E-Rex (Final 9-26-01 No Antidilution) Second Amended and Restated Investment
Agreement
E-REX, INC.
SECOND AMENDED AND RESTATED INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL
AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF
THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
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SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS SECOND AMENDED AND RESTATED INVESTMENT AGREEMENT (this
"Agreement" or "Investment Agreement" or " Second Amended and Restated
Investment Agreement") is made as of the 27th day of September, 2001, by and
between E-Rex, Inc., a corporation duly organized and existing under the laws of
the State of Nevada (the "Company"), and Swartz Private Equity, LLC ("Investor")
and amends and restates the Amended and Restated Investment Agreement between
the parties dated on or about March 8, 2001, which was originally dated on or
about December 22, 2000.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Fifteen
Million Dollars ($15,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by
the Company, the offer and sale of the Common Stock are being made in reliance
upon the provisions of Regulation D ("Regulation D") promulgated under the Act,
Section 4(2) of the Act, and/or upon such other exemption from the registration
requirements of the Act as may be available with respect to any or all of the
purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
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"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(b).
"Business Day" shall mean any day during which the Principal Market is open
for trading.
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month and for Calendar Months thereafter, beginning on
the earlier of (i) the same numeric day of the next calendar month or (ii) the
last day of the next calendar month. Each Calendar Month shall end on the day
immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
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"Change in Control" shall have the meaning set forth within the definition
of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.6.
"Commitment Period" shall have the meaning set forth in Section 2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as Exhibit U.
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"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean E-Rex, Inc., a corporation duly organized and existing
under the laws of the State of Nevada.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance Put
Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall have the meaning given to it in the Registration
Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it in
the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
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or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
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"Late Payment Amount" shall have the meaning set forth in Section 2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control");
(ii) the sale or transfer of a portion of the Company's assets not in
the ordinary course of business;
(iii) the purchase of assets by the Company not in the ordinary course
of business; or
(iv) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the terms of
this Agreement, the period beginning on the Business Day immediately following
the Put Date and ending on and including the date which is 20 Business Days
after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the respective Put Share Prices with respect to such Put Shares, subject to
the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section
2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as Exhibit G.
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"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
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the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.7(a), the form of which is attached hereto as Exhibit R.
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"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
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parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section 2.3.6.
"Right of First Refusal" shall have the meaning set forth in Section 6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
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"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all
of the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section 2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to its
transfer agent, substantially in the form attached as Exhibit T, or such other
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form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
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"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean the Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
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Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby
agrees to purchase such amounts of Common Stock as the Company may, in its sole
and absolute discretion, from time to time elect to issue and sell to Investor
according to one or more Puts pursuant to Section 2.3 below.
2.2 Investment Commitment.
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2.2.1 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement, the Registration Rights Agreement and the Commitment Warrant
have been duly executed by both Investor and the Company, the Transfer Agent
Instructions have been duly executed by both the Company and the Transfer Agent,
and the other Conditions to Investment Commitment Closing set forth in Section
2.2.2 below have been met.
2.2.2 Conditions to Investment Commitment Closing. As a
prerequisite to the Investment Commitment Closing, all of the following (the
"Conditions to Investment Commitment Closing") shall have been satisfied prior
to or concurrently with the Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by the
Company and Investor), (ii) the Commitment Warrant, (iii) the
Investment Commitment Opinion of Counsel (signed by the Company's
counsel) and (iv) the Transfer Agent Instructions (executed by
the Company and the Transfer Agent), and (vi) a Secretary's
Certificate as to (A) the resolutions of the Company's board of
directors authorizing this transaction, (B) the Company's
Certificate of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have
been received by the Investor;
(c) the Company's Common Stock shall be listed for trading and
actually trading on the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk Factors set
forth in the Disclosure Documents (provided for in Section
3.2.4), up through the Investment Commitment Closing there have
been no material adverse changes in the Company's business
prospects or financial condition since the date of the last
balance sheet included in the Disclosure Documents, including but
not limited to incurring material liabilities; and
(e) the representations and warranties of the Company in this
Agreement shall be true and correct in all material respects and
the Conditions to Investment Commitment Closing set forth in this
Section 2.2.2 shall have been satisfied on the date of such
Investment Commitment Closing; and the Company shall deliver an
Officer's Certificate, signed by an officer of the Company, to
such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
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2.3.1 Procedure to Exercise a Put. Subject to the Individual
Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and
the other conditions and limitations set forth in this Agreement, at any time
beginning on the date on which the Registration Statement is declared effective
by the SEC (the "Effective Date"), the Company may, in its sole and absolute
discretion, elect to exercise one or more Puts according to the following
procedure, provided that each subsequent Put Date after the first Put Date shall
be no sooner than five (5) Business Days following the preceding Pricing Period
End Date:
(a) Delivery of Advance Put Notice. At least ten (10)
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Business Days but not more than twenty (20) Business Days prior to any intended
Put Date, the Company shall deliver advance written notice (the "Advance Put
Notice," the form of which is attached hereto as Exhibit E, the date of such
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Advance Put Notice being the "Advance Put Notice Date") to Investor stating the
Put Date for which the Company shall, subject to the limitations and
restrictions contained herein, exercise a Put and stating the number of shares
of Common Stock (subject to the Individual Put Limit and the Maximum Put Dollar
Amount) which the Company intends to sell to the Investor for the Put (the
"Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase shares of Common Stock pursuant to such Put Notice (a
"Company Designated Minimum Put Share Price"). The Company Designated Minimum
Put Share Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date, or (ii) the Closing Bid Price
of the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date minus $0.125. The Company may decrease (but not
increase) the Company Designated Minimum Put Share Price for a Put at any time
by giving the Investor written notice of such decrease not later than 12:00
Noon, New York City time, on the Business Day immediately preceding the Business
Day that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the determination of
Trigger Prices and Excluded Days for days preceding the Business Day that such
decrease takes effect, provided that the Put Share Price for all shares in a Put
shall be calculated using the lowest Company Designated Minimum Put Share Price,
as decreased.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.).
(b) Put Share Amount. The "Put Share Amount" is the number
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of shares of Common Stock that the Investor shall be obligated to purchase in a
given Put, and shall equal the lesser of (i) the Intended Put Share Amount, and
(ii) the Individual Put Limit. The "Individual Put Limit" shall equal the
lesser of (A) 1,500,000 shares, (B) 15% of the sum of the aggregate daily
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more shares of Common
Stock, for all Evaluation Days (as defined below) in the Pricing Period, (C) the
number of Put Shares which, when multiplied by their respective Put Share
Prices, equals the Maximum Put Dollar Amount, and (D) the 9.9% Limitation, but
in no event shall the Individual Put Limit exceed 15% of the sum of the
aggregate daily reported Trading Volumes in the outstanding Common Stock on the
Company's Principal Market, excluding any block trades of 20,000 or more shares
of Common Stock, for the twenty (20) Business Days immediately preceding the
Advance Put Notice Date (this limitation, together with the limitation in (B)
immediately above are collectively referred to herein as the "Volume
Limitations"). Company agrees not to trade Common Stock or arrange for Common
Stock to be traded for the purpose of artificially increasing the Volume
Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i)
the Company Designated Minimum Put Share Price, plus $0.075, or (ii) the Company
Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing Period
where the lowest intra-day trading price of the Common Stock is less than the
Trigger Price and each Business Day defined in Section 2.3.4 as an "Excluded
Day".
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the Put Shares
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(the "Put Share Price") shall equal the lesser of (i) the Market Price for such
Put, minus $0.075, or (ii) 91% of the Market Price for such Put, but shall in no
event be less than the Company Designated Minimum Put Share Price for such Put,
if applicable.
(d) Delivery of Put Notice. After delivery of an Advance
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Put Notice, on the Put Date specified in the Advance Put Notice the Company
shall deliver written notice (the "Put Notice," the form of which is attached
hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended Put
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Share Amount as specified in the Advance Put Notice (such exercise a "Put"),
(iii) the Company Designated Maximum Put Dollar Amount (if applicable), and (iv)
the Company Designated Minimum Put Share Price (if applicable). In order to
effect delivery of the Put Notice, the Company shall (i) send the Put Notice by
facsimile on the Put Date so that such notice is received by the Investor by
6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to
a courier for overnight delivery to the Investor (or two (2) day delivery in the
case of an Investor residing outside of the U.S.).
(e) Delivery of Required Put Documents. On or before the Put
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Date for such Put, the Company shall deliver the Required Put Documents (as
defined in Section 2.3.6 below) to the Investor (or to an agent of Investor, if
Investor so directs). Unless otherwise specified by the Investor, the delivery
of the Put Shares of Common Stock shall be in the form of physical certificates.
f the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date, the Put shall be automatically cancelled (an
"Impermissible Put Cancellation") and the Company shall pay the Investor $5,000
for its reasonable due diligence expenses incurred in preparation for the
cancelled Put and the Company may deliver an Advance Put Notice for the
subsequent Put no sooner than ten (10) Business Days after the date that such
Put was cancelled. Also, in the event of a Put Interruption Notice that occurs
prior to the Put Date, the Company shall pay the Investor $5,000 for its
reasonable due diligence expenses incurred in preparation for the interrupted
Put.
(f) Limitation on Investor's Obligation to Purchase Shares.
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Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and an Intended Put Share Amount may not
include, an amount of Put Shares, which when added to the number of Put Shares
acquired by the Investor pursuant to this Agreement during the 61 days preceding
the Put Date with respect to which this determination of the permitted Intended
Put Share Amount is being made, would exceed 9.9% of the number of shares of
Common Stock outstanding (on a fully diluted basis, to the extent that inclusion
of unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put
Notice shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a Pricing Period
than on the Put Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Shares made pursuant to this Agreement in the 61 calendar days
preceding such date, would have acquired more than 9.9% of the Section 13(d)
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Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
----
2.3.2 Termination of Right to Put. The Company's right to
initiate subsequent Puts to the Investor shall terminate permanently (each, an
"Automatic Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company or any director or
executive officer of the Company has engaged in a transaction or conduct related
to the Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) on any date after a cumulative time period or series of
time periods, consisting only of Ineffective Periods and Delisting Events, that
lasts for an aggregate of four (4) months;
(c) if at any time the Company has filed for and/or is
subject to any bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors instituted by or against the Company or any subsidiary of the
Company;
(d) after the sooner of (i) the date that is three (3) years
after the Effective Date, or (ii) the Put Closing Date on which the aggregate of
the Put Dollar Amounts for all Puts equal the Maximum Offering Amount (the
"Commitment Period");
(e) the Company has breached any covenant in Section 2.6,
Section 6, or Section 9 hereof; or
(f) if no Registration Statement has been declared effective
by the date that is one (1) year after the date of this Agreement, the Automatic
Termination shall occur on the date that is one (1) year after the date of this
Agreement.
2.3.3 Maximum Offering Amount. The Investor shall not be
obligated to purchase any additional Put Shares once the aggregate Put Dollar
Amount paid by Investor equals the Maximum Offering Amount.
2.3.4 Put Interruption. Once the Company delivers an Advance
Put Notice to the Investor, the Company may not cancel the Put. In the event of
a Put Interruption Event (as defined below)), in each case during any Pricing
Period, then (A) the Company shall notify the Investor in writing (a "Put
Interruption Notice") as soon as possible by facsimile and overnight courier,
but no later than the end of the Business Day in which the Company becomes aware
of such facts, (B) the Pricing Period shall be extended or shortened, as
applicable, such that the Pricing Period End Date is the tenth (10th) Business
Day after the date of such Put Interruption Notice from the Company, (the "Put
Interruption Date"), (C) each Business Day from and including the Put
Interruption Date through and including the Pricing Period End Date for the
applicable Put (as extended or shortened, if applicable), shall be considered to
be an "Excluded Day," as that term is used in this Agreement, and (D) the
Company Designated Minimum Put Share Price, if any, shall not apply to the
affected Put. In the event that a Put Interruption Event occurs after an
Advance Put Notice Date, but before the applicable Put Date, that Put shall be
deemed to be terminated, and the Company may deliver an Advance Put Notice for a
new Put anytime beginning on the following Business Day, if otherwise allowed
under this Agreement. A "Put Interruption Event" shall mean any of the
following: (i) an Automatic Termination, (ii) the failure of one of the items
specified in Section 2.3.5 below to be true and correct on any day during an
Extended Pricing Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a subdivision or combination,
including a reverse split, of its Common Stock or has subdivided or combined its
Common Stock;
(b) the Company has paid a dividend of its Common Stock or
has made any other distribution of its Common Stock;
(c) the Company has made a distribution of all or any
portion of its assets or evidences of indebtedness to the holders of its
Common Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of Material Facts or
any Ineffective Period or Delisting Event occurs.
2.3.5 Conditions Precedent to the Right of the Company to
Deliver an Advance Put Notice or a Put Notice. The right of the Company to
deliver an Advance Put Notice or a Put Notice is subject to the satisfaction, on
the date of delivery of such Advance Put Notice or Put Notice, of each of the
following conditions:
(a) the Company's Common Stock shall be listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap
Market, the Nasdaq National Market or the New York Stock Exchange
and the Put Shares shall be so listed, and to the Company's
knowledge there is no notice of any suspension or delisting with
respect to the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all obligations pursuant
to the Registration Rights Agreement, including, but not limited
to, the filing of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities and the
requirement that the Registration Statement shall have been
declared effective by the SEC for the resale of all Registrable
Securities and the Company shall have satisfied and shall be in
compliance with any and all obligations pursuant to this
Agreement and the Warrants;
(c) the representations and warranties of the Company in Sections
5.1, 5.3, 5.4, 5.5, 5.6, 5.10, 5.13, 5.14, 5.15, 5.16, 5.18,
5.19, 5.21, and 5.25 hereof are true and correct in all material
respects as if made on such date, the Company has satisfied its
obligations under Section 2.6 hereof and the conditions to
Investor's obligations set forth in this Section 2.3.5 are
satisfied as of such Closing, and the Company shall deliver a
certificate, signed by an officer of the Company, to such effect
to the Investor;
(d) the Company shall have reserved for issuance a sufficient number
of Common Shares for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares pursuant to any Put
and to effect exercise of the Warrants;
(e) the Registration Statement is not subject to an Ineffective
Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and to
the Company's knowledge there is no notice of any investigation
or inquiry concerning any stop order with respect to the
Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of the Put would
exceed the Cap Amount, the Company shall have obtained the
Stockholder 20% Approval as specified in Section 6.11, if the
Company's Common Stock is listed on the NASDAQ Small Cap Market
or the NASDAQ National Market System (the "NMS"), and such
approval is required by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event that, in the
Company's opinion, is 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 thirty Business Days following the date on which such Advance
Put Notice and Put Notice is deemed delivered);
(h) there is not then in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been
obtained, nor is there any pending or threatened proceeding or
investigation which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(i) 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, and no actions, suits or proceedings shall be in
progress, pending or threatened by any person (other than the
Investor or any affiliate of the Investor), that seek to enjoin
or prohibit the transactions contemplated by this Agreement. For
purposes of this paragraph (i), 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;
(j) the Put Shares delivered to the Investor are DTC eligible and can
be immediately converted into electronic form; and
(k) there has been no assertion by the SEC that there has been a
violation of Section 5 of the Securities Act caused by the
integration of the private sale of common stock to the Investor
and the public offering pursuant to the Registration Statement,
and there have been no claims made by third parties against the
Investor based on a such an alleged Section 5 violation.
2.3.6 Documents Required to be Delivered on the Put Date as
Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
(a) a number of Unlegended Share Certificates equal to the
Intended Put Share Amount, in denominations of not more than 50,000 shares per
certificate;
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, Registration Opinion, and any report or
disclosure required under Section 2.3.7 or Section 2.5;
(c) all documents, instruments and other writings required
to be delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated herein.
2.3.7 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.7(b) or by Section 2.5.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of Exhibit R (the "Registration Opinion"),
---------
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any Supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Interruption Notice to the Investor pursuant to Section 2.3.4 by facsimile
and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the parties
hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on the date that is three
(3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have
requested delivery of an Agreed Upon Procedures Report pursuant to Section
2.5.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this
Section 2.3.7(b) cannot be delivered by the Company's independent auditors, the
Company shall, if necessary, promptly revise the Registration Statement and the
Company shall not deliver a Put Notice until such report is delivered.
2.3.8 Investor's Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required to
purchase (each a "Purchase") from the Company a number of Put Shares equal to
the Put Share Amount, in the manner described below.
2.3.9 Mechanics of Put Closing. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in this Section 2, the closing of the purchase by the Investor of Shares
shall occur by 5:00 PM, New York City Time, on the date which is five (5)
Business Days following the applicable Pricing Period End Date (the "Payment Due
Date") at the offices of Investor. On each or before each Payment Due Date, the
Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid. The closing (each a "Put Closing") for each Put shall occur on the
date that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar
Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall pay
to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.10 Limitation on Short Sales. The Investor and its
affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or any
short sale or other hedging or similar arrangement it deems appropriate with
respect to Put Shares after it receives a Put Notice with respect to such Put
Shares so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed on the Nasdaq
Small Cap Market or the Nasdaq National Market, then, unless the Company has
obtained Stockholder 20% Approval as set forth in Section 6.11 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares
exceed the maximum number of shares of Common Stock (the "Cap Amount") that the
Company can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule)
(the "Nasdaq 20% Rule").
2.3.12 Investment Agreement Termination. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other rights
and obligations under this Agreement, the Registration Rights Agreement, the
Warrants and the Transfer Agent Instructions. Notwithstanding the above, any
Put Interruption Notice occurring during an Extended Put Period is governed by
Section 2.3.4.
2.3.13 Return of Excess Common Shares. In the event that the
number of Shares purchased by the Investor pursuant to its obligations hereunder
is less than the Intended Put Share Amount, the Investor shall promptly return
to the Company any shares of Common Stock in the Investor's possession that are
not being purchased by the Investor.
2.4 Warrants.
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2.4.1 Commitment Warrants. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about September
22, 2000 between the Company and the Investor, the Company issued and delivered
to Investor warrants (the "Commitment Warrants") in the form attached hereto as
Exhibit U, or such other form as agreed upon by the parties, to purchase
----------
2,700,000 shares of Common Stock. Each Commitment Warrant shall be immediately
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exercisable in accordance with its terms, and shall have a term beginning on the
date of issuance and ending on date that is seven (7) years thereafter. The
Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the
issuance of the Commitment Warrant and the issuance of the common stock upon
exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this Agreement,
regardless of whether or not the Registration Statement is or is not filed, and
regardless of whether or not the Registration Statement is approved or denied by
the SEC, the Investor shall retain full ownership of the Commitment Warrant as
partial consideration for its commitment hereunder.
2.4.2 [Intentionally Left Blank].
2.5 Due Diligence Review. The Company shall make available for
----------------------
inspection and review by the Investor (the "Due Diligence Review"), 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), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all 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 the
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 the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company shall
not disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic 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 will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if 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
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the 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 2.5 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
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
2.5.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the Investor's
counsel of all events or circumstances constituting nonpublic information
discovered by such advisors or representatives in the course of their due
diligence upon which such advisors or representatives form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in the light of the circumstances in
which they were made, not misleading. Upon receipt of such disclosure, the
Investor's counsel shall consult with the Company's independent counsel in order
to address the concern raised as to the existence of a material misstatement or
omission and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the Company's
independent counsel to the Investor as to the accuracy of the Registration
Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to be
Untrue or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement contains
an untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading, and the Company, after a request from the Investor, has failed to
promptly provide reasonable information indicating that that the Registration
Statement is in fact complete, accurate and current, then
(a) the Company shall promptly file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the event
the dispute relates to the adequacy of financial disclosure and the Investor
shall reasonably request, the Company shall promptly cause its independent
auditors to provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall promptly provide the
Investor with a copy of such letter.
2.6 Commitment Payments.
--------------------
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during
that Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Non-Usage Fee") equal to the difference of
(i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount of the Put
Shares purchased by the Investor during that Commitment Evaluation Period. In
the event that the Company delivers a Termination Notice to the Investor or an
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Non-Usage Fee for the applicable
Commitment Evaluation Period, or (ii) the difference of (x) $200,000, minus (y)
10% of the aggregate Put Dollar Amount of the Put Shares purchased by the
Investor during all Puts to date, and the Company shall not be required to pay
the Non-Usage Fee thereafter.
Each Non-Usage Fee or Termination Fee is payable, in cash, within five (5)
business days of the date it accrued. The Company shall not be required to
deliver any payments to Investor under this subsection until Investor has paid
all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
--------------------
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked
the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
--------------------------------------------------------------
Investigation.
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3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional information
which Investor or Investor's professional advisor deems necessary to verify the
accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely
on the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company or any of
its affiliates, officers, directors, attorneys, accountants or any affiliates of
any thereof and each other person, if any, who controls any of the foregoing,
within the meaning of Section 15 of the Act for any tax or legal advice (other
than reliance on information in the Disclosure Documents as defined in Section
3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not
limit or modify Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering in
order to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999,
(ii) the Company's quarterly report on Form 10-QSB for the quarters ended March
31, 2000, and June 30, 2000, (iii) the Risk Factors, attached as Exhibit J, (the
---------
"Risk Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the
---------
"Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as
Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed,
-------
and relied solely on the documents described in (a) above, the Company's
representations and warranties and other information in this Agreement,
including the exhibits, documents prepared by the Company which have been
specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
The foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in Sections 5 and 6 of
this Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments in
securities other than those of the Company. Investor acknowledges that Investor
is able to fend for Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic risk of Investor's
investment pursuant to this Agreement and that Investor is an "Accredited
Investor" by virtue of the fact that Investor meets the investor qualification
standards set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such investment
is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
---------------------------------------
3.3.1 No General Solicitation. The Investment Agreement was not
offered to Investor through, and Investor is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock issued at each Put Closing will be,
and the Warrant Shares will be, characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction exempt from the registration requirements of the federal
securities laws and that under such laws and applicable regulations such
securities may not be transferred or resold without registration under the Act
or pursuant to an exemption therefrom. In this connection, Investor represents
that Investor is familiar with Rule 144 under the Act, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor
further agrees not to sell, transfer, assign, or pledge the Securities (except
for any bona fide pledge arrangement to the extent that such pledge does not
require registration under the Act or unless an exemption from such registration
is available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of the Securities under the Act
or state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations and documents for counsel to the
Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement or intention to sell the security
represented by this Agreement to or through any person or entity, has no present
arrangement (whether or not legally binding) to sell the Common Stock to or
through any person or entity and has no present intention to sell such Common
Stock to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold the Common Stock for
any minimum or other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
3.4 Due Authorization.
------------------
3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing this
Agreement. Investor has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly
organized, validly existing and in good standing as a limited liability company
under the laws of Georgia with full power and authority to purchase the
Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is itself
a partnership, all persons holding an interest in such partnership, directly or
indirectly, including through one or more partnerships), and the person
executing this Agreement has made due inquiry to determine the truthfulness of
the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom Investor
is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in
---------------------
the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain all
the information, which would be contained in a registration statement under the
Act;
4.2 No Government Approval. No federal or state agency has passed
------------------------
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of
---------------------------------------------
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and may
not be sold, pledged (except for any limited pledge in connection with a margin
account of Investor to the extent that such pledge does not require registration
under the Act or unless an exemption from such registration is available and
provided further that if such pledge is realized upon, any transfer to the
pledgee shall comply with the requirements set forth herein), assigned or
otherwise disposed of in the absence of an effective registration of the
Securities and any component thereof under the Act or unless an exemption from
such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
--------------------------
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
--------------------------------
any registration statement will become effective at the scheduled time, or ever,
or remain effective when required, and Investor acknowledges that it may be
required to bear the economic risk of Investor's investment for an indefinite
period of time;
4.6 Exempt Transaction. Investor understands that the Securities are
------------------
being offered and sold in reliance on specific exemptions from the registration
requirements of federal and state law and that the representations, warranties,
agreements, acknowledgments and understandings set forth herein are being relied
upon by the Company in determining the applicability of such exemptions and the
suitability of Investor to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares shall not
-------
bear a legend restricting the sale or transfer thereof ("Restrictive Legend").
The certificates representing the Warrant Shares shall not bear a Restrictive
Legend unless they are issued at a time when the Registration Statement is not
effective for resale. It is understood that the certificates evidencing any
Warrant Shares issued at a time when the Registration Statement is not effective
for resale, subject to legend removal under the terms of Section 6.8 below,
shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws, nor the
securities laws of any other jurisdiction. They may not be sold or transferred
in the absence of an effective registration statement under those securities
laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
specified hereunder) and agrees with Investor that, except as set forth in the
"Schedule of Exceptions" attached hereto as Exhibit C:
----------
5.1 Organization, Good Standing, and Qualification. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada, USA and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would, in the Company's opinion,
have a material adverse effect on the business or properties of the Company and
its subsidiaries taken as a whole. The Company is not the subject of any
pending, threatened or, to its knowledge, contemplated investigation or
administrative or legal proceeding (a "Proceeding") by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, or the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., the Nasdaq Stock Market, Inc. or any state securities commission,
or any other governmental entity, which have not been disclosed in the
Disclosure Documents. None of the disclosed Proceedings, if any, will, in the
Company's opinion, have a material adverse effect upon the Company. The Company
has the following subsidiaries:
5.2 Corporate Condition. The Company's condition is, in all material
-------------------
respects, as described in the Disclosure Documents (as further set forth in any
subsequently filed Disclosure Documents, if applicable), except for changes in
the ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company. Except for continuing losses,
there have been no material adverse changes to the Company's business, financial
condition, or prospects from the dates of such Disclosure Documents through the
date of the Investment Commitment Closing. The financial statements as
contained in the 10-KSB and 10-QSB have been prepared in accordance with
generally accepted accounting principles, consistently applied (except as
otherwise permitted by Regulation S-X of the Exchange Act, or Generally Accepted
Accounting Principles, as applicable), subject, in the case of unaudited interim
financial statements, to customary year end adjustments and the absence of
certain footnotes, and fairly present the financial condition of the Company as
of the dates of the balance sheets included therein and the consolidated results
of its operations and cash flows for the periods then ended. Without limiting
the foregoing, there are no material liabilities, contingent or actual, that are
not disclosed in the Disclosure Documents (other than liabilities incurred by
the Company in the ordinary course of its business, consistent with its past
practice, after the period covered by the Disclosure Documents). The Company
has paid all material taxes that are due, except for taxes that it reasonably
disputes. There is no material claim, litigation, or administrative proceeding
pending or, to the best of the Company's knowledge, threatened against the
Company, except as disclosed in the Disclosure Documents. This Agreement and
the Disclosure Documents do not contain any untrue statement of a material fact
and do not omit to state any material fact required to be stated therein or
herein necessary to make the statements contained therein or herein not
misleading in the light of the circumstances under which they were made. No
event or circumstance exists relating to the Company which, under applicable
law, requires public disclosure but which has not been so publicly announced or
disclosed.
5.3 Authorization. All corporate action on the part of the Company
-------------
by its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Common
Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except insofar as the enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors' rights
generally or by principles governing the availability of equitable remedies.
The Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
-----------------------------------
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
------------------------------------
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would, in the Company's opinion, have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement or the Registration Rights
Agreement. The execution, delivery and performance of this Agreement and the
other agreements entered into in conjunction with the Offering and the
consummation of the transactions contemplated hereby and thereby will not (a)
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company, which would,
in the Company's opinion, have a material adverse effect on the Company's
business or prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would, in the
Company's opinion, have a material adverse effect on the Company's business or
prospects.
5.6 Reporting Company. The Company is subject to the reporting
------------------
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed or approved for quotation
on the O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of the date
--------------
hereof subject to exercise of any outstanding warrants and/or exercise of any
outstanding stock options, and after taking into account the offering of the
Securities contemplated by this Agreement and all other share issuances
occurring prior to this Offering, is as set forth in the Capitalization Schedule
as set forth in Exhibit K. There are no securities or instruments containing
---------
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities. Except as disclosed in the Capitalization Schedule, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Act (except the Registration
Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
----------------------
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
---------
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
---------
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
----------
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to
-----------------
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit L hereto. These purposes and amounts are estimates and are
------------
subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity, including, but
--------------------------
not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
5.11 [Intentionally Left Blank].
-----------------------------
5.12 No Advance Regulatory Approval. The Company acknowledges
---------------------------------
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC, or
any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company is
-----------------------------------------------
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company is
-----------------------------------------------
currently eligible and agrees to maintain its eligibility to register the resale
of its Common Stock on a registration statement on a suitable form under the
Act.
5.15 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 of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any of its
--------------------------
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of its actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
5.17 Key Employees. As of the date of this Agreement, each "Key
--------------
Employee" (as defined in Exhibit N) is currently serving the Company in the
----------
capacity disclosed in Exhibit N. No Key Employee, to the best knowledge of the
---------
Company and its subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any liability with respect to any of the foregoing matters. No Key Employee
has, to the best knowledge of the Company and its subsidiaries, any intention to
terminate his employment with, or services to, the Company or any of its
subsidiaries.
5.18 Representations Correct. The foregoing representations,
------------------------
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and state
----------
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
5.20 Transactions With Affiliates. Except as set forth in the
------------------------------
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company has not
--------------------------------------
adopted and will not adopt any "poison pill" provision that will be applicable
to Investor as a result of transactions contemplated by this Agreement.
5.22 Other Agreements. The Company has not, directly or
-----------------
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. As of the date of this Agreement, there
--------------------
are no other Major Transactions currently pending or contemplated by the
Company.
5.24 Financings. As of the date of this Agreement, there are no
-----------
other financings currently pending or contemplated by the Company.
5.25 Shareholder Authorization. The Company shall, at its next
--------------------------
annual shareholder meeting following its listing, if ever, on either the Nasdaq
Small Cap Market or the Nasdaq National Market, or at a special meeting to be
held as soon as practicable thereafter, use its best efforts to obtain approval
of its shareholders to (i) authorize the issuance of the full number of shares
of Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to the
Company's ability to issue shares of Common Stock in excess of the Cap Amount
(such approvals being the "20% Approval") and (ii) increase the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 30,000,000 shares can be reserved for
this Offering. In connection with such shareholder vote, the Company shall use
its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of
eliminating such prohibitions. As soon as practicable after the 20% Approval
and the Share Authorization Increase Approval, the Company agrees to use its
best efforts to reserve 30,000,000 shares of Common Stock for issuance under
this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
-------------------------------------------------
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
5.27 Dilution. The number of shares of Common Stock issuable as
--------
Put Shares may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines during the period between the Effective Date and the
end of the Commitment Period. The Company's executive officers and directors
fully understand the nature of the transactions contemplated by this Agreement
and recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that, whenever the Company elects to initiate a Put, its obligation
to issue the Put Shares is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
6. Covenants of the Company.
6.1 Independent Auditors. The Company shall, until at least the
---------------------
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes; Change in Corporate Entity. The
-----------------------------------------------------------
Company shall, until at least the Termination Date, maintain its corporate
existence in good standing and, once it becomes a "Reporting Issuer" (defined as
a Company which files periodic reports under the Exchange Act), remain a
Reporting Issuer and shall pay all its taxes when due except for taxes which the
Company disputes. Notwithstanding the terms of Section 7.2 below, the Company
may, at any time after the date hereof, enter into any merger, consolidation or
corporate reorganization of the Company with or into, or transfer all or
substantially all of the assets of the Company to, another entity only if the
resulting successor or acquiring entity in such transaction, if not the Company
(the "Surviving Entity"), (i) has Common Stock listed for trading on Nasdaq or
on another national stock exchange and is a Reporting Issuer, (ii) assumes by
written instrument the Company's obligations with respect to this Investment
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions,
the Warrants and the other agreements referred to herein, including but not
limited to the obligations to deliver to the Investor shares of Common Stock
and/or securities that Investor is entitled to receive pursuant to this
Investment Agreement and upon exercise of the Warrants and agrees by written
instrument to reissue, in the name of the Surviving Entity, any Commitment
Warrants (each in the same terms, including but not limited to the same reset
provisions, as the Commitment Warrants, issued or required to be issued by the
Company) that are outstanding immediately prior to such transaction, making
appropriate proportional adjustments to the number of shares represented by such
Warrants and the exercise prices of such Warrants to accurately reflect the
exchange represented by the transaction.
6.3 Registration Rights. The Company will enter into a registration
--------------------
rights agreement covering the resale of the Common Shares and the Warrant Shares
substantially in the form of the Registration Rights Agreement attached as
Exhibit A.
-----
6.4 Asset Transfers. The Company shall not (i) transfer, sell, convey
----------------
or otherwise dispose of any of its material assets to any subsidiary except for
a cash or cash equivalent consideration and for a proper business purpose or
(ii) transfer, sell, convey or otherwise dispose of any of its material assets
to any Affiliate, as defined below, during the Term of this Agreement. For
purposes hereof, "Affiliate" shall mean any officer of the Company, director of
the Company or owner of twenty percent (20%) or more of the Common Stock or
other securities of the Company.
6.5 Capital Raising Limitations and Rights of First Refusal.
---------------------------------------------------------------
6.5.1 Capital Raising Limitations. During the period from the
date of this Agreement until the date that is sixty (60) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor
of the Offering (the limitations referred to in this subsection 6.5.1 are
collectively referred to as the "Capital Raising Limitations"). For purposes
hereof, the following shall be collectively referred to herein as, the "Equity
Securities": (i) Common Stock or any other equity securities, (ii) any debt
or equity securities which are convertible into, exercisable or exchangeable
for, or carry the right to receive additional shares of Common Stock or other
equity securities, or (iii) any securities of the Company pursuant to an equity
line structure or format similar in nature to this Offering. Notwithstanding the
above, the Company may issue and sell up to $3 million worth of Equity
Securities in any 12 month period following the date hereof, without the prior
written approval of the Investor, so long as such Equity Securities are sold at
no more than a 20% discount to the market price of the Company's Common Stock
at the time of closing of such transaction, and so long as such Equity
Securities are not Variable Equity Securities (as defined below). For
purposes hereof, the following shall be collectively referred to herein as, the
"Variable Equity Securities": any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock either (i) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the initial issuance
of such debt or equity security, or (ii) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security or upon the
occurrence of specified contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock.
6.5.2 Investor's Right of First Refusal. For any private
capital raising transactions of Equity Securities which close after the date
hereof and on or prior to the date that is sixty (60) days after the Termination
Date of this Agreement, not including any warrants issued in conjunction with
this Investment Agreement, the Company agrees to deliver to Investor, at least
ten (10) days prior to the closing of such transaction, written notice
describing the proposed transaction, including the terms and conditions
thereof, and providing the Investor and its affiliates an option (the "Right
of First Refusal") during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the same
terms as contemplated by such transaction.
6.5.3 Exceptions to Capital Raising Limitations and Rights of
First Refusal. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to any transaction
involving issuances of securities by the Company to a company being acquired by
the Company, as payment to such company for such acquisition, in connection with
a merger, consolidation, acquisition or sale of assets, or in connection with
any strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital), or in connection with the disposition or acquisition
of a business, product or license by the Company or exercise of options by
employees, or directors, of the Company, or a primary underwritten offering of
the Company's Common Stock, but each shall apply to the issuance of securities
or options to consultants of the Company. The Capital Raising Limitations and
Rights of First Refusal also shall not apply to (a) the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof, (b) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan for the benefit of the
Company's employees or directors, or (c) the issuance of debt securities, with
no equity feature, incurred solely for working capital purposes.
6.6 Financial 10-KSB Statements, Etc. and Current Reports on Form
-----------------------------------------------------------------
8-K. The Company shall deliver to the Investor copies of its annual reports on
Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the
--------------------
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as Exhibit B, or in such form as agreed upon
---------
by the parties, and shall, concurrent with each Put Date, receive an opinion
letter from the Company's legal counsel, in the form attached as Exhibit I or in
---------
such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any
-------------------
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope reasonably acceptable to counsel for the Company (the reasonable cost
of which shall be borne by the Investor), to the effect that a public sale or
transfer of such Security may be made without registration under the Act, or (c)
such holder provides the Company with reasonable assurances (which assurances
shall be adequate to the Company or the Company's counsel) that such Security
can be sold pursuant to Rule 144. Each Investor agrees to sell all Securities,
including those represented by a certificate(s) from which the Legend has been
removed, or which were originally issued without the Legend, pursuant to an
effective registration statement and to deliver a prospectus in connection with
such sale or in compliance with an exemption from the registration requirements
of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
-------
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The Company
-----------------------------------------------
will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering instructions in the form of Exhibit T hereto, to issue certificates,
---------
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by the
holder thereof. Such certificates shall not bear a Legend unless issuance with
a Legend is permitted by the terms of this Agreement and Legend removal is not
permitted by Section 6.8 hereof and the Company shall cause the Transfer Agent
to issue such certificates without a Legend. Nothing in this Section shall
affect in any way Investor's obligations and agreement set forth in Sections
3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope reasonably acceptable to counsel for the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) an Investor transfers Securities, pursuant to
Rule 144, to a transferee which is an accredited investor, the Company shall
permit the transfer, and, in the case of Put Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denomination as specified by such Investor. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
an Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 6.10, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put that
--------------------------
would cause the Aggregate Issued Shares to exceed the Cap Amount, if required by
the rules of NASDAQ because the Company's Common Stock is listed on NASDAQ, the
Company shall obtain approval of its stockholders to authorize (i) the issuance
of the full number of shares of Common Stock which would be issuable pursuant to
this Agreement but for the Cap Amount and eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities with respect to the Company's ability to
issue shares of Common Stock in excess of the Cap Amount (such approvals being
the "Stockholder 20% Approval").
6.12 Press Release. Any public announcement relating to this
---------------
financing (a "Press Release") shall be submitted to the Investor for review at
least two (2) business days prior to the planned release. The Company shall not
disclose the Investor's name in any press release or other public announcement
without the Investor's prior written approval. The Company shall obtain the
Investor's written approval of the Press Release prior to issuance by the
Company.
6.13 Change in Law or Policy. In the event of a change in law, or
--------------------------
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor or the Company to be
unable to perform its obligations hereunder, this Agreement shall be
automatically terminated and no Termination Fee shall be due, provided that
notwithstanding any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant as partial consideration for its
commitment hereunder.
6.14. Notice of Certain Events Affecting Registration; Suspension of
---------------------------------------------------------------
Right to Make a Put. The Company shall immediately notify the Investor, but
----------------------
in no event later than two (2) business days (or five (5) business days for
information not affecting the currency or effectiveness of the Registration
Statement) by facsimile and by overnight courier, 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 Put Notice during the continuation
of any of the foregoing events.
6.15 Acknowledgment Regarding Investor's Purchase of the
--------------------------------------------------------
Securities. The Company acknowledges and agrees that the Investor is acting
---------- solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that the Investor is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect
to the Transaction Documents and the transactions contemplated hereby and
thereby and any advice given by the Investor or any of its representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Investor's purchase
of the Securities. The Company further represents to the Investor that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives and
advisors.
6.16. Liquidated Damages. The parties hereto acknowledge and agree
-------------------
that, with respect to the sums payable as Non-Usage Fees, Termination Fees and
Ineffective Registration Payments, (a) the amount of loss or damages likely to
be incurred by the Investor is incapable or is difficult to precisely estimate,
(b) the amounts specified bear a reasonable proportion and are not plainly or
grossly disproportionate to the probable loss likely to be incurred by the
Investor, and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
6.17. Copies of Financial Statements, Reports and Proxy Statements.
--------------------------------------------------------------
Promptly upon the mailing thereof to the shareholders of the Company generally,
the Company shall deliver to the Investor copies of all financial statements,
reports and proxy statements so mailed and any other document generally
distributed to shareholders.
6.18. Notice of Certain Litigation. Promptly following the
-------------------------------
commencement thereof, the Company shall provide the Investor written notice and
a description in reasonable detail of any litigation or proceeding to which the
Company or any subsidiary of the Company is a party; in which the amount
involved is $250,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought.
7. Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
----------------------------------------------------------------
Investor's and the Company's representations and warranties shall survive the
Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. 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, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration Statement,
this Agreement shall continue in full force and effect without said provision;
provided that if the removal of such provision materially changes the economic
benefit of this Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. The Transaction Documents, including
------------------------
this Investment Agreement, shall not be assignable by the Investor. The
Transaction Documents, including this Investment Agreement, shall not be
assignable by the Company except in conjunction with a transaction permitted
under the terms of Section 6.2 above.
7.3 Execution in Counterparts Permitted. This Agreement may be
--------------------------------------
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
------------------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neuter pronoun shall be deemed to include a reference to
the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
---------------------
permitted to be given by the Company or Investor pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
--------
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
-----------------------------------------------
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants, whether oral, written, or otherwise except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
------------------------------------------------
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Atlanta, Georgia.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In
any litigation between the parties hereto, the prevailing party, as found by the
court, shall be entitled to an award of all attorney's fees and costs of court.
Should the court refuse to find a prevailing party, each party shall bear its
own legal fees and costs.
7.9 Reporting Entity for the Common Stock. The reporting entity
-------------------------------------
relied upon for the determination of the trading 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.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor shall deliver
Put Dollar ------------------------------------ Amounts (as
payment towards any Put Share Price) by wire transfer, to the
Company pursuant to a wire instruction letter to be provided by
the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and
------------------------- agrees, subject to the provisions of
any applicable laws providing for the refund of subscription
amounts submitted by Investor, that this Agreement is irrevocable
and that Investor is not entitled to cancel, terminate or revoke
this Agreement or any other agreements executed by such Investor
and delivered pursuant hereto, and that this Agreement and such
other agreements shall survive the death or disability of such
Investor and shall be binding upon and inure to the benefit of
the parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the Securities
subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be
joint and several, and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs,
executors, administrators, successors, legal representatives and
assigns.
9. Indemnification
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless Investor and all of
its stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any material misrepresentation or breach of any representation or warranty made
by the Company in the Transaction Documents or any other certificate, instrument
or documents contemplated hereby or thereby, (b) any material breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim, derivative or otherwise,
by any stockholder of the Company based on a breach or alleged breach by the
Company or any of its officers or directors of their fiduciary or other
obligations to the stockholders of the Company.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor. The failure to deliver written notice to
the Indemnitor within a reasonable time of the commencement of any such action,
if prejudicial to the Indemnitor's ability to defend such action, shall relieve
the Indemnitor of any liability to the Indemnified Party under this Section 9,
but the omission to so deliver written notice to the Indemnitor will not relieve
it of any liability that it may have to any Indemnified Party other than under
this Section 9 to the extent it is prejudicial.
10. Accredited Investor. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, or a corporation, limited duration
company, limited liability company, business trust, or
partnership not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated
person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the
merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of the
issuer of the securities being offered or sold or a
director, executive officer or general partner of a general
partner of that issuer.
[ ] has an individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeding
$1,000,000.
[ ] had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same income level
in the current year.
(d) [ ] an entity each equity owner of which is an entity described
in a - b above or is an individual who could check one (1)
of the last three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify] __________________________________________.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 27th day of September, 2001.
---------
SWARTZ PRIVATE EQUITY, LLC
/s/ Eric S. Swartz
By: ____________________________________
Eric S. Swartz, Manager
SECURITY DELIVERY INSTRUCTIONS:
---------------------------------
Swartz Private Equity, LLC
c/o Eric S. Swartz
300 Colonial Center Parkway, Suite 300
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 27TH DAY OF SEPTEMBER, 2001.
---------
E-REX, INC.
/s/ Carl E. Dilley
By: ____________________________________
Carl E. Dilley, President & CEO
Address:
Attn: Carl E. Dilley, President & CEO
11645 Biscayne Boulevard, Suite 210
Miami, FL 33160
Telephone (305) 895-3350
Facsimile (305) 895-1400
EXHIBIT E
ADVANCE PUT NOTICE
E-REX, INC. (the "Company") hereby intends, subject to the Individual Put Limit
(as defined in the Investment Agreement), to elect to exercise a Put to sell the
number of shares of Common Stock of the Company specified below, to Swartz
Private Equity, LLC, as of the Intended Put Date written below, all pursuant to
that certain Second Amended and Restated Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity, LLC originally
dated on or about December 22, 2000, amended on or about March 8, 2001 and
further amended on or about September 27, 2001.
Date of Advance Put Notice: ___________________
Intended Put Date: ___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
E-REX, INC.
/s/ Carl E. Dilley
By: ____________________________________
Carl E. Dilley, President & CEO
Address:
Attn: Carl E. Dilley, President & CEO
11645 Biscayne Boulevard, Suite 210
Miami, FL 33160
Telephone (305) 895-3350
Facsimile (305) 895-1400
EXHIBIT G
PUT NOTICE
E-REX, INC., (the "Company") hereby elects to exercise a Put to sell shares of
common stock ("Common Stock") of the Company to Swartz Private Equity, LLC (the
"Investor"), as of the Put Date, at the Put Share Price and for the number of
Put Shares written below, all pursuant to that certain Second Amended and
Restated Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC originally dated on or about December 22,
2000, amended on or about March 8, 2001 and further amended on or about
September 27, 2001.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
E-REX, INC.
/s/ Carl E. Dilley
By: ____________________________________
Carl E. Dilley, President & CEO
Address:
Attn: Carl E. Dilley, President & CEO
11645 Biscayne Boulevard, Suite 210
Miami, FL 33160
Telephone (305) 895-3350
Facsimile (305) 895-1400
E-Rex, Inc.
EXHIBIT J: RISK FACTORS
RISK FACTORS
The Shares offered hereby are speculative and involve a high degree of
risk, including, but not necessarily limited to, the risk factors described
below. Each investor should carefully consider the following risk factors
inherent in, and affective, the business of the Company and this offering before
making an investment decision. The following risk and speculative factors, and
others could cause actual results to differ materially from those anticipated in
any forward-looking statements contained in this Prospectus.
Return on Investment. THERE IS NO ASSURANCE THAT A SHAREHOLDER WILL
----------------------
REALIZE A RETURN ON HIS INVESTMENT OR THAT HE WILL NOT LOSE HIS ENTIRE
-
INVESTMENT IN THE COMPANY. The Company is in the development stage and has not
-
achieved profitable operations to date. There can be no assurance that the
Company will ever achieve profitable operations. PROSPECTIVE INVESTORS SHOULD
READ THIS MEMORANDUM AND ALL EXHIBITS CAREFULLY AND SHOULD CONSULT WITH THEIR
OWN ATTORNEY OR BUSINESS ADVISOR PRIOR TO MAKING ANY INVESTMENT DECISION
CONCERNING THE NOTES.
Development Stage Company. The Company is subject to all of the risks,
---------------------------
expenses, delays, problems, and difficulties typically encountered in the
establishment of a new business as well as those encountered in the shift from
development to commercialization of new software systems based on innovative
concepts. During the period from inception in 1986 to the present, the Company
has operated in a development stage while developing and evaluating the market
for its sole product. Throughout this development stage, the Company has
generated no revenues from operations and has incurred substantial losses. As a
result, the Company has a limited relevant operating history on which an
evaluation of the Company's prospects and performance can be made. The
likelihood of the success of the Company must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the formation of a new business and the
competitive environment in which the Company will operate. It is likely that
the Company will continue to incur additional losses in the future.
Accordingly, there can be no assurance that the Company will be able to achieve
increased levels of revenue in the future or that the Company's future
operations will be profitable.
Rapid Technological Change. Ever since the debut of the original Palm
----------------------------
Pilot, PDAs (personal digital assistants) have taken the world by storm,
spawning an industry with gargantuan potential. According to International Data
Corp., there were 2.3 million handheld devices sold in the U.S. in 1999. That
number is expected to grow to 3.6 million in 2000 and soar to 9.7 million by
2004. Meanwhile, global sales are projected to rise from $2.3 billion in 2000
to $5.5 billion in 2004.
The market for computer peripheral and related products in general is
characterized by ongoing and rapid technological development, frequent new
product announcements and introductions, and substantial competition from
existing systems and manufacturers. Although the Company believes that its
proposed initial product, the Dragonfly offers a greater scope of functions and
applications than currently competing products, the introduction of other
products or improvements to existing competitive products can render existing
products, including those of the Company, obsolete and unmarketable. At present
there are no known competitors producing a product with the same document
handling and Internet connectivity features in a portable device. There are a
number of competing devices that provide a limited number of the same functions
of the Dragonfly as listed in the attached schedule ( ).
The Company's future success depends in large part on its ability to continue
enhancing its product design and capabilities, to address the growing
requirements of its customers, and to anticipate or respond to technological
advances and competitive products in a timely, cost-effective manner. There can
be no assurance that the Company will be successful in introducing, marketing,
and supporting its products or its enhancements to its products or that it will
not experience difficulties that could delay or prevent the successful
introduction, marketing, enhancement, and support of its products in the future.
See "The Company."
Competition. The markets for the Company's initial product are
-----------
characterized by strong competition. The Company's Dragonfly will compete
------
directly with those of other well-established companies such as Hewlett Packard,
Cannon, Brother, Docuport, Palm Computing and Xerox. Although none of the
products produced by these competitors currently offers the full scope of
functions and ease of use offered by the Dragonfly, some of these companies, as
well as some other current or potential competitors, have substantially greater
financial, technical, personnel, and other resources than the Company and have
established reputations for success in the development, licensing, sale, and
servicing of their copiers, scanners, facsimile and computer related equipment.
Dependence on Limited Number of Key Personnel. The Company's future
---------------------------------------------------
success substantially depends upon the efforts of certain of its officers and
-
key technical and other employees, many of who have only recently joined the
Company. In particular, the Company depends upon the personal knowledge of
Valcom, Ltd engineering personnel. The loss of Valcom's services would have a
material adverse effect on the Company's ability to maximize the sales of its
products, as well as its ability to develop enhancements to such products. The
success of the Company is also dependent on its ability to hire and retain
additional qualified executive, technical, and marketing personnel. When
needed, there can be no assurance that the Company will be able to hire or
retain such people. See "Management."
Risks Associated with Managing Growth. The Company's anticipated level of
--------------------------------------
growth, should it occur, will challenge the Company's management and its sales,
marketing, customer support, product development, finance, and administrative
operations. The Company's future performance will depend in part on its ability
to manage any such growth, should it occur, and to adopt its operational and
financial control systems, if necessary, to respond to changes resulting from
any such growth. The failure of the Company's management to respond to and
manage growth effectively would have a material adverse effect on the Company's
business, financial condition, and results of operations.
Risks Associated with Growth Through Acquisitions. A significant element
---------------------------------------------------
of the Company's growth strategy involves the expansion of its product line and
markets through the acquisition of other companies, which offer certain
specialized product functions. The company intends to pursue acquisitions of
Internet Service Providers and Website design companies that have a profitable
commercial client base, existing expertise in personnel and or proprietary
software that may enhance the companies' offerings that can be added to the
E-techdesign division of the company. The first of these acquisitions was
accomplished in acquiring the assets of Denver based ISP, Webulate, LLC. These
assets included a fully functional ISP, a small commercial web hosting customer
base, a suite of proprietary e-commerce software and an in developmental stage
computer peripheral device. Although the Company is currently exploring other
possible acquisitions, there can be no assurance that any of these opportunities
or any other proposed acquisition will prove feasible. In addition, there can
be no assurance that the Company will be successful in identifying other
appropriate acquisition candidates, can acquire such firms at reasonable prices,
can finance such acquisitions, or will be successful in integrating such
acquired firms, if any, or their products, into its existing operations on a
profitable basis. Acquisitions involve a number of risks, which could adversely
affect the Company's operating results including, among others, diverting
management attention, payments for goodwill, and the potential loss of key
employees of the acquired companies.
Limited Intellectual Property Protection. The Company's ability to compete
----------------------------------------
effectively depends in part on its ability to maintain the proprietary aspects
of its products, chiefly the Dragonfly. In this regard, the Company relies on a
combination of copyright, trade secret, and trademark law, together with
non-disclosure agreements with its employees and confidentiality agreements with
third parties, to protect its proprietary rights. Existing copyright laws,
however, afford only limited protection for the Company's systems, the
functionality of which cannot be copyrighted. Despite precautions taken by the
Company, it may be possible for its existing or new competitors to copy aspects
of its product design and future enhancements and to obtain and use information
that the Company regards as proprietary. In addition, some aspects of the
Company's initial product are not subject to any intellectual property
protection. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States.
The Company cannot be certain that others will not independently develop
and/or market substantially equivalent or superseding products in competition
with the Company's thereby substantially reducing the value of the Company's
proprietary rights. See "The Company'' - Intellectual Property."
No Dividends. To date, the Company has paid no cash dividends or made any
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stockholder distributions. The payment of dividends on the Company's Common
Stock is within the discretion of the Board of Directors and will depend upon
the Company's earnings, its capital requirements, financial condition, and other
relevant factors. For the foreseeable future, however, it is not anticipated
that the Company will pay any dividends. Currently, the Company plans to retain
any earnings it receives for the continued development of its business
operations.
Control by Present Shareholders. Donald Mitchell, Chairman and Director of
--------------------------------
the corporation, beneficially owns in excess of approximately 5% of the
outstanding capital stock of the Company As a result, he may be in a position to
control the Company, elect all of the Company's directors, appoint officers,
control the policies and operations of the Company, and generally direct the
affairs of the Company. See "Management," "Principal Shareholders,"
"Description of the Securities."
Limitation on Liability of Directors and Officers. The Bylaws of the
-------------------------------------------------------
Company provides that the Company may indemnify its directors, officers,
-
employees, and agents with respect to actions, suits, or proceedings brought
-
against them in their capacity as such to the fullest extent permitted by law.
Liability and Insurance. The Company intends to procure corporate
-------------------------
liability insurance, including products liability, auto, fire, and extended
---
coverage, with limits it considers reasonable and prudent, as well as worker's
compensation insurance with limits prescribed by law or state regulation. There
can be no assurance however, that the Company will not be subject to a claim
that would exceed its insurance coverage or to a loss that is not covered. In
addition, there can be no assurance that adequate liability insurance will be
available in the future or available at premiums, which are economically
feasible. See "The Company - Insurance."
Products Liability. The sale and support of future products by the
-------------------
Company may entail the risk of products liability claims, and there can be no
-
assurance that the Company will not be subject to such claims in the future or
that any such claim would be covered under the Company's product liability
insurance. A product liability claim brought against the Company, regardless of
its merit, could have a material adverse effect on the Company's business,
financial condition, and results of operations. See "The Company - Insurance."
Need for Additional Capital. The Company believes, based on currently
------------------------------
proposed plans and assumptions relating to its operations, that existing capital
and anticipated funds from operations, should be sufficient to fund its current
operations and other capital needs for the next 18 months. However, in the
event that the Company's plans change or its assumptions and estimates change or
prove to be inaccurate, the Company could be required to seek additional
financing in order to sustain operations or achieve future expansion. The
Company has made no arrangements to obtain future additional financing, and
there can be no assurance that such additional funds will be available or that
if available, such additional funds will be on terms acceptable to the Company.
The Company will receive no revenues from the sale of the securities offered in
this offering.
Forward-looking Statements. The discussion in this Memorandum regarding
---------------------------
the Company and its business and operations includes "forward-looking
statements." Such statements consist of any statement other than a recitation
of historical fact and can be identified by the use of forward-looking
terminology such as "may," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
Prospective investors are cautioned that all forward-looking statements are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements. The Company does not have a policy of
updating or revising forward-looking statements; thus, it should not be assumed
that silence by management of the Company over time means that actual events are
bearing out as estimated in such forward-looking statements.
"Penny" Stock Regulation of Broker-Dealer Sales of Company Securities. The
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Company's Common Stock is listed on the Over-The-Counter ("OTC") Bulletin Board
maintained by the NASDAQ. The Company's securities currently are covered by Rule
15g-9 under the Securities Exchange Act of 1934 that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and institutional accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must furnish to all investors in penny stocks, a risk disclosure
document required by Rule 15g-9 of the Securities Exchange Act of 1934, make a
special suitability determination of the purchaser and have received the
purchaser's written agreement to the transaction prior to the sale. In order to
approve a person's account for transactions in penny stock, the broker or dealer
must (i) obtain information concerning the person's financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on the information required by paragraph (i) that transactions in penny
stock are suitable for the person and that the person has sufficient knowledge
and experience in financial matters that the person reasonably may be expected
to be capable of evaluating the rights of transactions in penny stock; and (iii)
deliver to the person a written statement setting forth the basis on which the
broker or dealer made the determination required by paragraph (ii) in this
section, stating in a highlighted format that it is unlawful for the broker or
dealer to effect a transaction in a designated security subject to the
provisions of paragraph (ii) of this section unless the broker or dealer has
received, prior to the transaction, a written agreement to the transaction from
the person; and stating in a highlighted format immediately preceding the
customer signature line that the broker or dealer is required to provide the
person with the written statement and the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience and investment objectives
and obtain from the person a manually signed and dated copy of the written
statement. A penny stock means any equity security other than a security (i)
registered, or approved for registration upon notice of issuance on a national
securities exchange that makes transaction reports available pursuant to 17 CFR
11Aa3-1 (ii) authorized or approved for authorization upon notice of issuance,
for quotation in the NASDAQ system; (iii) that has a price of five dollars or
more or (iv) whose issuer has net tangible assets in excess of $2,000,000
demonstrated by financial statements dated less than fifteen months previously
that the broker or dealer has reviewed and has a reasonable basis to believe are
true and complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in this
Offering to sell their shares in the secondary market. See "Market for
Registrant's Common Equity and Related Stockholder Matters - Broker-Dealer Sales
of Company's Securities."
E-REX, INC.
EXHIBIT K: CAPITALIZATION SCHEDULE
CAPITALIZATION SCHEDULE
AS OF OCTOBER 19, 2001
Common Stock issued and outstanding as of October 19, 2001 32,296,890
Warrants and Options outstanding as of October 19, 2001 11,838,000
Warrants to be issued to Swartz Private Equity, LLC. 2,700,000
Reserved for issuance as a result of this Agreement 30,000,000
Convertible Debentures Outstanding $100,000
Shares reserved for issuance pursuant to Debenture conversion 200,000
Total Shares Outstanding and Reserved 74,334,890
Shares of Common Stock Authorized: 100,000,000
E-REX, INC.
EXHIBIT L: USE OF PROCEEDS
Expenses of Financing
Expenses of Registration, Issuance and Distribution $ 250,000
Completion of Dragonfly Prototype $ 300,000
Payment of Short term debt $ 800,000
Marketing collateral, and advertisement $ 6,578,800
Research and Development $ 2,775,000
Other working capital needs $ 4,296,200
TOTAL PROCEEDS $15,000,000
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E-REX, INC.
EXHIBIT M: INTELLECTUAL PROPERTY SCHEDULE
PATENTS
At present the company has filed no Patent applications.
The company holds intellectual property rights to the following inventions:
1. The "Dragonfly" 6 in 1 portable device.
a. Document registration has been filed with the patent office on
October 10, 2000
b. A Patent search has been conducted that does not reveal directly
conflicting patents in existence.
2. The "DataMouse" desktop calculator/mouse.
a. Document registration has been filed with the patent office on
October 10, 2000
b. A Patent search has been conducted that does not reveal directly
conflicting patents in existence.
3. Catalog Constructor software
a. Copyrights may be filed at some time in the future.
4. Media Maestro software
a. Copyrights may be filed at some time in the future.
5. Date Director software
a. Copyrights may be filed at some time in the future.
6. Voice mailer Internet service invention
a. Code has not been completed for this application. Following
completion Copyrights may be filed.
TRADEMARKS
A new logo and design for the Dragonfly are underway. When completed this work
is complete Trademark applications will be filed.
E-REX, INC.
EXHIBIT N: KEY EMPLOYEES
Carl E. Dilley has been the President and Chief Executive Officer since April 1,
2000 Mr. Dilley served as President and CEO of DiveDepot.com, Inc. from
1997-1999. Prior to that Mr. Dilley served in management positions with Canadian
Investment Firm RBC Dominion Securities, and a variety of other executive and
consulting positions in several industries including Chemical, Timber,
Transportation, Trust Co. and Dot.Com enterprises. Mr. Dilley attended college
in Canada at Fraser Valley College and College of New Caledonia specializing in
finance and business management. He is a fellow of the Canadian Securities
Institute and has completed the 1st year CFA program. Mr. Dilley brings more
than twenty successful years of business and financial experience to the
Company.
E-REX, INC.
SCHEDULE OF EXCEPTIONS
----------------------
The schedule of exceptions is issued pursuant to section 5. Representations and
warranties of the company of that certain AMENDED INVESTMENT AGREEMENT ("the
agreement") entered into as of Sept 27, 2000 by and between E-Rex, Inc. (the
company) with headquarters located at 11645 Biscayne Boulevard, # 210, Miami, Fl
33181 and (the "investor") set forth on the execution of this agreement.
Section 5.2 Corporate Condition
--------------------
On August 4th, 2000 a lawsuit was filed against the company in the United
States District Court of Nevada by Crusader Capital Group, Inc. The suit was
settled July 2001.
Section 5.2.1 Transaction with Affiliate
----------------------------
The company has received loans totaling $380,439 from International
Investment Banking Inc., which is to be repaid from the proceeds of underwriting
activities or within 180 days with interest, calculated at prime plus 4%.
Section 5.7 Capitalization
--------------
The company is obliged to register, along with the registration of the
shares contemplated by the agreement, the following shares:
XXXX
And the following shares issuable upon the conversion of a convertible
debenture: 200,000
And the following shares issuable upon the exercise of a common stock warrant:
XXXXX
Section 5.8 Intellectual property
----------------------
See the disclosure documents.