Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
by and between
Crescent International Ltd.
and
Dauphin Technology, Inc.
dated as of September 28, 2001
This SECURITIES PURCHASE AGREEMENT is entered into as of the 28th day of
September, 2001 (this "Agreement"), by and between Crescent International Ltd.
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(the "Investor"), an entity organized and existing under the laws of Bermuda,
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and Dauphin Technology, Inc., a corporation organized and existing under the
laws of the State of Illinois (the "Company").
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WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase, up to $10,000,000
worth of securities, including (i) shares of Common Stock (as defined below),
(ii) an Initial Convertible Note (as defined below) in the principal amount of
$2,500,000 and (iii) Subsequent Convertible Notes (as defined below);
WHEREAS, pursuant to the terms of and in partial consideration for the Investor
entering into this Agreement, the Company is required to issue to the Investor
an Incentive Warrant (as defined below), exercisable from time to time within
five years following the date of issuance, for the purchase of a number of
shares of Common Stock at a price to be determined as described in such
Incentive Warrant;
WHEREAS, pursuant to the terms of and in partial consideration for the Investor
entering into this Agreement, the Company may be required to issue Protective
Warrants (as defined below) to the Investor, each of which may become
exercisable from time to time, for the purchase of a number of shares of Common
Stock at a price to be determined as described in each such Protective Warrant;
and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the U.S.
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Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
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registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, in consideration of the premises, representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Affiliate" shall mean any Person that, directly or
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indirectly through one or more intermediaries, controls or is controlled by, or
is under direct or indirect common control with any other Person. For the
purposes of this definition, "control," when used with respect to any Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the term "controls" and "controlled" have meanings correlative
to the foregoing.
Section 1.2. "Bid Price" shall mean, with respect to the Common Stock,
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the per share closing bid price for such Common Stock as reported by Bloomberg
L.P. in accordance with Section 10.2 of this Agreement.
Section 1.3. "Capital Shares" shall mean the Common Stock and any shares
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of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of dividends (as and when declared)
or assets (upon liquidation of the Company).
Section 1.4. "Closing" shall mean one of the closings of a purchase and
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sale of the Common Stock, the issuance of the Warrants and the issuance of the
Convertible Notes pursuant to Section 2.1 of this Agreement.
Section 1.5. "Closing Date" shall mean with respect to a Closing the
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second Trading Day following the Subscription Date or the Sale Date, as
applicable, related to such Closing, provided all conditions to such Closing
have been satisfied on or before such Trading Day.
Section 1.6. "Closing Statement" shall mean the closing statement
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executed by the Company and the Investor on the Subscription Date and on each
Sale Date, setting forth (i) the actions taken by the Company and the Investor
on the Subscription Date and on such Sale Date, as applicable, (ii) the actions
to be taken by the Company and the Investor on the applicable Closing Date and
(iii) the amounts due to the payee entities set forth on Schedule 10.1 hereto on
the applicable Closing Date, in the form of Exhibit A attached hereto.
Section 1.7. "Commitment Period" shall mean the period commencing on the
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Subscription Date and expiring on the earlier to occur of (i) the date on which
the Investor shall have purchased Sale Shares and Convertible Notes pursuant to
this Agreement for an aggregate Purchase Price of the Maximum Commitment Amount,
(ii) the date this Agreement is terminated pursuant to Section 2.5 hereof, or
(iii) the date occurring 24 months from the Subscription Date.
Section 1.8. "Commitment Shares" shall mean the Note Conversion Shares
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and the Sale Shares, collectively.
Section 1.9. "Common Stock" shall mean the Company's common stock, par
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value $0.001 per share.
Section 1.10. "Condition Satisfaction Date" shall have the meaning set
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forth in Section 7.2 of this Agreement.
Section 1.11. "Convertible Notes" shall mean the Initial Convertible Note
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and the Subsequent Convertible Notes.
Section 1.12. "Daily Trading Value" shall mean, on any Trading Day, the
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Bid Price multiplied by the trading volume of the Common Stock.
Section 1.13. "Damages" shall mean any and all losses, claims, damages,
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liabilities, costs and expenses (including, without limitation, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in defense or settlement of, any action, suit or
proceeding between any indemnified party and any indemnifying party or between
any indemnified party and any third party, or otherwise, or any claim asserted).
Section 1.14. "Effective Date" with respect to each sale of Registrable
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Securities shall mean the earlier to occur of: (i) the applicable date on which
the SEC has declared effective a Registration Statement registering resale of
such Registrable Securities as set forth in the Registration Rights Agreement
and (ii) the date on which such Registrable Securities first become eligible for
resale pursuant to Rule 144 of the Securities Act.
Section 1.15. "Exchange Act" shall mean the U.S. Securities Exchange Act
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of 1934, as amended and the rules and regulations promulgated thereunder.
Section 1.16. "Incentive Warrant" shall mean the Incentive Warrant in the
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form of Exhibit C hereto issued pursuant to Section 2.1(d) of this Agreement,
together with any new or replacement warrant issued in accordance with the terms
of the Incentive Warrant.
Section 1.17. "Incentive Warrant Shares" shall mean all shares of Common
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Stock issued or issuable pursuant to exercise of the Incentive Warrant.
Section 1.18. "Initial Convertible Note" shall mean the convertible note
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to be issued by the Company to the Investor on the Subscription Date in the
principal amount of $2,500,000 in the form attached hereto as Exhibit B.
Section 1.19. "Investment Amount" shall mean (i) with respect to the
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Initial Convertible Note, $2,500,000, and (ii) with respect to a Subsequent
Sale, the dollar amount to be invested by the Investor to purchase Sale Shares
or a Subsequent Convertible Note with respect to any Sale Date as notified by
the Company to the Investor in accordance with Section 2.3 hereof. With respect
to any Subsequent Sale, the Investment Amount shall not exceed the Maximum Sale
Amount.
Section 1.20. "Legend" shall have the meaning specified in Section 8.1 of
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this Agreement.
Section 1.21. "Material Adverse Effect" shall mean any effect on the
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business, operations, properties, prospects, or financial condition of the
Company that is material and
adverse to the Company or to the Company and such other entities controlling or
controlled by the Company, taken as a whole, and/or any condition, circumstance,
or situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform its obligations under any of (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) the Warrants.
Section 1.22. "Maximum Commitment Amount" shall mean $10,000,000.
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Section 1.23. "Maximum Sale Amount" shall mean $1,500,000, unless a
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higher amount is agreed to by the Company and the Investor; provided, however,
that the aggregate amount of all Sale Shares and Convertible Notes issued
hereunder shall not exceed the Maximum Commitment Amount.
Section 1.24. "Minimum Bid Price" shall mean $0.75.
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Section 1.25. "Minimum Time Interval" shall mean (i) 22 Trading Days from
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the Effective Date relating to the Registration Statement covering the Note
Conversion Shares into which the Initial Convertible Note is or may be
converted, or (ii) if the previous Subsequent Sale related to the sale of
unregistered Common Stock or of a Subsequent Convertible Note for which the Note
Conversion Shares are unregistered, 22 Trading Days from the Effective Date
relating to such Subsequent Sale or (iii) if the previous Subsequent Sale
related to the sale of registered Common Stock or a Subsequent Convertible Note
for which the Note Conversion Shares are registered, 22 Trading Days from the
previous Sale Date.
Section 1.26. "NASD" shall mean the National Association of Securities
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Dealers, Inc.
Section 1.27. "Note Conversion Shares" shall mean shares of Common Stock
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into which a Convertible Note is or may be converted.
Section 1.28. "Outstanding" when used with reference to Common Stock or
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Capital Shares (collectively the "Shares"), shall mean, at any date as of which
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the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.29. "OTE" shall mean Hellenic Telecommunications Organization
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S.A.
Section 1.30. "Person" shall mean an individual, a corporation, a
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partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.31. "Principal Market" shall mean the Nasdaq National Market,
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the Nasdaq SmallCap Market, the American Stock Exchange, the OTC Electronic
Bulletin Board or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.32. "Protective Warrant" or "Protective Warrants" shall mean any
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and all Protective Warrant(s) in the form of Exhibit D hereto issued pursuant to
Section 2.1(c) of this Agreement.
Section 1.33. "Protective Warrant Shares" shall mean all shares of Common
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Stock issued or issuable pursuant to exercise of the Protective Warrants.
Section 1.34. "Purchase Price" shall mean (i) with respect to a Subsequent
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Share Sale, 92% of the average of the lowest three consecutive Bid Prices during
the 22 Trading Day period immediately preceding the applicable Sale Date, (ii)
with respect to a Subsequent Note Sale, the principal amount of such Subsequent
Convertible Note, and (iii) with respect to an Effective Date, 92% of the lowest
three consecutive Bid Prices during the 22 Trading Day period immediately
preceding such Effective Date.
Section 1.35. "Registrable Securities" shall mean (i) the Commitment
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Shares, (ii) the Warrant Shares and (iii) any securities issued or issuable with
respect to any of the foregoing by way of exchange, stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the applicable Registration Statement has been
declared effective by the SEC and all such Registrable Securities have been
disposed of pursuant to the applicable Registration Statement, (x) all such
Registrable Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (y) such time as all such Registrable
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Securities have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (z) in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor, all such Registrable
Securities may be sold by the Investor without registration and without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.36. "Registration Rights Agreement" shall mean the registration
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rights agreement by and between the Company and the Investor, in the form of
Exhibit E hereto.
Section 1.37. "Registration Statement" or "Registration Statements" shall
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have the meaning set forth in the Registration Rights Agreement.
Section 1.38. "Regulation D" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.39. "Representative" of a party shall mean any officer, director,
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employee, agent, counsel, accountant, financial advisor, consultant or other
representative of such party.
Section 1.40. "Sale Date" shall mean the Trading Day on which a Sale Notice
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Period expires.
Section 1.41. "Sale Fees" shall have the meaning specified in Section
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10.1(b) hereof.
Section 1.42. "Sale Notice" shall mean a written notice to the Investor in
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the form of Exhibit F hereto, setting forth, inter alia, the intended Closing
Date, the Investment Amount and, if applicable, the number of shares of Common
Stock that the Company intends to require the Investor to purchase pursuant to
the terms of this Agreement.
Section 1.43. "Sale Notice Date" shall mean the Trading Day during the
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Commitment Period upon which a Sale Notice to sell Common Stock or a Subsequent
Convertible Note to the Investor is deemed delivered pursuant to Section 2.3(b)
hereof.
Section 1.44. "Sale Notice Period" shall mean a period beginning on a Sale
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Notice Date and ending 7 Trading Days after a Sale Notice Date.
Section 1.45. "Sale Shares" shall have the meaning set forth in Section
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2.1(b) of this Agreement.
Section 1.46. "SEC" shall mean the U.S. Securities and Exchange Commission.
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Section 1.47. "SEC Documents" shall mean the Company's latest Form 10-K as
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of the time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.48. "Section 4(2)" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.49. "Securities Act" shall have the meaning set forth in the
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recitals of this Agreement.
Section 1.50. "Short Sale" shall have the meaning specified in Rule 3b-3 of
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the Exchange Act.
Section 1.51. "Subscription Date" shall mean the date on which this
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Agreement is executed and delivered by the parties hereto.
Section 1.52. "Subscription Fee" shall have the meaning set forth in
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Section 10.1(a) hereof.
Section 1.53. "Subsequent Convertible Note" shall mean a convertible note
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to be issued by the Company to the Investor pursuant to a Subsequent Sale in the
form attached hereto as Exhibit G.
Section 1.54. "Subsequent Note Sale" shall have the meaning set forth in
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Section 2.1(b) of this Agreement.
Section 1.55. "Subsequent Sale" shall mean a Subsequent Note Sale or a
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Subsequent Share Sale.
Section 1.56. "Subsequent Share Sale" shall have the meaning set forth in
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Section 2.1(b) of this Agreement.
Section 1.57. "Subsidiary" shall mean any Person in which the Company,
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directly or indirectly through Subsidiaries or otherwise, beneficially owns more
than 50% of either the equity interests in, or the voting control of, such
Person.
Section 1.58. "Trading Day" shall mean any day during which the Principal
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Market shall be open for business.
Section 1.59. "Transfer Agent Instructions" shall have the meaning set
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forth in Section 2.4(a) of this Agreement.
Section 1.60. "Underwriter" shall mean any underwriter participating in any
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disposition of the Registrable Securities on behalf of the Investor pursuant to
a Registration Statement.
Section 1.61. "Warrants" shall mean the Protective Warrants and Incentive
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Warrant.
Section 1.62. "Warrant Shares" shall mean the Protective Warrant Shares and
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the Incentive Warrant Shares.
ARTICLE II
SALE AND PURCHASE OF CONVERTIBLE NOTES, COMMON STOCK, AND WARRANTS;
TERMINATION OF OBLIGATIONS
Section 2.1. Sales.
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(a) Initial Convertible Note. On the Closing Date relating to the
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Subscription Date, the Company shall issue to the Investor and the
Investor shall purchase the Initial Convertible Note.
(b) Subsequent Sales. If the Company elects to exercise a
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Subsequent Sale, in accordance with the terms and conditions set
forth herein (including, without limitation, the provisions of
Article VII hereof), on any Sale Notice Date the Company shall
exercise a Subsequent Sale by the delivery of a Sale Notice.
(i) On each Closing Date relating to a Subsequent Sale for
which the Investment Amount stated in the applicable Sale
Notice is less than or equal to twice the average of the
Daily Trading Values during the 22 Trading Day period
immediately preceding the applicable Sale Notice Date, the
Company shall issue and sell and the Investor shall purchase
such number of shares of Common Stock that are determined by
dividing the Investment Amount stated in the applicable Sale
Notice by the applicable Purchase Price (each such
transaction is referred to herein as a "Subsequent Share
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Sale," and all such shares are referred to herein as the
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"Sale Shares").
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(ii) On each Closing Date relating to a Subsequent Sale
for which the Investment Amount stated in the applicable Sale
Notice is greater than twice the average of the Daily
Trading Values during the 22 Trading Day period immediately
preceding the applicable Sale Notice Date and subject, without
limitation, to the conditions set forth in Section 7.3 hereof,
the Company shall issue and sell and the Investor shall
purchase a Subsequent Convertible Note in a principal amount
equal to the Investment Amount stated in the applicable Sale
Notice (each such transaction is referred to herein as a
"Subsequent Note Sale"); provided, however, that (A) the
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principal amount of any Subsequent Convertible Note shall
not exceed the lesser of (1) the Maximum Sale Amount and (2)
six times the average of the Daily Trading Values during the
22 Trading Day period immediately preceding the applicable
Sale Notice Date, (B) the Company shall not exercise a
Subsequent Note Sale on or after February 1, 2002, and (C)
the aggregate principal amount of all Convertible Notes
shall not exceed $4,000,000.
(iii) Notwithstanding anything set forth in this Section
2.1(b), if all of the conditions set forth in Section 7.3
hereof have not been fulfilled, then (A) if the applicable
Sale Notice Date is prior to February 1, 2002, the applicable
Sale Notice shall be null and void and no securities of the
Company, including, without limitation, shares of Common
Stock and Subsequent Convertible Notes, shall be issued and
sold by the Company to the Investor pursuant to such Sale
Notice , and (B) if the applicable Sale Notice Date is on or
after February 1, 2002 and the Investment Amount for such
Subsequent Sale is greater than twice the average of the
Daily Trading Values during the 22 Trading Day period
immediately preceding the applicable Sale Notice Date, then
the Investment Amount for such Subsequent Sale shall, without
further action on the part of the Investor or the Company, be
reduced to equal twice such average and the Company shall
issue and sell and the Investor shall purchase such number of
shares of Common Stock that are determined by dividing such
reduced Investment Amount by the applicable Purchase Price.
(c) Protective Warrants. In partial consideration for the
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Investor entering into this Agreement, if the Company elects to
exercise its right with respect to any Subsequent Sale to require
the Investor to purchase shares of Common Stock that, on the
applicable Closing Date, have not been previously registered and
are not covered by an effective Registration Statement filed with
the SEC, then on each Closing Date relating to each such Subsequent
Sale, the Company shall issue and deliver to the Investor a
Protective Warrant with an exercise price of $0.01 for each share of
Common Stock, for the purchase of such number of shares of Common
Stock as described in such Protective Warrant.
(d) Incentive Warrant. In partial consideration for the Investor
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entering into this Agreement, on the Subscription Date, the Company
shall issue and deliver to the
Investor the Incentive Warrant, for the purchase of such number of
shares of Common Stock and with an exercise price as described in
such Incentive Warrant.
Section 2.2. Twenty Percent Limitation. Unless the Company obtains the
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requisite approval of its shareholders in accordance with the corporate laws of
Illinois and the applicable rules of the Principal Market, no more than 19.9% of
the Outstanding shares of Common Stock may be issued and sold pursuant to
Subsequent Sales, the Warrants and upon conversion of the Convertible Notes;
provided, that with respect to the issuance of more than 19.9% of the
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Outstanding shares of Common Stock pursuant to the Warrants, the Investor has
the right to require the Company to seek such shareholder approval and upon the
written request of the Investor the Company shall as soon as practicable after
such request prepare and file with the SEC a proxy statement to be distributed
to shareholders of the Company for the purpose of soliciting proxies for use at
an annual or special meeting of shareholders of the Company at which such
shareholder approval is sought, and in which proxy statement the Company will
recommend to its shareholders the foregoing approval.
Section 2.3. Sale Notice.
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(a) Timing. At any time during the Commitment Period, the
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Company may deliver a Sale Notice to the Investor, subject to the conditions set
forth in Sections 7.2 and 7.3; provided, however, that the Company shall not
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exercise a Subsequent Share Sale pursuant to Section 2.1(b) hereof prior to
February 1, 2002.
(b) Date of Delivery of Sale Notice. A Sale Notice shall be
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deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon New York time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon New York time on a Trading Day or at any time on a
day which is not a Trading Day. No Sale Notice will be deemed delivered, on a
day that is not a Trading Day.
Section 2.4. Closings.
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Subscription Date. On the Subscription Date (i) the Company and
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the Investor shall execute the Registration Rights Agreement, (ii) the Company
shall issue and deliver to the Investor the Incentive Warrant, (iii) the Company
shall execute and deliver irrevocable instructions to the transfer agent, in the
form of Exhibit H attached hereto (the "Transfer Agent Instructions"), to
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prepare and deliver to the Investor, following each Subsequent Share Sale or
conversion of the Convertible Notes, a share certificate in the name of the
Investor and in the amount of the applicable Commitment Shares, the transfer
agent shall confirm and accept such instructions, and a copy of such
instructions shall be delivered to the Investor's legal counsel, and (iv) the
Investor shall deliver to the Company and the Company shall execute a Closing
Statement. In addition, on or prior to the Subscription Date, each of the
Company and the Investor shall deliver to the other all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.
Sale Date. On each Sale Date, the Investor shall deliver to
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the Company and the
Company shall execute a Closing Statement in respect of the Subsequent Sale to
which such Sale Date relates.
Closing Date. On the Closing Date relating to the Subscription
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Date, the Company shall issue and deliver to the Investor the Initial
Convertible Note and, in addition, on each Closing Date (i) the Company shall
issue and deliver to the Investor a Protective Warrant, if required by Section
2.1(c) hereof, (ii) the Company shall issue and deliver to the Investor a
Subsequent Convertible Note in a principal amount equal to the Investment Amount
stated in the applicable Sale Notice, if required by Section 2.1(b) hereof,
(iii) the Company shall instruct the transfer agent to prepare and deliver to
the Investor a share certificate in the name of the Investor and in the amount
of the applicable Common Stock, in accordance with the Transfer Agent
Instructions, and the Company shall take all other actions necessary to ensure
the prompt delivery of such share certificate to the Investor, if required by
Section 2.1(b) hereof, and (iv) the Investor shall deliver to the Company the
Investment Amount specified in the applicable Closing Statement, less applicable
fees and costs determined in accordance with Section 10.1, by wire transfer of
immediately available funds to the account designated in writing by the Company
to the Investor. In addition, on or prior to each Closing Date, each of the
Company and the Investor shall deliver to the other all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.
Section 2.5. Termination of Agreement and Investment Obligation. The
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Company shall have the right to terminate this Agreement at any time upon 30
days' written notice to the Investor. The Investor shall have the right to
immediately terminate this Agreement (including with respect to any Subsequent
Sale, notice of which has been given but the applicable Closing Date has not yet
occurred) in accordance with Section 6.12 or in the event that: (i) any
Registration Statement has not been declared effective by the SEC within the
applicable time periods set forth in Section 1.1 of the Registration Rights
Agreement, (ii) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of 30 Trading Days
during the Commitment Period, or (iii) the Company shall at any time fail to
comply with the requirements of Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8 or 6.9.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its
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own account, and the Investor has no view to the distribution of the Registrable
Securities, the Convertible Notes, or Warrants and has no present arrangement
(whether or not legally binding) at any time to sell, assign, transfer, pledge,
encumber, hypothecate or otherwise dispose of the Registrable Securities, the
Convertible Notes or Warrants to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Registrable Securities, Convertible Notes or Warrants for any
minimum or other specific term and reserves the right to dispose of the
Registrable Securities, Convertible Notes or Warrants at
any time pursuant to the Registration Statement and in accordance with federal
and state securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated
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investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and the Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Common Stock and the Convertible
Notes. The Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section 3.3. Authority. Each of this Agreement and the Registration Rights
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Agreement has been duly authorized by all necessary corporate action and no
further consent or authorization of the Investor, or its Board of Directors or
stockholders is required. Each of this Agreement and the Registration Rights
Agreement was validly executed and delivered by the Investor and each is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
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"affiliate" (as that term is defined in Rule 405 ofthe Securities Act) of the
Company.
Section 3.5. Organization and Standing. The Investor is duly organized,
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validly existing, and in good standing under the laws of Bermuda.
Section 3.6. Absence of Conflicts. The execution and delivery of this
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Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not to the Investor's knowledge (a) violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
the Investor, (b) violate any provision of any indenture, instrument or
agreement to which the Investor is a party or is subject, or by which the
Investor or any of its assets is bound, (c) conflict with or constitute a
material default thereunder, (d) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by the Investor to any third
party, or (e) require the approval of any third-party (that has not been
obtained) pursuant to any material contract to which the Investor is subject or
to which any of its assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information. The Investor has received
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or had access to all documents, records, books and other information pertaining
to Investor's investment in the Company that have been requested by Investor.
The Investor has received and reviewed copies of the SEC Documents. Neither the
receipt by the Investor of such information, nor the access of the Investor to
such information shall modify, amend or affect the Investor's right to rely upon
the representations and warranties made by the Company pursuant to Article IV of
this Agreement.
Section 3.8. Manner of Sale. At no time was Investor presented with or
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solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9. Resale Restrictions. Investor acknowledges that any
-------------------
Registrable Securities, the Convertible Notes and Warrants to be acquired by
Investor have not been registered under the federal securities laws or any
applicable state securities laws in reliance upon exemptions available for
non-public or limited offerings. Investor understands that it must bear the
economic risk of the investment in the Registrable Securities, the Convertible
Notes and Warrants because the Registrable Securities, the Convertible Notes and
Warrants have not been so registered and therefore are subject to restrictions
upon transfer such that they may not be sold or otherwise transferred unless
registered under the applicable securities laws or an exemption from such
registration is available. The Investor will not reoffer, sell, assign,
transfer, pledge, encumber, hypothecate or otherwise dispose of any Registrable
Securities, the Convertible Notes or the Warrants in the absence of an effective
registration statement, qualification or authorization relating thereto under
federal and applicable state securities laws or an opinion of qualified counsel
satisfactory to the Company to the effect that the proposed transaction in the
Registrable Securities, the Convertible Notes or the Warrants will neither
constitute or result in any violation of the federal or state securities laws.
Subject to Section 8.1 of this Agreement, any certificate or other document that
may be issued representing any shares of Registrable Securities, the Convertible
Notes or the Warrants may be endorsed with a legend to this effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that on the Subscription
Date, each Effective Date and each Closing Date:
Section 4.1. Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Except as set
forth in the SEC Documents, the Company does not own more than 50% of the
outstanding capital stock of or control any other Person. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
---------
and authority to enter into and perform its obligations under this Agreement,
the Registration Rights Agreement and the Warrants and to issue the Commitment
Shares, the Convertible Notes, the Warrants and the Warrant Shares; (ii) the
execution and delivery of this Agreement and the Registration Rights Agreement,
and the execution, issuance and delivery of the Convertible Notes and the
Warrants, by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders
is required; and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered, and the Convertible Notes and
the Warrants have been duly executed, issued and delivered, by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 4.3. Corporate Documents. The Company has furnished or made
-------------------
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Articles"), and
the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
-------
Section 4.4. Books and Records. The minute books and other similar records
-----------------
of the Company and its subsidiaries as made available to Investor prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all action taken at all meetings and by all written consents in
lieu of meetings of the stockholders, the boards of directors and committees of
the boards of directors of the Company and the subsidiaries. The stock transfer
ledgers and other similar records of the Company and the subsidiaries as made
available to Investor prior to the execution of this Agreement accurately
reflect all record transfers prior to the execution of this Agreement in the
capital stock of the Company and the subsidiaries. Neither the Company nor any
subsidiary has any of its books or records recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company or a
subsidiary.
Section 4.5. Capitalization.
-------------
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 62,666,127 shares are
issued and outstanding, and 10,000,000 shares of preferred stock,
none of which are issued and outstanding. Except for (i) options to
purchase not more than 4,871,580 shares of Common Stock with
purchase prices between $0.50 and $3.875 per share, (ii) warrants
to purchase not more than 8,323,744 shares of Common Stock with
purchase prices between $0.20 and $5.481 per share, and (iii) the
rights and obligations of the parties thereto with respect to
shares of Common Stock under that certain Common Stock Purchase
Agreement, dated as of April 9, 2000, by and between the Company
and Techrich International Limited ("Techrich") (the "Techrich
Agreement"), there are no options, warrants, preemptive rights for,
or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. There are
no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance
of Common Stock pursuant to this Agreement. All of the outstanding
shares of Common Stock and preferred stock
of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable.
(b) Attached hereto as Exhibit J is a true, correct and complete
copy of a letter agreement entered into between the Company and
Techrich concerning the Techrich Agreement. The only securities
that have been issued and sold by the Company to Techrich under the
Techrich Agreement are 2,395,584 shares of Common Stock for an
aggregate amount of US$7,300,000.
Section 4.6. Registration and Listing of Common Stock. The Company has
----------------------------------------
registered its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange
Act and is in full compliance with all reporting requirements of the Exchange
Act, and the Company has maintained all requirements for the continued listing
or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the OTC Electronic Bulletin Board.
Section 4.7. Financial Statements. Prior to the execution of this
--------------------
Agreement, the Company has delivered to the Investor true and complete copies of
the following financial statements:
(a) the audited balance sheets of the Company and its consolidated
subsidiaries as of December 31, 2000 and 1999, and the related audited
consolidated statements of operations, stockholders' equity and cash flows for
each of the fiscal years then ended, together with a true and correct copy of
the report on such audited information by Grant Thornton, LLP, and all letters
from such accountants with respect to the results of such audits; and
(b) the unaudited balance sheets of the Company and its
consolidated subsidiaries as of June 30, 2001, and the related unaudited
consolidated statements of operations and stockholders' equity for the portion
of the fiscal year then ended.
The financial statements of the Company delivered to the Investor have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis 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 not include 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 operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
Section 4.8. SEC Documents. The Company has timely filed all SEC Documents
-------------
and has delivered or made available to the Investor true and complete copies of
the SEC Documents (including, without limitation, audited financial statements,
proxy information and solicitation materials). The Company has not provided to
the Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied as to form and substance in all material respects with
the requirements of
the Securities Act or the Exchange Act, as the case may be, and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or updated in
subsequent filings prior to the date hereof). The financial statements of the
Company included in the SEC Documents comply as to form and substance in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis 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 include summary notes and 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 operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 4.9. Exemption from Registration; Valid Issuances; New Issuances.
-----------------------------------------------------------
The sale and issuance of the Warrants, the Warrant Shares, the Convertible Notes
and the Commitment Shares in accordance with the terms and on the basis of the
representations and warranties set forth in this Agreement, may and will be
properly issued pursuant to Section 4(2), Regulation D and/or any applicable
state law. When issued and paid for as provided herein and in the Warrants, the
Warrant Shares and the Commitment Shares will be duly and validly issued, fully
paid, and nonassessable. When issued as herein provided, the Convertible Notes
shall be duly and validly executed, issued and delivered by the Company and
constitute valid and binding obligations of the Company. Neither the sales of
the Commitment Shares, the Convertible Notes, the Warrants, or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement or the Warrants will (i) result in
the creation or imposition of any liens, charges, claims or other encumbrances
upon the Commitment Shares, the Warrant Shares, or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares or holders of
preferred stock of the Company to preemptive or other rights to subscribe to or
acquire the Capital Shares, such preferred stock or other securities of the
Company. The Commitment Shares, the Convertible Notes, and the Warrant Shares
will not subject the Investor to personal liability by reason of the ownership
thereof. The Commitment Shares and the Warrant Shares have been duly authorized
by the Company, but have not been issued (whether or not subsequently
repurchased by the Company) to any Person, and when issued to the Investor in
accordance with this Agreement and the Warrants will not have been issued
(whether or not subsequently repurchased by the Company) to any Person other
than the Investor.
Section 4.10. No General Solicitation or Advertising. In regard to the
--------------------------------------
transactions contemplated hereby, neither the Company nor any of its Affiliates
nor any distributor or any person acting on its or their behalf (i) has
conducted or will conduct any general solicitation (as that term is used in Rule
502(c) of Regulation D) or general advertising with respect to any of the
Commitment Shares, the Convertible Notes, the Warrants, or the Warrant Shares,
or (ii) made
any offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Common Stock
under the Securities Act.
Section 4.11. No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Commitment
Shares, the Convertible Notes, the Warrants and the Warrant Shares do not and
will not (i) result in a violation of the Articles or By-Laws or (ii) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations,
or any rule, regulation, order, judgment or decree of any self-regulatory
organization having authority over the matters contemplated hereby, applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided,
however, that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental or self-regulatory entity, except for possible violations
that either singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under any federal, state or local
law, rule or regulation, order, judgment or decree (including federal and state
securities laws and regulations), or any rule, regulation, order, judgment or
decree of any self-regulatory organization having authority over the matters
contemplated hereby, to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of its obligations under this Agreement or
issue and sell the Commitment Shares, the Convertible Notes, the Warrants, or
the Warrant Shares in accordance with the terms hereof (other than any SEC, NASD
or state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed pursuant
hereto, and any shareholder approval required by the rules applicable to
companies whose common stock trades on the OTC Electronic Bulletin Board;
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.12. No Material Adverse Change. Since December 31, 2000, no event
--------------------------
has occurred that would have a Material Adverse Effect on the Company.
Section 4.13. No Undisclosed Liabilities. The Company has no liabilities or
--------------------------
obligations that are material, individually or in the aggregate, other than
those incurred in the ordinary
course of the Company's businesses since December 31, 2000 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
Section 4.14. No Undisclosed Events or Circumstances. Since December 31,
--------------------------------------
2000, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly disclosed or announced.
Section 4.15. No Integrated Offering. Neither the Company, nor any of its
----------------------
Affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Commitment Shares, the Convertible Notes, the Warrants or the Warrant Shares
under the Securities Act.
Section 4.16. Litigation and Other Proceedings. Except as set forth in the
--------------------------------
SEC Documents, there are no lawsuits or proceedings pending or threatened
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which have had or might have
a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which has resulted in or might result in a Material Adverse
Effect.
Section 4.17. No Misleading or Untrue Communication. The Company, any
-------------------------------------
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Commitment Shares, the Convertible Notes,
the Warrants or the Warrant Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section 4.18. Material Non-Public Information. The Company is not in
-------------------------------
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1. Compliance. The Investor's trading activities with respect to
----------
shares of the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. Short Sale. Neither the Investor nor any of its Affiliates
----------
will directly or indirectly engage in any Short Sale of the Commitment Shares,
the Warrant Shares, the Warrants or the Convertible Notes during the Commitment
Period.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
-------------------
Rights Agreement to remain in full force and effect, and the Company shall
comply in all respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue (i) the Sale Shares and
the Warrant Shares, such amount of shares of Common Stock to be reserved shall
be calculated based upon the Minimum Bid Price, the Exercise Price of the
Incentive Warrant and the maximum number of Protective Warrant Shares issuable
pursuant to the Protective Warrants; and (ii) the Note Conversion Shares, such
amount of Note Conversion Shares into which the Initial Convertible Note may be
converted to be reserved shall be calculated based upon the conversion price set
forth in Section 3.1(a) of the Initial Convertible Note and such amount of Note
Conversion Shares into which Subsequent Convertible Notes may be converted to be
reserved shall be calculated based upon the Minimum Bid Price. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered.
Section 6.3. Listing of Common Stock. The Company shall exercise best
-----------------------
efforts to maintain the listing or quotation of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the Closing Date
for any Subsequent Sale) will cause the Commitment Shares and the Warrant Shares
to be listed on the Principal Market. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Commitment Shares and the Warrant Shares, and shall take
such other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall use commercially reasonable efforts to continue
the listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.4. Exchange Act Registration. The Company shall comply with all
-------------------------
applicable requirements set forth in the Registration Rights Agreement,
including without limitation its obligation to file each Registration Statement
with the SEC within the applicable time periods set forth in the Registration
Rights Agreement. After each Registration Statement becomes effective, the
Company shall cause the Common Stock covered by such Registration Statement to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act.
Section 6.5. Legends. The certificates evidencing the Warrants, the
-------
Commitment Shares, the Convertible Note and the Warrant Shares shall be free of
legends, except as provided for in Article VIII.
Section 6.6. Corporate Existence. The Company shall take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section 6.7. Additional SEC Documents. Until all Registrable Securities
------------------------
issued or issuable to the Investor pursuant to this Agreement may be sold by the
Investor without registration and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act, the Company shall, as and when the originals thereof are
submitted to the SEC for filing, notify the Investor in writing of any SEC
Documents furnished or submitted to the SEC, and upon the request of the
Investor the Company shall deliver to the Investor, as and when the originals
thereof are submitted to the SEC for filing, copies of all SEC Documents so
furnished or submitted to the SEC.
Section 6.8. Notice of Certain Events Affecting Registration; Suspension of
--------------------------------------------------------------
Right to Make a Sale. The Company shall immediately notify the 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 Registrable Securities: (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 a 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
Registrable Securities 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; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) 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
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Sale Notice during the
continuation of any of the foregoing events, except for (v) above.
Section 6.9. Consolidation; Merger. The Company shall not, at any time
---------------------
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) executes a written instrument acknowledging and assuming the obligation
to issue to the Investor, upon any Subsequent Sale or upon the exercise of any
Warrant, in lieu of each share of Common Stock theretofore issuable upon such
Subsequent Sale or exercise of any such Warrant, other securities, money or
property receivable upon such merger, consolidation or transfer had the
Subsequent Sale or exercise of such Warrant occurred immediately prior to such
merger, consolidation or transfer.
Section 6.10. Issuance of Shares. The issuance and sale of the Sale Shares,
------------------
the issuance of the Warrants, the issuance of the Warrant Shares pursuant to
exercise of the Warrants, the issuance of the Convertible Notes and the issuance
of the Note Conversion Shares upon conversion of the Convertible Notes, shall be
made in accordance with the provisions and requirements of Regulation D and any
applicable state law. Issuance of the Warrant Shares pursuant to exercise of the
Warrants through a cashless exercise shall be made in accordance with the
provisions and requirements of Section 3(a)(9) under the Securities Act and any
applicable state law.
Section 6.11. Legal Opinions. The Company's independent counsel shall
--------------
deliver to the Investor on the Subscription Date an opinion in the form of
Exhibit I, except for paragraph 7 thereof. The Company's independent counsel
shall deliver to the Investor, on the Effective Date of each Registration
Statement, an opinion in the form of Exhibit I hereto, including paragraph 7
thereof.
Section 6.12. No Similar Arrangement; Right of First Refusal; No Draw Downs
-------------------------------------------------------------
under Techrich Agreement.
------------------------
(a) The Company shall refrain from entering into any other
agreements, arrangements or understandings granting to the Company
the right to sell shares of its securities to one or more investors
(including, without limitation, Techrich), other than the Investor,
in placements exempt from registration under the Securities Act
until 60 calendar days after this Agreement is terminated pursuant
to Section 2.5 hereof or the earlier expiration of the Commitment
Period (the "Exclusivity Period"). If the Company, for the purpose
------------------
of obtaining any additional financing, wishes to sell shares of its
securities in placements exempt from registration under the
Securities Act during the Exclusivity Period (a "Third Party Sale")
----------------
to a party other than the Investor (the "Third Party"), the Company
-----------
shall first offer (the "Offer") to the Investor, in writing, the
-----
right to purchase such shares (the "Offered Shares") at the bona
--------------
fide price offered by the Third Party (the "Offer Price"). The Offer
-----------
shall grant the Investor the right during the 5 Trading Days
immediately following the date of the Offer to elect to purchase any
or all of the Offered Shares. The Company, in connection with such a
Third Party Sale, shall refrain from circumventing or attempting to
circumvent the Investor's right of first refusal by way of making
such a Third Party Sale to any of its Affiliates without first
making an Offer to the Investor. If the Investor so exercises its
right to purchase any or all of the Offered Shares, the purchase
will be treated as a
Subsequent Sale except that the purchase price for the Offered
Shares shall be the Offer Price. The closing and method of payment
shall be as provided for in Sections 2.3 and 2.4 hereof and the
Closing Date shall be 7 Trading Days after the Investor exercises
such right. If the Investor fails to exercise its right to purchase
any or all of the Offered Shares, then during the 60 calendar days
immediately following the expiration of such right, the Company
shall be free to sell any or all of the Offered Shares to a
purchaser for a purchase price not lower than the Offer Price
payable on terms and conditions that are not more favorable to such
purchaser than those contained in the Offer. In the event that the
Company effects a Third Party Sale, the Investor may immediately
terminate this Agreement.
(b) Without limiting paragraph (a) above, the Company shall not, at
any time during the term of this Agreement, (i) issue or exercise
any Draw Down (as defined in the Techrich Agreement) or deliver any
Draw Down Notice (as defined in the Techrich Agreement) under the
Techrich Agreement, or (ii) otherwise issue and sell to Techrich any
securities of the Company, including, without limitation, shares of
the Company's Common Stock, under the Techrich Agreement.
Section 6.13. Public Announcements. The Company, its Representatives and
--------------------
legal advisors, and the Investor will not issue or make any reports, statements
or releases to the public or to any third party with respect to this Agreement
or the transactions contemplated hereby without the consent of both the Company
and the Investor, which consent shall not be unreasonably withheld. The Company,
its Representatives and legal advisers, and the Investor also will obtain the
other party's prior approval of any press release to be issued announcing the
consummation of the transactions contemplated by this Agreement or in any way
referring to the other party or affiliates of the other party. If either party
is unable to obtain the approval of its public report, statement, or press or
other release from the other party and such report, statement, or press or other
release is, in the opinion of legal counsel to such party, required by
applicable law or by any rule or regulation of the Principal Market in order to
discharge such party's disclosure obligations, then such party may make or issue
the legally required report, statement, or press or other release and promptly
furnish the other party with a copy thereof.
Section 6.14. Delivery of Share Certificates. The Company shall use its
------------------------------
best efforts to cause its transfer agent to dispatch, using a nationally
recognized and reputable overnight courier, (i) share certificates representing
all Conversion Shares issuable upon a conversion of the Convertible Notes within
three (3) Trading Days following the Conversion Date (as defined in the
Convertible Notes) relating to such conversion, (ii) share certificates
representing shares of Common Stock issued pursuant to a Subsequent Sale within
three (3) Trading Days following the Closing Date relating to such Subsequent
Sale, and (iii) share certificates representing Warrant Shares issuable pursuant
to an exercise of the Incentive Warrant or the Protective Warrant within (3)
Trading Days following the Exercise Date (as defined in the Incentive Warrant or
the Protective Warrant, as applicable) relating to such exercise, all in
accordance with the provisions of the Transfer Agent Instructions (except that
the provisions in the Transfer Agent Instructions which permit the transfer
agent to dispatch such share certificates after a longer period has elapsed
shall not apply with respect to the obligations of the Company hereunder).
ARTICLE VII
CONDITIONS TO DELIVERY OF
SALE NOTICES AND CONDITIONS TO CLOSING
Section 7.1. Conditions Precedent to the Obligation of the Company to Issue
--------------------------------------------------------------
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
---------------------
the Common Stock to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
--------------------------------------------------------
representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement
and as of the date of each such Closing as though made at each such
time.
(b) Performance by the Investor. The Investor shall have performed,
---------------------------
satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to
such Closing.
Section 7.2. Conditions Precedent to the Right of the Company to Deliver a
--------------------------------------------------------------
Sale Notice and the Obligation of the Investor to Purchase Common Stock or a
----------------------------------------------------------------------------
Subsequent Convertible Note. The right of the Company to deliver a Sale Notice,
----------------------------
in the event of a Subsequent Sale, and the obligation of the Investor hereunder
to acquire and pay for Common Stock or a Subsequent Convertible Note, as the
case may be, with respect to a Closing is subject to the satisfaction, on (i)
the Subscription Date, (ii) the applicable Sale Notice Date and (iii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
---------------------------
following conditions; provided, however, that with respect to the Subscription
Date only, the Investor waives the conditions set forth in paragraphs (a), (b)
and (k) of this Section 7.2; provided, further, that with respect to a
Subsequent Note Sale, the conditions set forth in Section 7.3 hereof must also
be satisfied:
(a) Filing of Registration Statements with the SEC. In accordance
----------------------------------------------
with the provisions set forth in the Registration Rights Agreement,
the company shall have filed with the SEC Registration Statements
covering the resale of the Note Conversion Shares and Registrable
Securities relating to all prior Subsequent Sales.
(b) Effective Registration Statements. (1) The Company shall have
---------------------------------
notified the Investor in accordance with Section 6.8 hereof that
all prior Registration Statements covering the Note Conversion
Shares and Registrable Securities relating to any Subsequent Sales
have been declared effective by the SEC. (2) In accordance with the
Registration Rights Agreement, all such Registration Statements
shall remain effective on each Condition Satisfaction Date. (3)
Neither the Company nor the Investor shall have received notice
that the SEC has issued or intends to issue a stop order with
respect to a Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of a
Registration Statement, either temporarily or permanently, or intends
or has threatened to do so (unless the SEC's concerns have been
addressed and the Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action). (4) No other
suspension of the use or withdrawal of the effectiveness of such
Registration Statement or related prospectus shall exist.
(c) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company shall be true and
correct as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically
made as of a particular date).
(d) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights
Agreement, the Convertible Note and the Warrants to be performed,
satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of
competent jurisdiction that prohibits the transactions contemplated
by this Agreement or otherwise has a Material Adverse Effect, and no
actions, suits or proceedings shall be in progress, pending or
threatened by any Person, that seek to enjoin or prohibit the
transactions contemplated by this Agreement or otherwise could
reasonably be expected to have a Material Adverse Effect. For
purposes of this paragraph (e), no proceeding shall be deemed pending
or threatened unless one of the parties has received written or oral
notification thereof prior to the applicable Closing Date.
(f) No Suspension of Trading in or Delisting of Common Stock. The
--------------------------------------------------------
trading of the Common Stock shall not have been suspended by the SEC,
the Principal Market or the NASD, and the Common Stock shall have
been approved for listing or quotation on and shall not have been
delisted from the Principal Market. The issuance of shares of Common
Stock with respect to the applicable Closing shall not violate the
shareholder approval requirements of the Principal Market.
(g) Legal Opinion. The Company shall have caused to be delivered to
-------------
the Investor, within 5 Trading Days of the effective date of a
Registration Statement, an opinion of the Company's independent
counsel in the form of Exhibit I hereto, addressed to the Investor.
(h) Due Diligence. No dispute between the Company and the Investor
-------------
shall exist pursuant to Section 7.4 as to the adequacy of the
disclosure contained in the Registration Statement.
(i) Ten Percent Limitation. On each Closing Date, the number of
----------------------
Commitment Shares then to be purchased by the Investor shall not
exceed the number of such shares that, when aggregated with all other
shares of Common
Stock and Registrable Securities then owned by the Investor
beneficially or deemed beneficially owned by the Investor, as
determined in accordance with the definition of beneficial ownership
in Rule 13d-3 promulgated under the Exchange Act, would result in the
Investor owning more than 9.9% of all of such Common Stock as would
be outstanding on such Closing Date, as determined in accordance with
Section 13(d) of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section, in the event that the
amount of Common Stock outstanding as determined in accordance with
Section 13(d) of the Exchange Act and the regulations promulgated
thereunder is greater on a Closing Date than on the Sale Notice Date
associated with such Closing Date, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of
determining whether the Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and, if any, Warrant
Shares would own more than 9.9% of the Common Stock following such
Closing Date.
(j) No Knowledge. The Company shall have no knowledge of any event
------------
more likely than not to have the effect of causing any Registration
Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the fifteen Trading Days
following the Trading Day on which such notice is deemed delivered).
(k) Minimum Time Interval. The Minimum Time Interval shall have
---------------------
elapsed.
(l) Shareholder Vote. The issuance of shares of Common Stock with
----------------
respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market. Each Sale
Notice shall provide the Investor with the following information as
of the applicable Sale Notice Date: (i) the total number of shares of
Outstanding Common Stock, (ii) the number of Sale Shares issuable
with respect to the applicable Closing, (iii) the number of
Protective Warrant Shares issuable, if any, with respect to the
applicable Closing, (iv) the number of shares of Sale Shares issued
pursuant to previous Subsequent Sales, (v) the number of Incentive
Warrant Shares issued, (vi) the number of Protective Warrant Shares
previously issued pursuant to previous Subsequent Sales, (vii) the
number of Note Conversion Shares previously issued upon conversion of
the Convertible Note and (viii) the number of Note Conversion Shares
issuable upon future conversions of Convertible Note. If the issuance
by the Company of a number of shares of Common Stock equal to the sum
of the amounts stated in clauses (ii) through (vii), inclusive,
hereof would result in a violation by the Company of the shareholder
approval requirements of the Principal Market, the applicable Sale
Notice shall be deemed null and void.
(m) Other. On each Condition Satisfaction Date, the Investor shall
-----
have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested by
the Investor in order for the Investor to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2.,
including, without limitation, a certificate in substantially the
form and substance of Exhibit K hereto, executed in either case by an
executive officer of the
(m) Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
(n) Certain Events. The Company shall not be permitted to deliver a
--------------
Sale Notice during any period in which the events described in
Section 6.8, except for clause (v) thereof, continue to occur.
Section 7.3. Additional Conditions Precedent to the Right of the Company to
--------------------------------------------------------------
Deliver a Sale Notice for a Subsequent Convertible Note and the Obligation of
-----------------------------------------------------------------------------
the Investor to Purchase a Subsequent Convertible Note. The right of the Company
------------------------------------------------------
to deliver a Sale Notice for a Subsequent Convertible Note, in the event of a
Subsequent Note Sale, and the obligation of the Investor hereunder to acquire
and pay for a Subsequent Convertible Note with respect to a Closing is subject
to the satisfaction, on the applicable Condition Satisfaction Dates, of each of
the following conditions in addition to the conditions set forth in Section 7.2
hereof:
(a) Goods Shipped to OTE. The total amount, as calculated by using a
--------------------
"cost price basis", of all Orasis(R) (hand-held, pen-based computers)
and Oralynx(TM) (set-top boxes) delivered to OTE by the Company shall
equal or exceed the sum of $2,500,000 plus the aggregate Investment
Amounts for all Subsequent Sales (excluding the proposed Subsequent
Sale) occurring prior to the applicable Condition Satisfaction Date.
(b) Unshipped Orders from OTE. The total amount, as calculated by
-------------------------
using a "cost price basis", of valid and documented orders for
Orasis(R) and Oralynx(TM) that the Company has received from OTE
shall equal or exceed 75% of the Investment Amount with respect to
the proposed Subsequent Note Sale (excluding all prior Subsequent
Sales).
(c) Other. On each Condition Satisfaction Date, the Investor shall
-----
have received and been satisfied with such evidence as shall have
been reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in
this Section 7.3., including, without limitation, a certificate from
the Company's external auditors in form and substance satisfactory to
the Investor; provided, however, that if such evidence contains
material non-public information, such information shall be disclosed
to the public through the issuance of a press release by the Company
prior to or simultaneously with the delivery of such evidence by the
Company to the Investor or its Representatives.
(d) Maximum Note Amount. The aggregate principal amount of all prior
-------------------
issued Convertible Notes shall be less than $4,000,000.
Section 7.4. Due Diligence Review; Non-Disclosure of Non-Public Information.
--------------------------------------------------------------
(a) The Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor (who may or
may not be affiliated with the Investor and who are reasonably
acceptable to the Company),
and any Underwriter, any Registration Statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with
the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by the Investor or
any such representative, advisor or Underwriter in connection with
such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the
filing and effectiveness of such Registration Statement for the sole
purpose of enabling the Investor and such representatives, advisors
and Underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the Company
and the accuracy of such Registration Statement.
(b) None of the Company, its officers, directors, employees and
agents shall in any event disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior
to disclosure of such information the Company identifies such
information as being non-public information and provides the
Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. As
a condition to disclosing any non-public information hereunder, the
Company may require the Investor and the Investor's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investor.
(a) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts;
provided, however, that notwithstanding anything herein to the
contrary, the Company shall, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
applicable Registration Statement would cause such prospectus to
include a material misstatement or to omit a material fact required
to be stated therein in order to make the statements, therein, in
light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that
such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due
diligence in accordance with the terms and conditions of this
Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on
such due diligence by such
persons or entities, that such Registration Statement contains an
untrue statement of a material fact or omits a material fact required
to be stated in such Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1. Legends. Each of the Warrants, the Convertible Note and,
-------
unless otherwise provided below, each certificate representing Registrable
Securities will bear the following legend (the "Legend"):
------
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF
DAUPHIN TECHNOLOGY, INC. SET FORTH IN A SECURITIES PURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 28, 2001, BETWEEN DAUPHIN TECHNOLOGY, INC. AND
CRESCENT INTERNATIONAL LTD. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM DAUPHIN
TECHNOLOGY, INC.'S EXECUTIVE OFFICES."
On the Subscription Date the Company shall issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common
Stock upon the Company's appointment of any such substitute or replacement
transfer agent) Transfer Agent Instructions, with a copy to the Investor. Other
than as required as a result of change in law, such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Registrable Securities by the Investor to issue certificates
evidencing such Registrable Securities free of the Legend during the following
periods and under the following circumstances and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or the Investor, and the Company agrees that it will,
and will cause its counsel to, provide the transfer agent with any
and all documentation requested or required by the transfer agent, the Investor
or their respective counsel, including without limitation the documentation and
confirmations referenced in the Transfer Agent Instructions:
(a) At any time after the applicable Effective Date, upon surrender
of one or more certificates evidencing Registrable Securities that
bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered; provided that (i) the applicable Registration Statement
shall then be effective and (ii) if reasonably requested by the
transfer agent the Investor confirms to the transfer agent that the
Investor has transferred the Registrable Securities pursuant to such
Registration Statement and has complied with the prospectus delivery
requirement; or
(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing
representations that the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of
sale pursuant to Rule 144(k) under the Securities Act.
Section 8.2. No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII and as
required by applicable law.
Section 8.3. Investor's Compliance. Nothing in this Article VIII shall affect
---------------------
in any way the Investor's obligations to comply with all applicable securities
laws.
ARTICLE IX
INDEMNIFICATION; ARBITRATION
Section 9.1. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Investor,
its partners, Affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with its controlling
persons from and against any Damages, joint or several, and any
action in respect thereof to which the Investor, its partners,
Affiliates, officers, directors, employees, and duly authorized
agents, and any such controlling person becomes subject to, resulting
from, arising out of or relating to any misrepresentation, breach of
warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement or the
Convertible Note, as such Damages are incurred, unless such Damages
result primarily from the Investor's gross negligence, recklessness or
bad faith in performing its obligations under this Agreement or the
Convertible Note; provided, however, that the maximum aggregate
liability of the Company shall be limited to the amount actually
invested by the Investor under this Agreement, and provided, further,
that in no event shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
(b) The Investor agrees to indemnify and hold harmless the Company,
its Affiliates, officers, directors, employees, and duly authorized
agents from and against any Damages, joint or several, and any action
in respect thereof to which the Company, its Affiliates, officers,
directors, employees, and duly authorized agents and any such
controlling person becomes subject to, resulting from, arising out of
or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on
the part of the Investor contained in this Agreement, as such Damages
are incurred, unless such Damages result primarily from the Company's
gross negligence, recklessness or bad faith in performing its
obligations under this Agreement; provided, however, that the maximum
aggregate liability of the Investor shall be limited to the amount by
which the total price at which the Registrable Securities held by the
Investor were sold to the public exceeds the amount actually paid by
the Investor under this Agreement for such Registrable Securities sold
to the public, and provided, further, that in no event shall this
provision be deemed to limit any rights to indemnification arising
under the Registration Rights Agreement.
Section 9.2. Method of Asserting Indemnification Claims. All claims for
------------------------------------------
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.1 (an
"Indemnified Party") might seek indemnity under Section 9.1 is asserted
-----------------
against or sought to be collected from such Indemnified Party by a
person other than the Company, the Investor or any Affiliate of the
Company (a "Third Party Claim"), the Indemnified Party shall deliver a
-----------------
written notification, enclosing a copy of all papers served, if any,
and specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim for indemnification that is being
asserted under any provision of Section 9.1 against any person (the
"Indemnifying Party"), together with the amount or, if not then
------------------
reasonably ascertainable, the estimated amount, determined in good
faith, of such Third Party Claim (a "Claim Notice") with reasonable
------------
promptness to the Indemnifying Party. If the Indemnified Party fails to
provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the
Indemnifying Party shall not be obligated to indemnify the Indemnified
Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced
by such failure of the Indemnified Party. The Indemnifying Party shall
notify the Indemnified Party as
soon as practicable within the period ending 30 calendar days following
receipt by the Indemnifying Party of either a Claim Notice or an Indemnity
Notice (as defined below) (the "Dispute Period") whether the Indemnifying
--------------
Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.1 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to
this Section 9.2(a), then the Indemnifying Party shall have the right
to defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party, such
Third Party Claim by all appropriate proceedings, which proceedings
shall be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled at the discretion of
the Indemnifying Party (but only with the consent of the Indemnified
Party in the case of any settlement that provides for any relief other
than the payment of monetary damages or that provides for the payment
of monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9.1). The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate
to protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost
and expense of the Indemnifying Party, provide reasonable cooperation
to the Indemnifying Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any
Third Party Claim controlled by the Indemnifying Party pursuant to
this clause (i), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect
to such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to
indemnity under Section 9.1 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to
defend the Third Party Claim pursuant to Section 9.2(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously
and diligently or settle the Third Party Claim, or if the Indemnifying
Party fails to give any notice whatsoever within the Dispute Period,
then the Indemnified Party
shall have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by
the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability
hereunder to the Indemnified Party with respect to such Third
Party Claim, and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below,
the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this
clause (ii) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party
shall reimburse the Indemnifying Party in full for all reasonable
costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause (ii),
and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its
liability to the Indemnified Party with respect to the Third
Party Claim under Section 9.1 or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the
Damages in the amount specified in the Claim Notice shall be
conclusively deemed a liability of the Indemnifying Party under
Section 9.1 and the Indemnifying Party shall pay the amount of
such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the
amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in
good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the period of 30 calendar
days immediately following the Dispute Period, such dispute shall
be resolved by arbitration in accordance with Section 9.3.
(b) In the event any Indemnified Party should have a claim under
Section 9.1 against the Indemnifying Party that does not involve a
Third Party Claim, the
Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9.1 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of
such claim (an "Indemnity Notice") with reasonable promptness to the
----------------
Indemnifying Party. The failure by any Indemnified Party to give the
Indemnity Notice shall not impair such party's rights hereunder
except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or
the amount of the claim described in such Indemnity Notice or fails
to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes the claim or the amount of the claim
described in such Indemnity Notice, the Damages in the amount
specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.1 and the
Indemnifying Party shall pay the amount of such Damages to the
Indemnified Party on demand. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party shall
proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of 30 calendar
days immediately following the Dispute Period, such dispute shall be
resolved by arbitration in accordance with Section 9.3.
Section 9.3. Arbitration. Any controversy, claim or dispute arising out of
-----------
or in connection with this Agreement, the Registration Rights Agreement, the
Convertible Note or the Warrants, including any question regarding its
existence, validity, interpretation, breach, or termination, shall be referred
to and finally resolved in accordance with the International Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbitral tribunal may be entered by any court having jurisdiction thereof or
having jurisdiction over any party or any party's assets.
(a) The tribunal shall consist of three arbitrators, two of whom
shall be appointed by the respective parties and the third, who shall
be the chairperson of the tribunal, by the two party-appointed
arbitrators within 30 days of the last of their appointments. Save
that, if either party should fail to appoint an arbitrator within 30
days of receiving written notice of the appointment of an arbitrator
by the other party, the second arbitrator shall, at the written
request of the party which has already made an appointment, be
appointed forthwith by the American Arbitration Association.
Likewise, if the party-appointed arbitrators fail to make an agreed
appointment for the chairperson within 30 days of the last of their
appointments, the chairperson shall, at the written request of either
party, be appointed forthwith by the American Arbitration
Association.
The place of arbitration shall be New York, New York.
This arbitration clause and the conduct of the arbitral proceedings
shall be governed by the Federal Arbitration Act, 9 U.S.C.A. sec. 1
et seq.
The language of the arbitration shall be English.
Nothing in these dispute resolution provisions shall be
construed as preventing either party from seeking
conservatory or similar interim relief in any court of
competent jurisdiction.
To the extent practicable, the arbitral tribunal shall render
its award no more than 60 calendar days from the date that
the three member tribunal is constituted. The arbitral
tribunal shall not lose jurisdiction over the matter based
on a failure to render an award within this time period.
ARTICLE X
MISCELLANEOUS
Section 10.1. Fees and Transaction Costs. In connection with the
execution of this agreement the following Sale Fees, Investor Legal Fees and Due
Diligence Costs (as defined below and in Schedule 10.1) are payable by the
Company to the payee entities listed in Schedule 10.1. The Investor is
authorized by the Company to deduct such amounts from any sums due to the
Company on the applicable Closing Date and to pay them to the payee entities
listed in Schedule 10.1.
(a) Subscription Fee. On the Subscription Date, the Company
----------------
shall pay the subscription fee in the amount set forth in
Schedule 10.1 (the "Subscription Fee").
----------------
(b) Sale Fees. On each Closing Date, the Company shall pay an
---------
amount calculated in accordance with Schedule 10.1 (the "Sale
----
Fee").
---
(c) Transaction Costs. The fees, expenses and disbursements of
-----------------
the Investor's counsel (the "Investor Legal Fees") shall be
-------------------
paid as follows: (i) the Investor shall pay the initial
$10,000 of Investor Legal Fees and (ii) the Company shall pay
all Investor Legal Fees in excess of $10,000. The Company
shall pay the Investor due diligence costs in connection with
the consummation of this Agreement and the transactions
contemplated hereby (the "Due Diligence Costs") up to a
-------------------
maximum amount of $10,000. The Company shall pay the Company's
share of the Investor Legal Fees and Due Diligence Costs on
the first Closing Date, to the extent such share of the
Investor Legal Fees and Due Diligence Costs can be determined
on the first Closing Date. The Company shall pay its share of
the remaining Investor Legal Fees and Due Diligence Costs not
later than 10 days after receipt of notice from the Investor
that such amount is due. The Company agrees to pay its own
expenses incident to the performance of its obligations
hereunder.
Section 10.2. Reporting Entity for the Common Stock. The reporting
-------------------------------------
entity relied upon for the determination of the Bid Price or trading volume of
the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg
L.P. The written mutual consent of the Investor and the Company shall be
required to employ any other reporting entity.
Section 10.3. Brokerage. Except as disclosed in Section 10.1, each of the
---------
parties hereto represents that it has had no dealings in connection with this
transaction with any finder or broker which would impose a legal obligation to
pay any fee or commission. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.4. Notices. All notices, demands, requests, consents, approvals,
-------
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile at the address or
number designated below (if delivered on a Trading Day during normal business
hours where such notice is to be received), or the first Trading Day following
such delivery (if delivered other than on a Trading Day during normal business
hours where such notice is to be received) or (b) on the third Trading Day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Dauphin Technology, Inc.
800 E. Northwest Highway
Suite 950
Palatine, IL 60067
Attention: Christopher L. Geier
Telephone: (847) 358-4406
Facsimile: (847) 358-4407
with a copy (which shall not constitute notice) to:
Rieck & Crotty, P.C.
55 West Monroe Street, Suite 3390
Chicago, IL 60603-5062
Attention: Ronald Duplack, Esq.
Telephone: (312) 726-4646
Facsimile: (312) 726-0647
if to the Investor:
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
84, av Louis-Casai
1216 Geneva, Cointrin
Switzerland
Attention: Mel Craw/Maxi Brezzi
Telephone: +41 22 791 71 69
Facsimile: +41 22 929 53 94
with a copy (which shall not constitute notice) to:
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: Earl S. Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto from time to time may change its address or facsimile
number for notices under this Section by giving at least ten (10) calendar days'
prior written notice of such changed address or facsimile number to the other
party hereto.
Section 10.5. Assignment. Neither this Agreement nor any rights of the Investor
----------
or the Company hereunder may be assigned by either party to any other Person.
Notwithstanding the foregoing, the Investor's interest in this Agreement may be
assigned at any time, in whole or in part, to any Affiliate of the Investor upon
the prior written consent of the Company, which consent shall not to be
unreasonably withheld provided, however, that any such assignment or transfer
shall relieve the Investor of its duties under this Agreement only upon
performance thereof by any such assignee or transferee.
Section 10.6. Amendment; No Waiver. No party shall be liable or bound to
--------------------
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement. Except as expressly provided
in this Agreement, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
both parties hereto. The failure of the either party to insist on strict
compliance with this Agreement, or to exercise any right or remedy under this
Agreement, shall not constitute a waiver of any rights provided under this
Agreement, nor estop the parties from thereafter demanding full and complete
compliance nor prevent the parties from exercising such a right or remedy in the
future.
Section 10.7. Annexes and Exhibits; Entire Agreement. All annexes and
--------------------------------------
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement, the Warrants and the
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and thereof and supersede
all prior and contemporaneous agreements, negotiations and understandings
between the parties, both oral and written, relating to the subject matter
hereof.
Section 10.8. Survival. The provisions of Articles VI, VIII, IX and X, and
--------
of Section 7.3, shall survive the termination of this Agreement.
Section 10.9. Severability. In the event that any provision of this
------------
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10. Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.11. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 10.12. Choice of Law. This Agreement shall be construed under the
-------------
laws of the State of New York.
Section 10.13. Other Expenses. In the event that a dispute between the
--------------
parties is not determined by a Board of Arbitration, the non-prevailing party in
any action, suit or proceeding shall bear all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
defense or settlement of such action, suit or proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by the undersigned, thereunto duly authorized, as of the date first set forth
above.
CRESCENT INTERNATIONAL LTD.
By:_________________________________________________________
Name:
Title:
DAUPHIN TECHNOLOGY, INC.
By:_________________________________________________________
Name: Christopher L. Geier
Title: Executive Vice President