COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
July 27, 2000 by and between Talk Visual Corporation, a Nevada corporation (the
"Company"), and Evertrend Holdings Limited (the "Purchaser").
The parties hereto agree as follows: Article I
DEFINITIONS
Section 1.1. Certain Definitions. -------------------
(a) "Average Daily Price" shall be the price based on the VWAP
of the Company on the Principal Market.
(b) "Draw Down" shall have the meaning assigned to such term
in Section 6.1(a) hereof.
(c) "Draw Down Exercise Date" shall have the meaning assigned
to such term in Section 6.1(b) hereof.
(d) "Draw Down Pricing Period" shall mean a period of
twenty-two (22) consecutive Trading Days beginning on the date specified in the
Draw Down Notice; except that, if the Draw Down Pricing Period is to commence on
the Trading Day the Draw Down Notice is delivered, then receipt of such Draw
Down Notice must be confirmed by the Purchaser before trading commences on such
Trading Day.
(e) "Effective Date" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby is
declared effective.
(f) "Material Adverse Effect" shall mean any adverse effect on
the business, operations, properties or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its material obligations under this Agreement or the Registration
Rights Agreement or to perform its material obligations under any other material
agreement.
(g) "Principal Market" shall mean initially the OTC Bulletin
Board, and shall include the Nasdaq National Market, the Nasdaq SmallCap Market,
the American Stock Exchange or the New York Stock Exchange if the Company is
listed and trades on such market or exchange.
<PAGE>
(h) "Purchase Price" shall mean with respect to Shares during
each applicable Draw Down Pricing Period (excluding Shares issued upon the
exercise of Warrants): (i) if the Company's average market cap, calculated by
multiplying the number of shares of Common Stock issued and outstanding by the
closing bid price of the Common Stock (the "Market Cap"), is less than or equal
to $30,000,000 for the ten (10) Trading Days prior to the date the Draw Down
Pricing Period commences (the "Market Cap Period"), eighty-five percent (85%) of
the Average Daily Price on the date in question;
(ii) if the Market Cap is greater than $30,000,000
and less than or equal to $40,000,000 during the Market Cap Period, eighty-seven
percent (87%) of the Average Daily Price on the date in question;
(iii) if the Market Cap is greater than $40,000,000
and less than or equal to $50,000,000 during the Market Cap Period, eighty-nine
percent (89%) of the Average Daily Price on the date in question; and
(iv) if the Market Cap is greater than $50,000,000
during the Market Cap Period, ninety-one percent (91%) of the Average Daily
Price on the date in question.
(i) "Registration Statement" shall mean the
registration statement under the Securities Act of 1933, as amended, to be filed
with the Securities and Exchange Commission for the registration of the Shares
pursuant to the Registration Rights Agreement attached hereto as Exhibit A.
(j) "SEC Documents" shall mean the Company's latest
Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K
filed thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation to
maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
(k) "Shares" shall mean, collectively, the shares of Common
Stock of the Company being subscribed for hereunder and those shares of Common
Stock issuable to the Purchaser upon exercise of the Warrants.
(l) "Threshold Price" is the lowest Average Daily Price at
which the Company will sell its Common Stock with respect to this Agreement.
(m) "Trading Day" shall mean any day on which the Principal
Market is open for business.
<PAGE>
(n) "VWAP" shall mean the daily volume weighted average price
of the Company's Common Stock on the Principal Market as reported by Bloomberg
Financial using the AQR function. ARTICLE II
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1. Purchase and Sale of Stock. Subject to the terms
and conditions of this Agreement, the Company may issue and sell to the
Purchaser and the Purchaser shall purchase from the Company up to Fifteen
Million Dollars ($15,000,000) of the Company's Common Stock, $0.001 par value
per share (the "Common Stock"), based on Draw Downs of up to One Million Five
Hundred Thousand Dollars ($1,500,000) per Draw Down.
Section 2.2. The Shares. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Shares to be
issued in connection with all Draw Downs requested under this Agreement.
Anything in this Agreement to the contrary notwithstanding, the Company may not
make a Draw Down to the extent that, after such purchase by the Purchaser, the
sum of the number of shares of Common Stock beneficially owned by the Purchaser
and its affiliates would result in beneficial ownership by the Purchaser and its
affiliates of more than 9.9% of the then outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.
Section 2.3. Purchase Price and Closing. The Company agrees to issue
and sell to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The initial closing under this
Agreement shall take place at the offices of Epstein Becker & Green, P.C., 250
Park Avenue, New York, New York 10177 (the "Closing") within fifteen (15) days
of the date hereof or (ii) such other time and place or on such date as the
Purchaser and the Company may agree upon (the "Closing Date"). Each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Closing. ARTICLE III
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
<PAGE>
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more than fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents or on Schedule 3.1(a) hereto. The Company is duly
qualified and is in good standing as a foreign corporation to do business in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect on the Company's
financial condition.
(b) Authorization, Enforcement. (i) The Company has the
requisite corporate power and corporate authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement and to issue the Draw Down Shares pursuant to their respective terms,
(ii) the execution, issuance and delivery of this Agreement, the Registration
Rights Agreement and the Escrow Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement and the Escrow Agreement have been
duly executed and delivered by the Company and at the initial Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the issuance of the Draw Down Shares.
(c) Capitalization. The authorized capital stock of the
company consists of 100,000,000 shares of Common Stock, $0.001 par value per
share, of which 54,194,260 shares are issued and outstanding and 25,000,000
shares of preferred stock, $0.001 par value per share, of which 361,478 are
issued and outstanding. All of the outstanding shares of the Company's Common
Stock have been duly and validly authorized and are fully-paid and
non-assessable. Except as set forth in this Agreement and the Registration
Rights Agreement and as set forth in the SEC Documents, or on Schedule 3.1(c)
hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth in the SEC Documents or on Schedule 3.1(c), there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. The Company is not a party to any agreement granting registration
<PAGE>
rights to any person with respect to any of its equity or debt securities
(except for the Registration Rights Agreement). The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. Except as set forth in the SEC
Documents or on Schedule 3.1(c) hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued prior
to the Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect thereto
which would have a Material Adverse Effect on the Company's financial condition
or operating results. The Company has made available to the Purchaser true and
correct copies of the Company's Articles of Incorporation as in effect on the
date hereof (the "Charter"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws"). The Company has not received any notice from the
Principal Market questioning or threatening the continued inclusion of the
Common Stock on such market.
(d) Issuance of Shares. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any provision
of the Company's Charter or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under any federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the Securities and
Exchange Commission (the "Commission") or state securities administrators
subsequent to the Closing and any registration statement which may be filed
pursuant hereto); provided that, for purpose of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
<PAGE>
(f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
in the SEC Documents or on Schedule 3.1(f) hereto, the Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the Commission pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "Commission Documents"). The Company has
delivered or made available to the Purchaser true and complete copies of the
Commission Documents filed with the Commission since December 31, 1998. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such documents, and, as of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents or Schedule 3.1(g) hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such subsidiary. For
the purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
<PAGE>
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) No Material Adverse Effect. Since March 31, 2000, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents or on Schedule 3.1(h) hereof.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or on Schedule 3.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a consolidated balance
sheet of the Company and its subsidiaries (including the notes thereto) in
conformity with GAAP which are not disclosed in the Commission Documents, other
than those incurred in the ordinary course of the Company's or its subsidiaries
respective businesses since such date or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since September
30, 1999 no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
(k) Indebtedness. The SEC Documents or Schedule 3.1(k) hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$250,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $250,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any subsidiary
is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property reflected
in the Commission Documents, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the SEC
Documents or on Schedule 3.1(1) hereto or such that do not cause a Material
Adverse Effect on the Company's financial condition or operating results. All
said leases of the Company and each of its subsidiaries are valid and subsisting
and in full force and effect.
<PAGE>
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or
on Schedule 3.1(m) hereto, there is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened, against or
involving the Company, any subsidiary or any of their respective properties or
assets which could have a Material Adverse Effect. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary which
could have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the SEC Documents or on Schedule 3.1(n)
hereto or such that do not cause a Material Adverse Effect. The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each subsidiary has filed all Tax
Returns which it is required to file under applicable laws, except for any
failure to file which could not reasonably be expected to have a Material
Adverse Effect; all such Tax Returns are true and accurate in all material
respects and has been prepared in compliance with all applicable laws; the
Company has paid all material Taxes due and owing by it or any subsidiary
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authorities all Taxes which it
is required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since December 31, 1999, the charges,
accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
<PAGE>
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481(a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election under ss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
(p) Certain Fees. Except as set forth on Schedule 3.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchaser by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
<PAGE>
(r) Operation of Business. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the SEC Documents
and on Schedule 3.1(r) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.
(s) Regulatory Compliance. The Company has all necessary
licenses, registrations and permits to conduct its business as now being
conducted in all states where the Company conducts its business, except for any
failure to have which would not have a Material Adverse Effect.
(t) Books and Records. The records and documents of the
Company and its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary.
(u) Material Agreements. Except as set forth in the SEC
Documents, or on Schedule 3.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission as an exhibit to a registration statement on Form S-1 or
other applicable form (collectively, "Material Agreements") if the Company or
any subsidiary were registering securities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company and each of its subsidiaries have in
all material respects performed all the obligations required to be performed by
them to date under the foregoing agreements, have received no notice of default
and, to the best of the Company's knowledge are not in default under any
Material Agreement now in effect, the result of which could cause a Material
Adverse Effect. No written or oral contract, instruments, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Company's Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
SEC Documents or on Schedule 3.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (a) the Company or,
any subsidiary or any of their respective customers or suppliers on the one
hand, and (b) on the other hand, any officer, employee, consultant or director
of the Company, or any of its subsidiaries, or any person owning in excess of 5%
of the outstanding capital stock of the Company or any subsidiary or any member
of the immediately family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
<PAGE>
(w) Securities Act of 1933. The Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares hereunder. Neither the Company nor
anyone acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Shares or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares and/or Warrants under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Shares.
(x) Governmental Approvals. Except as set forth in the SEC
Documents or on Schedule 3.1(x) hereto, and except for the filing of any notice
prior or subsequent to the Closing that may be required under applicable federal
or state securities laws (which if required, shall be filed on a timely basis),
including the filing of a registration statement or statements pursuant to this
Agreement, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under this Agreement.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the SEC Documents or on Schedule 3(y) hereto. Except as
set forth in the SEC Documents or on Schedule 3(y) hereto, neither the Company
nor any subsidiary is in breach of any employment contract, agreement regarding
proprietary information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since the date of the
December 31, 1998 Form 10-KSB, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in SEC
Documents or in Schedule 3.1(z) hereto, since March 31, 2000 neither the Company
nor any subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
<PAGE>
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchaser or its representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $500,000;
(x) entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the
foregoing kind which in the aggregate would be material to the Company or its
subsidiaries.
(aa) Use of Proceeds. The proceeds from the sale of the Shares
will be used by the
<PAGE>
Company and its subsidiaries for general corporate purposes.
(bb) Acknowledgment Regarding Purchaser's Purchase of Shares.
Company acknowledges and agrees that Purchaser is acting solely in the capacity
of arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the Shares. The
Company further represents to the Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 3.2. Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) Organization and Standing of the Purchaser. The Purchaser
is a corporation duly incorporated, validly existing and in good standing under
the laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Purchaser or its Board of
Directors or stockholders is required. This Agreement has been duly executed and
delivered by the Purchaser and at the initial Closing shall constitute the valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or (iii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Purchaser is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser). The Purchaser is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.
<PAGE>
(d) Financial Risks. The Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation. The
Purchaser is capable of evaluating the risks and merits of an investment in the
Shares by virtue of its experience as an investor and its knowledge, experience,
and sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Compliance With Law. The Purchaser's trading and
distribution activities with respect to the Shares will be in compliance with
all applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market.
(g) General. The Purchaser understands that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the suitability of the Purchaser to acquire the Shares.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1. Securities Compliance.
The Company shall notify the NASD, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares and the Warrants to the Purchaser or subsequent holders.
Section 4.2. Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
<PAGE>
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will
take all action necessary to continue the listing or trading of its Common Stock
on the Principal Market or another Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 4.3. Registration Statement. The Company shall cause to be
filed the Registration Statement, which Registration Statement shall provide for
the sale of the Shares to the Purchaser and resale by the Purchaser to the
public in accordance with this Agreement. The Company shall cause such
Registration Statement to be declared effective by the Commission as
expeditiously as practicable. Before the Purchaser shall be obligated to accept
a Draw Down request from the Company, the Company shall have caused a sufficient
number of shares of Common Stock to be registered to cover the Shares to be
issued in connection with such Draw Down.
Section 4.4. Escrow Arrangement. The Company and the Purchaser shall
enter into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against ---------
delivery of the Shares.
Section 4.5. Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would have a Material Adverse Effect.
Section 4.6. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.7. Amendments. The Company shall not amend or waive any
provision of the Charter or Bylaws, in any way, that would adversely affect the
dividend rights or voting rights of the holders of the Shares, it being
understood that an increase in the authorized capital stock shall not be deemed
to violate this provision.
Section 4.8. Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the right
to perform of the Company or any subsidiary under this Agreement or the Charter
of the Company.
Section 4.9. Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down. The Company will immediately notify
the Purchaser upon the occurrence of any of the following events in respect of
<PAGE>
the Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the Commission or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement the response to which would require any amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the 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 the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Purchaser any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events.
Section 4.10. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the current market price until the earlier of (i) eighteen
(18) months from the effective date of the Registration Statement or (ii) sixty
(60) days after the entire $15,000,000 of Shares has been purchased by
Purchaser. The foregoing shall not prevent or limit the Company from engaging in
any sale of securities (i) in a registered public offering by the Company which
is underwritten by one or more established investment banks, (ii) in one or more
private placements where the purchasers do not have registration rights, (iii)
pursuant to any presently existing or future employee benefit plan which plan
has been or is approved by the Company's stockholders, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money, (vi) upon the exercise of
options, warrants or other convertible securities outstanding as of the date
hereof or (vii) to which Purchaser gives its written approval. Further, the
Purchaser shall have a right of first refusal, to elect to participate, in such
subsequent transaction in the case of (ii) and (vii) above. Such right of first
refusal must be exercised in writing within seven (7) Trading Days of the
Purchaser's receipt of notice of the proposed terms of such financing.
<PAGE>
ARTICLE V
CONDITIONS TO CLOSING AND DRAW DOWNS
Section 5.1. Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Shares to the Purchaser is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing and as of each Draw Down Exercise Date as though made at that time,
except for representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the Closing and as of
each Draw Down Exercise Date.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Purchaser or the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this Agreement,
or seeking damages in connection with such transactions.
Section 5.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to enter into this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
as though made at that time (except for representations and warranties that
speak as of a particular date).
<PAGE>
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Purchaser or the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this Agreement,
or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated the date of
Closing, in the form of Exhibit C hereto, and such other certificates and
documents as the Purchaser or its counsel shall reasonably require incident to
the Closing.
(f) Warrant. In lieu of a minimum Draw Down commitment by the
Company, the Purchaser shall receive at the Closing, a warrant certificate to
purchase up to a number of shares of Common Stock equal to $750,000 divided by
the closing bid price of the Common Stock on the Trading Day prior to the date
of the Closing. The Warrant shall have an exercise price equal to 115% of the
closing bid price of the Common Stock on the Trading Day immediately preceding
the date of the Closing and a term of four (4) years. The Common Stock
underlying the Warrants will be registered in the Registration Statement
referred to in Section 4.3 hereof. The Warrants shall be in the form of Exhibit
E hereto.
Section 5.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) Satisfaction of Conditions to Closing. The Company shall
have satisfied, or the Purchaser shall have waived, the conditions set forth in
Section 5.2 hereof
<PAGE>
(b) Effective Registration Statement. The Registration
Statement registering the Shares shall have been declared effective by the
Commission and shall remain effective on each Draw Down Exercise Date.
(c) No Suspension. Trading in the Company's Common Stock shall
not have been suspended by the Commission or the Principal Market (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to each Draw Down request), and, at any
time prior to such request, trading in securities generally as reported on the
Principal Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported on the
Principal Market.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event shall have occurred.
(e) Opinion of Counsel. The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there is no
change from the counsel's previously delivered opinion, or else specifying with
particularity the reason for any change.
(f) Future Financing.The Company shall have not completed any
financing prohibited by Section 4.11 unless, prior to the Company delivering a
Draw Down Notice after any such financing and for each such financing, the
Company pays the Purchaser the sum of $100,000. (f) Bankruptcy. The Company
shall not have filed for protection from creditors under any applicable law.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1. Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and
exercise a draw down (a "Draw Down") during each Draw Down Pricing Period, which
Draw Down the Purchaser will be obligated to accept for a period of eighteen
(18) months commencing on the Effective Date.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. The price per share paid by the Purchaser shall be based on the
Average Daily Price on each separate Trading Day during the Draw Down Pricing
Period. The number of shares of Common Stock purchased by the Purchaser with
<PAGE>
respect to each Draw Down shall be determined on a daily basis during each Draw
Down Pricing Period and settled on a weekly basis (each such date of settlement,
a "Draw Down Exercise Date"). In connection with each Draw Down Pricing Period,
the Company may set an Average Daily Price below which the Company will not sell
any Shares (the "Threshold Price"). If the Average Daily Price on any day within
the Draw Down Pricing Period is less than the Threshold Price, the Company shall
not sell and the Purchaser shall not be obligated to purchase the Shares
otherwise to be purchased for such day.
(c) The minimum Draw Down shall be $250,000 unless otherwise
agreed by Purchaser.
(d) The maximum dollar amount of each Draw Down during any
Draw Down Pricing Period shall be limited pursuant to the following formula:
Average Stock Price: Average of the Average Daily Prices for the 22 Trading Days
prior to the Draw Down Notice date. Average Trading Volume: Average daily
trading volume for the 45 Trading Days prior to the Draw Down Notice date.
Maximum dollar amount of each Draw Down: 20% of (Average Stock Price x (Average
Trading Volume x 22)) the number of Shares of Common Stock to be issued in
connection with each Draw Down shall be equal to the sum of the quotients (for
each trading day within the Draw Down Pricing Period) of (x) 1/22nd of the Draw
Down amount and (y) the Purchase Price on each Trading Day within the Draw Down
Pricing Period. If the Average Daily Price on a given Trading Day is less than
the Threshold Price, then the Purchaser's Draw Down will be reduced by 1/22nd
and that day shall be withdrawn from the Draw Down Pricing Period, except that,
the Purchaser may elect to purchase such Shares at the Threshold Price. Prior to
6:15 pm Eastern Time on the date prior to the applicable Draw Down Exercise
Date, the Purchaser shall instruct the Company as to how many below Threshold
Price days the Purchaser elects to purchase such shares. Additionally, the
Purchaser may, at its sole discretion, increase the amount of the Shares to be
purchased at the Purchase Price on any Draw Down Exercise Date by up to an
additional fifty percent (50%) if it notifies the Company by 6:15 pm Eastern
Time on the date prior to such Draw Down Exercise Date.
(e) The Company must inform the Purchaser by delivering a Draw
Down Notice, in the form of Exhibit D hereto, via facsimile transmission as to
the amount of the Draw Down the Company wishes to exercise before the first day
of the Draw Down Pricing Period (the "Draw Down Notice"). The Company may set
the Threshold Price, if any, prior to each Draw Down request. At no time shall
the Purchaser be required to purchase more than the scheduled Draw Down amount
for a given Draw Down Pricing Period so that if the Company chooses not to
exercise the maximum permitted Draw Down in a given Draw Down Pricing Period the
Purchaser is not obligated to purchase more than the scheduled maximum amount in
a subsequent Draw Down Pricing Period.
(f) On or before three (3) Trading Days after each Draw Down
Exercise Date, the Shares purchased by the Purchaser shall be delivered to The
Depository Trust Company ("DTC") on the Purchaser's behalf. The Shares shall be
credited by the Company to the DTC account designated by the Purchaser upon
receipt by the Escrow Agent of payment for the Draw Down into the Escrow Agent's
trust account as provided in the Escrow Agreement. The Escrow Agent shall be
directed to pay the purchase price to the Company, net of $1,500 as escrow
expenses to the Escrow Agent, and 8% of the purchase price to Ladenburg Thalmann
& Co. Inc. The delivery of the Shares into the Purchaser's DTC account in
exchange for payment therefor shall be referred to herein as "Settlement".
<PAGE>
TERMINATION
Section 7.1. Termination by Mutual Consent. The term of this Agreement
shall be eighteen (18) months from the Effective Date.
Section 7.2. Other Termination. (a) The Company may terminate this
Agreement upon one (1) Trading Day's notice if the Purchaser shall fail to fund
more than one properly noticed Draw Down within three (3) Trading Days of the
date payment for such Draw Down is due.
Section 7.3. Effect of Termination. In the event of termination by the
Company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VII
INDEMNIFICATION
Section 8.1. General Indemnity. The Company agrees to indemnify and
hold harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein. The Purchaser agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable attorneys
fees, charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 8.1 for only that amount as does
not exceed the net proceeds to the Purchaser as a result of the sale of Shares
pursuant to the Registration Statement.
<PAGE>
Section 8.2. Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification required by this Article VIII shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to.
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1. Fees and Expenses. The Company shall pay all fees and
expenses related to the transactions contemplated by this Agreement; provided,
that the Company shall pay, at the Closing, all attorneys and escrow fees and
expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchaser of $35,000 in connection with the preparation, negotiation, execution
and delivery of this Agreement and the transactions contemplated hereunder. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any amendments, modifications or waivers of this
Agreement or the Registration Rights Agreement or incurred in connection with
the enforcement of this Agreement and the Registration Rights Agreement,
including, without limitation, all reasonable attorneys fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto.
Section 9.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.3. Entire Agreement; Amendment. This Agreement, together with
the Registration Rights Agreement and the Escrow Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein or therein, neither the
Company nor the Purchaser makes any representations, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
Section 9.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
<PAGE>
If to the Company: 3550 Biscayne Blvd., Suite 704
Miami, Florida 33137
Telephone Number: (305) 572-0575
Fax: (305) 572-0576
Attention: Michael Zwebner
With copies to: Torys
237 Park Avenue New York, New York 10017
Telephone: (212) 880-6000
Fax: (212) 682-0200
Attention: Andrew J. Beck, Esq.
If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74 FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green, P. C.
250 Park Avenue
New York, New York 10177-1211
Telephone: (212) 351-3771
Fax: (212) 661-0989
Attention: Robert F. Charron
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto in
accordance herewith. Section 9.5. Waivers. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 9.6. Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
After Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
<PAGE>
Section 9.8. No Third Party Beneficiaries.This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9. Governing Law/Arbitration.This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. Any dispute under this
Agreement or any Exhibit attached hereto shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.
Section 9.11. Publicity. Except as required by applicable law or
regulation, prior to the Closing, neither the Company nor the Purchaser shall
issue any press release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement. After the Closing, the Company may issue a press
release or otherwise make a public statement or announcement with respect to
this Agreement or the transactions contemplated hereby or the existence of this
Agreement; provided, that prior to issuing any such press release, making any
such public statement or announcement, the Company obtains the prior consent of
the Purchaser, which consent shall not be unreasonably withheld or delayed.
<PAGE>
Section 9.12. Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 9.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 9.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the initial
Closing set forth in Article I of the Escrow Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of this 27 day of July,
2000.
TALK VISUAL CORPORATION
By: /s/ Eugene A. Rosov
---------------------------------
Eugene A. Rosov, President & CEO
PURCHASER:
Evertrend Holdings Limited
By:/s/ Hans Gassner
-----------------------------------
Hans Gassner, Authorized Signatory
<PAGE>
SCHEDULE 3.1(c)
WARRANTS ENTITLED TO REGISTRATION RIGHTS - Stock Purchase Warrant No. 2, dated
December 31, 1999, for the purchase of 150,000 shares of common stock at a price
of $0.25 per share, exercisable until December 31, 2000. The holder has not
notified the Company of its desire to include those underlying securities in
this filing.
OUTSTANDING OPTIONS -
Cert # Quantity Price Expiration
------ -------- ----- ----------
- 16,667 2.07 10/01/00
- 8,333 3.11 10/01/00
- 8,333 4.14 10/01/00
- 25,000 3.11 03/01/01
- 25,000 4.14 03/01/01
#101-137 15,308,475 1.00 06/15/02
201 45,000 2.97 02/30/02
- 6,235 3.93 05/14/01
#304-305 3,100,000 0.4375 06/29/05
301-303 300,000 0.4375 06/29/03
SHARE ISSUE COMMITMENTS -
Letter of commitment dated July 2, 2000, to YAK Communications (USA), Inc. for
Talk Visual Corporation to purchase up to 2,311,200 shares of the YAK common
stock at an exchange ratio of 4 Talk Visual shares to 1 YAK share, for a total
commitment of 9,244,800 shares.
Binding agreement dated June 22, 2000 to issue to Various Business Management,
1,066,718 shares as part of the acquisition costs of the stores located in NY
and NJ, amount subject to offset for seller's liabilities paid by the
Corporation.
Letter of non-binding agreement dated May 30, 2000, to Frederick Engineering,
Inc. on the purchase of all outstanding stock, obligation of Company pending
final agreement is about 3,365,400 shares.
Balance at July 21, 2000 of Class A Preferred Series 1999-A shares of 361,478 to
be converted into common stock - 6,196,806 shares of common stock.
Subscription pursuant to a letter of agreement with three preferred
shareholders, that for each share of preferred Series 1999-A converted to
common, one dollar per common share received will be subscribed to at a price of
the three day average less 25%, on the date of payment. At July 21, 2000, the
preferred shareholders had a remaining balance due under the subscription of
$11,340,881 which at the closing price on July 21, 2000 would result in an
issuance of 26,156,676 shares.
<PAGE>
Shares of common stock subscribed and paid for but not issued as of July 21,
2000 amounted to 403,598 shares.
Letter of Agreement dated March 16, 2000, with Entertech Media Group, Inc. to
issue 3,000,000 shares in exchange for 3,666,666 of Entertech Media Group, Inc.
common stock. A commission of 75,000 shares is due to a third party on the
exchange of the Company's shares with Entertech.
Pursuant to a letter of employment with the Chief Technical Officer, the Company
is obligated to issue 4,500 shares between July 1, 2000 and November 30, 2000.
Equipment line of credit - the Company is currently negotiating a one million
dollar equipment leasing line of credit which would require the issuance of
warrants in the amount of 10% of the facility, at an exercise price of the last
purchase price of the common stock prior to the commitment of the lease
facility. At the July 21, 2000 stock price, this would result in warrants for
the purchase of 164,096 shares.
VOTING RESTRICTION RIGHTS -
Pursuant to the merger of Videocall International, Inc. into Talk Visual Corp.,
all the shareholders and option holders of Videocall International, Inc. who
received common stock and/or option in the exchange, have agreed to vote with
management for the two year period following the date of the merger, which
occurred in June, 1999.
Schedule 3.1(o)
Tax Returns - the Company has not filed the following tax returns:
Fiscal year ended 12/31/98
Federal Consolidated Corporate Income tax return
California State income tax return
Massachussetts State income tax return
Fiscal year ended 12/31/99
Federal Consolidated Corporate Income tax return
California State income tax return
Massachussetts State income tax return
Florida Corporate income tax return
Such returns are in the process of being prepared, and do not establish a
Material Adverse Effect, as there is no taxable income to be reported on those
returns.
<PAGE>
Schedule 3.1(z)
Material transaction - The Company has made an informal offer to acquire a
parcel of land adjacent to the Company's property in Sacramento, California for
a total purchase price of $500,000. Counsel for the Company is drafting a formal
agreement for all parties to execute.
