
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to
Xxxxx Xxxxxxx, Esq.
0000 X. Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Xxxxxx X. XxXxxxx, Esq.
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxx, XX 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 instructions given to the Escrow Agent by the Investor
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 92% of
the lowest closing bid price during that number of Trading Days that have
elapsed in the specified Pricing Period.
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
