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EXHIBIT 10.1
EXECUTION COPY
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December
11th, 2000 by and between K2 DIGITAL, INC., a Delaware corporation (the
"Company"), and FUSION CAPITAL FUND II, LLC (together with its permitted
assigns, the "Buyer"). Capitalized terms used herein and not otherwise defined
herein are defined in Section 10 hereof.
WHEREAS:
Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Six Million Dollars ($6,000,000) of the Company's common stock,
par value $.01 per share (the "Common Stock"). The shares of Common Stock to be
purchased hereunder are referred to herein as the "Purchase Shares." In
addition, as set forth in Section 1(g) hereof, the Company may, in its sole
discretion, at any time after the date hereof and until 20 Trading Days after
such date as the Available Amount is equal to $0, deliver an irrevocable written
notice to the Buyer stating that the Company elects to enter into an additional
Common Stock Purchase Agreement with the Buyer for the purchase of Six Million
Dollars ($6,000,000) of additional Common Stock.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE OF COMMON STOCK.
Subject to the terms and conditions set forth in Sections 6, 7 and 9
below, the Company hereby agrees to sell to the Buyer, and the Buyer hereby
agrees to purchase from the Company, shares of Common Stock as follows:
(a) Commencement of Purchases of Common Stock. The purchase and sale
of Common Stock hereunder shall commence (the "Commencement") within five (5)
Trading Days following the date of satisfaction (or waiver) of the conditions to
the Commencement set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyer), (the date of such
Commencement, the "Commencement Date").
(b) Buyer's Purchase Rights and Obligations. Subject to the provisions
of Sections 1(d), the Buyer: (i) shall purchase shares of Common Stock during
each Monthly Period equal to the Monthly Base Amount at the Purchase Price in
accordance with Section 1(e), and (ii) at any time on or after the Maturity
Date, shall have the right to purchase shares of Common Stock up to the entire
remaining Available Amount at the Purchase Price in accordance with Section
1(e). As soon as practicable but in no event later than the third Trading Day
after receipt of Purchase Shares, the Buyer shall pay to the Company an amount
equal to the Purchase Amount with respect to such Purchase Shares as full
payment for the purchase of the Purchase Shares so received. The Company shall
not issue any fraction of a share of Common Stock upon any purchase. All shares
of Common Stock (including fractions thereof) issuable upon a purchase under
this Agreement shall be aggregated for purposes of determining whether the
purchase would result in the issuance of a fraction of a share of Common Stock.
If, after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole share. All
payments made under this Agreement shall be made in lawful money of the United
States of America by check or wire transfer of immediately available funds
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to such account as the Company may from time to time designate by written notice
in accordance with the provisions of this Agreement. Whenever any amount
expressed to be due by the terms of this Agreement is due on any day which is
not a Trading Day, the same shall instead be due on the next succeeding day
which is a Trading Day.
(c) Company's Mandatory Purchase Rights. If (A) the Closing Sale Price
of the Common Stock on each of the five (5) Trading Days immediately prior to
the first Trading Day of any Monthly Period is at least $4.00 and (B) no Event
of Default has occurred and is continuing, then the Company shall have the
right, so long as no Event of Default has occurred and is continuing and so long
as the Closing Sale Price of the Common Stock remains at least $4.00 during such
Monthly Periods, by delivering written notice (a "Mandatory Purchase Notice") to
the Buyer on or prior to the first Trading Day of such Monthly Period to require
that the Buyer purchase at the Purchase Price such Available Amount as specified
by the Company in the Mandatory Purchase Notice during the next two Monthly
Periods on such Trading Days during such Monthly Periods as the Buyer shall
determine. The Company acknowledges and agrees that the Company's mandatory
purchase rights represent an agreement by the Buyer to extend financial
accommodations to the Company. Accordingly, it shall be a condition to the
exercise of the Company's Mandatory Purchase Rights that no Event of Default
shall have occurred and is continuing, and the Company's delivery of a Mandatory
Purchase Notice shall be deemed a representation to the Buyer that no Event of
Default has occurred and is continuing. The Company may revoke a Mandatory
Purchase Notice, in whole or in part, by delivering written notice thereof to
the Buyer (a "Revocation of Mandatory Purchase Notice"). A Revocation of
Mandatory Purchase Notice shall be effective only as to Purchase Notices which
are in excess of the Monthly Base Amount and which have a Purchase Date later
than three (3) Trading Days after receipt by the Buyer of the Revocation of
Mandatory Purchase Notice. Any Purchase Notices submitted by the Buyer which
have a Purchase Date on or prior to the third (3rd) Trading Day after receipt by
the Buyer of the Revocation of Mandatory Purchase Notice must be honored by the
Company as otherwise provided herein.
(d) Limitations on Purchases.
(i) Exchange Cap Limitation. The Company shall not effect any
purchase under this Agreement and the Buyer shall not have the right to
purchase shares of Common Stock under this Agreement to the extent that
after giving effect to such purchase the "Exchange Cap" shall be deemed
to be reached. The "Exchange Cap" shall be deemed to be reached at such
time if, upon submission of a Purchase Notice under this Agreement, the
issuance of such shares of Common Stock would exceed that number of
shares of Common Stock which the Company may issue under this Agreement
without breaching the Company's obligations under the rules or
regulations of the Principal Market.
(ii) Limitation on Beneficial Ownership. The Company shall not
effect any purchase under this Agreement and the Buyer shall not have the
right to purchase shares of Common Stock under this Agreement to the
extent that after giving effect to such purchase the Buyer together with
its affiliates would beneficially own in excess of 9.9% of the
outstanding shares of the Common Stock following such purchase. For
purposes hereof, the number of shares of Common Stock beneficially owned
by the Buyer and its affiliates or acquired by the Buyer and its
affiliates, as the case may be, shall include the number of shares of
Common Stock issuable in connection with a Purchase Notice under this
Agreement with respect to which the determination is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (1) a purchase of
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the remaining Available Amount which has not been submitted for purchase,
and (2) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company (including, without limitation,
any warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Buyer and
its affiliates. If the 9.9% limitation is ever reached this shall not
effect or limit the Buyer's obligation to purchase the Monthly Base
Amount or the Company's Mandatory Purchase Rights as otherwise provided
in this Agreement. For purposes of this Section, in determining the
number of outstanding shares of Common Stock the Buyer may rely on the
number of outstanding shares of Common Stock as reflected in (1) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a
more recent public announcement by the Company or (3) any other written
communication by the Company or its transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the reasonable written
or oral request of the Buyer, the Company shall promptly confirm orally
and in writing to the Buyer the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to any purchases under this
Agreement by the Buyer since the date as of which such number of
outstanding shares of Common Stock was reported. Except as otherwise set
forth herein, for purposes of this Section 1(d)(ii), beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(iii) Company's Right to Suspend Purchases. If at any time the
Closing Sale Price of the Common Stock is below the Fixed Purchase Price
for three consecutive Trading Days, the Company shall have three (3)
Trading Days from the last day of such three consecutive Trading Day
Period to give written notice (a "Purchase Suspension Notice") to the
Buyer suspending any and all purchases by the Buyer under this Agreement.
The Purchase Suspension Notice shall be effective only for Purchase
Notices which have a Purchase Date later than three (3) Trading Days
after receipt of the Purchase Suspension Notice by the Buyer. Any
Purchase Notices submitted by the Buyer which have a Purchase Date on or
prior to the third (3rd) Trading Day after receipt by the Buyer of the
Company's Purchase Suspension Notice must be honored by the Company as
otherwise provided herein. Such purchase suspension shall continue in
effect until the earlier of: (A) revocation in writing by the Company, at
its sole discretion; or (B) such time as the Sale Price of the Common
Stock is above the Fixed Purchase Price. After the delivery to the Buyer
of a Purchase Suspension Notice from the Company and at all times during
such purchase suspension, the Buyer shall not be obligated to purchase
any Purchase Shares from the Company under Section 1 of this Agreement.
(e) Mechanics of Purchasing. The purchase of shares of Common Stock
under this Agreement shall be conducted in the following manner:
(i) Buyer's Delivery Requirements. To purchase shares of Common
Stock under this Agreement on any date, the Buyer shall transmit by
facsimile (or otherwise deliver) on or prior to 11:59 p.m., Central Time
on such date, a copy of a fully executed notice of purchase substantially
in the form attached hereto as EXHIBIT A (the "Purchase Notice") to the
Company.
(ii) Company's Response. Upon receipt by the Company of a copy
of a Purchase Notice, the Company shall as soon as practicable, but in no
event later than one (1) Trading Day after receipt of such Purchase
Notice, send via facsimile (or otherwise deliver), a confirmation of
receipt of such Purchase Notice in the form attached hereto as
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EXHIBIT B (a "Company Confirmation of Purchase Notice") to (1) the Buyer
and (2) along with a copy of the Purchase Notice, the Company's
designated transfer agent (the "Transfer Agent"), which confirmation
shall constitute an irrevocable instruction to the Transfer Agent to
process such Purchase Notice in accordance with the terms herein. Upon
receipt by the Transfer Agent of a copy of the executed Purchase Notice
and a copy of the applicable Company Confirmation of Purchase Notice, the
Transfer Agent shall, on the first (1st) Trading Day following the date
of receipt of the Company Confirmation of Purchase Notice, (A) provided
the Transfer Agent is participating in The Depository Trust Company's
("The DTC") Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Common Stock to which the Buyer shall be
entitled to the Buyer's or its designee's balance account with The DTC
through its Deposit Withdrawal At Custodian ("DWAC") system, or (B) if
the Transfer Agent is not participating in The DTC Fast Automated
Securities Transfer Program and DWAC system, issue and surrender to a
common carrier for overnight delivery to the address as specified in the
Purchase Notice, a certificate, registered in the name of the Buyer or
its designee, for the number of shares of Common Stock to which the Buyer
shall be entitled.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Purchase Price or the arithmetic calculation of the
Purchase Rate, the Company shall instruct the Transfer Agent to issue to
the Buyer the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to
the Buyer via facsimile within one (1) Trading Day of receipt of the
Buyer's Purchase Notice. If the Buyer and the Company are unable to agree
upon the determination of the Purchase Price or arithmetic calculation of
the Purchase Rate within one (1) Trading Day of such disputed
determination or arithmetic calculation being submitted to the Buyer,
then the Company shall within one (1) Trading Day submit via facsimile
(A) the disputed determination of the Purchase Price to an independent,
reputable investment bank selected by the Company and approved by the
Buyer or (B) the disputed arithmetic calculation of the Purchase Rate to
the Company's independent, outside accountant. The Company shall cause
the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Buyer of
the results no later than the fifth (5th) day after the date it receives
the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a purchase under this Agreement
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Purchase Date.
(v) Company's Failure to Timely Deliver Shares. If within five
(5) Trading Days after the Company's receipt of a copy of the Purchase
Notice properly submitted in accordance with the term and conditions of
this Agreement (subject to extension in accordance with Section 1(e)(iii)
for a good faith dispute made in accordance with the terms of Section
1(e)(iii)) (the "Share Delivery Period"), the Transfer Agent shall fail
to issue Purchase Shares via credit to the Buyer's account with DTC for
the number of Purchase Shares to which such Buyer is entitled upon such
Buyer's submission of the applicable Purchase Notice (a "Purchase
Failure"), in addition to all other available remedies which such Buyer
may pursue under applicable laws and this Agreement (including
indemnification obligations of the Company set forth in Section 8
hereof), the
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Company shall pay in cash, on demand, additional damages to the Buyer for
each day after such fifth (5th) Trading Day that the issuance of such
Purchase Shares is not timely effected, in an amount equal to 1.5% of the
product of (I) the number of Purchase Shares not issued to the Buyer on a
timely basis pursuant to Section 1(e)(ii) and to which such Buyer is
entitled and (II) the Closing Sale Price of the Common Stock on the
Purchase Date.
(vi) Book Entry. Notwithstanding anything to the contrary set
forth herein, upon purchase of any portion of the Available Amount in
accordance with the terms hereof, the Buyer shall not be required to
physically surrender this Agreement to the Company. The Buyer and the
Company shall each maintain records showing the remaining Available
Amount and the dates and Purchase Amounts for each purchase or shall use
such other method, reasonably satisfactory to the Buyer and the Company,
so as not to require physical surrender of this Agreement upon each
purchase. The Buyer and any assignee, by acceptance of this Agreement,
acknowledge and agree that, by reason of the provisions of this
paragraph, following purchase of any portion of the Available Amount, the
remaining Available Amount under this Agreement shall be less than the
aggregate Available Amount set forth on the face hereof.
(f) Taxes. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of any shares of Common Stock to the
Buyer made under of this Agreement.
(g) Option for Second Tranche; Additional Common Stock Purchase
Agreement. The Company may, in its sole discretion, at any time after the date
hereof and until 20 Trading Days after such date as the Available Amount is
equal to $0 (the "Second Tranche Expiration Date"), deliver an irrevocable
written notice (the "Second Tranche Notice") to the Buyer stating that the
Company elects to enter into an additional Common Stock Purchase Agreement (the
"Second Common Stock Purchase Agreement") with the Buyer for the purchase of Six
Million Dollars ($6,000,000) of additional Common Stock. It is agreed and
acknowledged by the parties hereto that entering into the Second Common Stock
Purchase Agreement shall be at the option of the Company in its sole discretion
until such time as the Company shall have delivered the Second Tranche Notice to
the Buyer. The Buyer shall not be obligated to enter into the Second Common
Stock Purchase Agreement unless the Company has delivered the Second Tranche
Notice prior to the Second Tranche Expiration Date. The Second Common Stock
Purchase Agreement may not be entered into until the aggregate Available Amount
under this Agreement is fully used to buy Purchase Shares hereunder. Upon
delivery of the Second Tranche Notice to the Buyer prior to the Second Tranche
Expiration Date, the Buyer and the Company shall be obligated to enter into the
Second Common Stock Purchase Agreement no later than the date that is 10 Trading
Days after the Second Tranche Expiration Date. If the Buyer and the Company have
not entered into the Second Common Stock Purchase Agreement by the date that is
10 Trading Days after Second Tranche Expiration Date, the Buyer shall not be
obligated to enter into such additional Common Stock Purchase Agreement. The
terms and conditions of the Second Common Stock Purchase Agreement shall be in
form and substance identical in all respects to this Agreement, provided,
however, that for purposes of the Second Common Stock Purchase Agreement, (i)
this Section 1(g) shall be omitted, (ii) for purposes of calculating the
numerator in Sections 7(b), 11(k)(ii) and 11(k)(iii), the Commitment Shares
shall be equal to 8% of Six Million Dollars ($6,000,000) and (iii) for purposes
of calculating the denominator in Section 7(b), the "dollar value" per second
tranche Commitment Share shall be the lower of: (x) the arithmetic average of
the Closing Bid Prices of the Common Stock for the five (5) consecutive Trading
Days prior to the date the Company delivers the Second Tranche Notice to the
Buyer or (y) the
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average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive Trading Days prior to the second Trading Day immediately prior to
the Commencement of the second tranche. Such second tranche Commitment Shares
shall be held by the Buyer until the Second Common Stock Purchase Agreement has
been terminated.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants to the Company that:
(a) Investment Purpose. The Buyer is entering into this Agreement and
acquiring the Commitment Shares and the Warrants (each as defined in Section
7(b) hereof) (this Agreement, the Commitment Shares and the Warrants are
collectively referred to herein as the "Securities"), for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof; provided however, by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term.
(b) Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
(d) Information. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
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(f) Transfer or Resale. The Buyer understands that except as provided
in the Registration Rights Agreement (as defined in Section 6(a) hereof): (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
(g) Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(h) Residency. The Buyer is a resident of the State of Illinois.
(i) No Prior Short Selling. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, associates, representatives or affiliates engaged in or
effected, in any manner whatsoever, directly or indirectly, any (i) "short sale"
(as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or
(ii) hedging transaction, which establishes a net short position with respect to
the Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
(a) Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing could not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, (ii) the value of the Common Stock,
(iii) the transactions contemplated hereby or by the agreements and instruments
to be entered into in connection herewith or (iv) the authority or ability of
the Company to perform its obligations
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under the Transaction Documents (as defined in Section 3(b) hereof). The Company
has no Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, and the Warrant (as defined in Section 7(b)
hereof) and the Registration Rights Agreement (as defined in Section 6(a)
hereof) and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation, the issuance of
the Commitment Shares and the reservation for issuance and the issuance of the
Purchase Shares issuable under this Agreement, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its shareholders, (iii) this Agreement
has been, and each other Transaction Document shall be on the Commencement Date,
duly executed and delivered by the Company and (iv) this Agreement constitutes,
and each other Transaction Document upon its execution on behalf of the Company,
shall constitute, the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
(c) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 9,000,000 shares of Common Stock, of which
as of the date hereof, 3,462,794 shares are issued and outstanding, 417,417 are
held as treasury shares, 1,604,800 shares are reserved for issuance pursuant to
the Company's stock option plans of which only approximately 397,050 shares
remain available and 625,000 shares are issuable and reserved for issuance
pursuant to securities (other than stock options issued pursuant to the
Company's stock option plans) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock, $0.01
par value, of which as of the date hereof no shares are issued and outstanding.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (v) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock
<PAGE> 9
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement. The Company has furnished to the Buyer true and correct copies of
the Company's Certificate of Incorporation, as amended and as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as
amended and as in effect on the date hereof (the "By-laws"), and summaries of
the terms of all securities convertible into or exercisable for Common Stock, if
any, and copies of any documents containing the material rights of the holders
thereof in respect thereto.
(d) Issuance of Securities. The Commitment Shares have been duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. 2,000,000 shares of Common
Stock have been duly authorized and reserved for issuance upon purchase under
this Agreement. Upon issuance and payment therefore in accordance with the terms
and conditions of this Agreement, the Purchase Shares shall be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a 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 Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market applicable to the Company or any
of its Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts, defaults
and violations under clause (ii), which could not reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in Schedule 3(e), neither the Company nor any of its
Subsidiaries is in violation of any term of or is in default under any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which could not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence shall be obtained or effected on or prior to
the Commencement Date.
<PAGE> 10
Except as disclosed in Schedule 3(e), the Company is not and has not been since
January 1, 1999, in violation of the listing requirements of the Principal
Market.
(f) SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(f), since January 1, 1999, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). As of their respective dates (except as
they have been correctly amended), the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC (except as they may have
been correctly amended), 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. As of their respective dates (except as they
have been correctly amended), the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Absence of Certain Changes. Except as disclosed in Schedule 3(g),
since September 30th, 2000, there has been no material adverse change in the
business, properties, operations, financial condition or results of operations
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
(h) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
which could reasonably be expected to have a Material Adverse Effect. A
description of each action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body which, as of the date of this Agreement, is pending or threatened in
writing against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, is set forth in Schedule
3(h).
(i) Acknowledgment Regarding Buyer's Status. The Company acknowledges
and agrees that the Buyer 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 Buyer
is not acting as a financial advisor or fiduciary of the
<PAGE> 11
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
Buyer 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 Buyer's purchase of the Securities. The Company further
represents to the Buyer 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.
(j) No General Solicitation. 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 1933 Act) in connection with the offer or sale of the
Securities.
(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
(l) Dilutive Effect. The Company understands and acknowledges that the
number of Purchase Shares purchasable under this Agreement will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Purchase Shares under this Agreement in accordance with the term and
conditions hereof is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
(m) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(m), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(m), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.
<PAGE> 12
(n) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(o) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(o) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(p) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(q) Regulatory Permits. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(s) Transactions With Affiliates. Except as set forth on Schedule 3(s)
and other than the grant or exercise of stock options disclosed on Schedule
3(c), none of the officers, directors,
<PAGE> 13
or employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has an interest or is an officer, director, trustee or
partner.
(t) Application of Takeover Protections. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.
(u) 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 of its Subsidiaries 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 unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
(a) Filing of Registration Statement. The Company shall within five
(5) Trading Days from the date hereof file a new registration statement covering
the sale of at least 2,677,647 shares of Common Stock. The Buyer and its counsel
shall have a reasonable opportunity to review and comment upon such registration
statement or amendment to such registration statement and any related prospectus
prior to its filing with the SEC. The Company shall use its best efforts to have
such registration statement or amendment declared effective by the SEC at the
earliest possible date.
(b) Blue Sky. The Company shall, on or before the Commencement Date,
take such action, if any, as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Commitment Shares and the
Purchase Shares for sale to the Buyer pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyer on or prior to
the Commencement Date. The Company shall make all filings and reports relating
to the offer and sale of the Commitment Shares and the Purchase Shares required
under applicable securities or "Blue Sky" laws of the states of the United
States following the Commencement Date.
(c) No Variable Priced Financing. Other than pursuant to this
Agreement, the Company agrees that beginning on the date of this Agreement and
ending on the date of termination of this Agreement (as provided in Section
11(k) hereof), neither the Company nor any of its Subsidiaries shall, without
the prior written consent of the Buyer, contract for any equity financing
(including any debt financing with an equity component) or issue any equity
<PAGE> 14
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) which, in any case (i) are
convertible into or exchangeable for an indeterminate number of shares of common
stock, (ii) are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock, (iii) directly or
indirectly provide for any "re-set" or adjustment of the purchase price,
conversion rate or exercise price after the issuance of the security, or (iv)
contain any "make-whole" provision based upon, directly or indirectly, the
market price of the Common Stock after the issuance of the security, in each
case, other than reasonable and customary anti-dilution adjustments for issuance
of shares of Common Stock in reorganization, recapitalization,
non-cash-dividend, stock split or other similar transactions at a price which is
below the market price of the Common Stock.
(d) Listing. The Company shall promptly secure the listing of all of
the Purchase Shares, Commitment Shares and the Warrant Shares (as defined in
Section 7(b) hereof) upon each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all such
securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market;
provided that the foregoing shall not restrict the Company from engaging in a
Major Transaction in which the Company is not the surviving entity. The Company
shall promptly, and in no event later than the following Trading Day, provide to
the Buyer copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section.
(e) Limitation on Short Sales and Hedging Transactions. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock; provided, however, that such restrictions shall not apply (i) if the
Buyer submits after a sale of shares of Common Stock comprising Commitment
Shares or Warrant Shares under this Agreement or the Warrant, a Purchase Notice
entitling the Buyer to receive a number of shares of Common Stock at least equal
to the number of shares so sold or (ii) if an Event of Default has occurred,
including any failure by the Company to timely issue any Purchase Shares
required to be issued pursuant to the terms of this Agreement.
(f) Limitation on Sales of Commitment Shares. The Buyer agrees that
the Buyer shall not transfer or sell the Commitment Shares (as defined in
Section 7(b) hereof) until the Maturity Date or until this Agreement has been
terminated, provided, however, that such restrictions shall not apply: (i) in
connection with any transfers to or among affiliates (as defined in the
Securities Exchange Act of 1934, as amended), or(ii) if an Event of Default has
occurred, or any event which, after notice and/or lapse of time, would become an
Event of Default, including any failure by the Company to timely issue Purchase
Shares under this Agreement. Notwithstanding the forgoing, the Buyer may
transfer Commitment Shares to a third party in order to settle a sale made by
the Buyer where the Buyer reasonably expects the Company to deliver Purchase
Shares to the Buyer under this Agreement so long as the Buyer maintains
<PAGE> 15
ownership of the same overall number of shares of Common Stock by "replacing"
the Commitment Shares so transferred with Purchase Shares when the Purchase
Shares are actually issued by the Company to the Buyer.
(h) Due Diligence. The Buyer shall have the right, from time to time
as the Buyer may reasonably deem appropriate, to perform reasonable due
diligence on the Company during normal business hours. The Company and its
officers and employees shall reasonably cooperate with the Buyer in connection
with any reasonable request by the Buyer related to the Buyer's due diligence of
the Company.
(i) Reservation of Shares. The Company shall, so long as any Available
Amount is outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the purchase of the
Available Amount, such number of shares of Common Stock as shall from time to
time be sufficient to effect the purchase of the entire remaining Available
Amount, without regard to any restrictions or limitations on purchases. The
Company shall reserve and keep available out of its authorized and unissued
Common Stock, such number of shares of Common Stock as shall be sufficient to
effect the purchase of the Warrant Shares pursuant to the Warrant.
5. TRANSFER AGENT INSTRUCTIONS.
All of the Purchase Shares, Commitment Shares and Warrant Shares to be
issued under this Agreement shall be issued without any restrictive legend and
shall be issued by the Transfer Agent via The DTC Fast Automated Securities
Transfer Program, by crediting the appropriate number of shares of Common Stock
to which the Buyer shall be entitled to the Buyer's or its designee's balance
account with The DTC through The DTC DWAC system. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue Purchase Shares and Warrant Shares in the name of the Buyer or
its respective nominee(s), for the Purchase Shares and Warrant Shares (the
"Irrevocable Transfer Agent Instructions"). The Company warrants to the Buyer
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, will be given by the Company to its transfer
agent with respect to the Purchase Shares or Warrant Shares and that the
Commitment Shares, Warrant Shares and the Purchase Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Warrant and the Registration Rights Agreement
subject to the provisions of Section 4(f) in the case of the Commitment Shares.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO COMMENCE SALES OF SHARES
OF COMMON STOCK.
The obligation of the Company hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following conditions on or
before the Commencement Date, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing the Buyer with prior written notice thereof:
(a) The Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company including the
Registration Rights Agreement substantially in the form of EXHIBIT C hereto (the
"Registration Rights Agreement").
(b) Subject to the Company's compliance with Section 4(a), a
registration statement covering the sale of the Commitment Shares, the Warrant
Shares and at least 2,000,000 Purchase
<PAGE> 16
Shares shall have been declared effective under the 1933 Act by the SEC and no
stop order with respect to the Registration Statement shall be pending or
threatened by the SEC.
(c) The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Commencement Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO COMMENCE PURCHASES OF
SHARES OF COMMON STOCK.
The obligation of the Buyer to commence purchases of Purchase Shares
under this Agreement is subject to the satisfaction, on or before the
Commencement Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer including the Registration Rights Agreement
substantially in the form of EXHIBIT C hereto and the Warrant in the form of
Exhibit I hereto.
(b) The Company shall have issued to the Buyer a number of shares of
Common Stock (the "Commitment Shares") equal to 12% of $6,000,000 divided by the
lower of (A) the arithmetic average of the Closing Bid Prices of the Common
Stock for the five (5) consecutive Trading Days immediately preceding the
Trading Day which is two (2) Trading Days prior to the Commencement Date and (B)
the arithmetic average of the Closing Bid Prices of the Common Stock for the
five (5) consecutive Trading Days immediately preceding the date hereof,
provided, however, that in the event that the number of Commitment Shares to be
issued exceeds the 9.9% beneficial ownership limitation (such number of shares
of Common Stock exceeding the 9.9% limitation, the "Excess Shares"), than the
Company shall have issued to the Buyer (A) Commitment Shares in an amount equal
to the 9.9% limitation and (B) Common Stock purchase warrants (the "Warrants")
to purchase a number of shares of Common Stock (the "Warrant Shares") equal to
the Excess Shares. The Warrants shall have an exercise price of $.01 per share,
and shall be exercisable for five (5) years from the Commencement Date, all in
accordance with the Warrant in the form of Exhibit I hereto. The number of
Commitment Shares and Warrant Shares shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction occurring on or prior to the Commencement Date. The
Commitment Shares and Warrant Shares shall be issued to the Buyer without any
restrictive legend and shall be issued by the Company's transfer agent via The
DTC Fast Automated Securities Transfer Program, by crediting the appropriate
number of shares of Common Stock to which the Buyer shall be entitled to the
Buyer's or its designee's balance account with The DTC through The DTC DWAC
system.
(c) The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been within the
last 365 days suspended by the SEC or the Principal Market and the Purchase
Shares, Warrant Shares and the Commitment Shares shall be approved for listing
upon the Principal Market.
<PAGE> 17
(d) The Buyer shall have received the opinions of the Company's legal
counsel dated as of the Commencement Date in the form of EXHIBIT D attached
hereto.
(e) The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Commencement Date. The Buyer shall have
received a certificate, executed by the CEO, President or CFO of the Company,
dated as of the Commencement Date, to the foregoing effect in the form attached
hereto as EXHIBIT E.
(f) The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as EXHIBIT F which shall be in full
force and effect without any amendment or supplement thereto as of the
Commencement Date.
(g) As of the Commencement Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of effecting
purchases of Purchase Shares hereunder, at least 2,000,000 shares of Common
Stock.
(h) The Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT G attached hereto, shall have been delivered to and acknowledged in
writing by the Company and the Company's transfer agent.
(i) The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Delaware issued by the Secretary of State of the State of Delaware as of a date
within ten (10) Trading Days of the Commencement Date.
(j) The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware within ten (10) Trading Days of the Commencement Date.
(k) The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as EXHIBIT H.
(l) A registration statement covering the sale of all of the
Commitment Shares, the Warrant Shares and at least 2,000,000 Purchase Shares
shall have been declared effective under the 1933 Act by the SEC and no stop
order with respect to the registration statement shall be pending or threatened
by the SEC. The Company shall have prepared and delivered to the Buyer a final
form of Prospectus to be used by the Buyer in connection with any sales of any
Commitment Shares, Warrant Shares or any Purchase Shares. The Company shall have
made all filings under all applicable federal and state securities laws
necessary to consummate the issuance of the Commitment Shares, Warrant Shares
and the Purchase Shares pursuant to this Agreement in compliance with such laws.
<PAGE> 18
(m) No Event of Default has occurred, or any event which, after notice
and/or lapse of time, would become an Event of Default has occurred.
(n) On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities hereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless the Buyer and all of its
affiliates, shareholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. EVENTS OF DEFAULT.
An "Event of Default" shall be deemed to have occurred at any time as any
of the following events occurs:
(a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days or for more than an aggregate of thirty (30) Trading
Days in any 365-day period;
<PAGE> 19
(b) the suspension from trading or failure of the Common Stock to be
listed on the Principal Market for a period of ten (10) consecutive Trading Days
or for more than an aggregate of thirty (30) Trading Days in any 365-day period;
(c) the failure of the Company or the Common Stock to fully meet the
requirements for continued listing on the Principal Market for a period of ten
(10) consecutive Trading Days or for more than an aggregate of thirty (30)
Trading Days in any 365-day period;
(d) The Transfer Agent's written notice to the Buyer, including by way
of public announcement, at any time, of its intention not to comply with a
proper request for purchase of Purchase Shares under this Agreement that is
tendered in accordance with the provisions of this Agreement, or the failure of
the Company to deliver a Company Confirmation of Purchase Notice or Company
Confirmation of Warrant Notice to the Buyer and to the Transfer Agent in
accordance with the provisions of this Agreement within two (2) Trading Days
after the receipt by the Company of a Warrant Notice or Purchase Notice (subject
to extension in accordance with Section 1(e)(iii) for a good faith dispute made
in accordance with the terms of Section 1(e)(iii)); or the failure for any
reason by the Transfer Agent to issue Purchase Shares to the Buyer within five
(5) Trading Days after the applicable Purchase Date or Warrant Shares to the
Buyer within five (5) Trading Days after delivery of notice;
(e) if at any time after the Commencement Date, the "Exchange Cap" is
reached (the "Exchange Cap" shall be deemed to be reached at such time if, upon
submission of a Purchase Notice under this Agreement, the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue under this Agreement without breaching the Company's
obligations under the rules or regulations of the Principal Market in all cases
after giving effect to such stockholder approval as the Company may have
obtained prior to submission of such Purchase Notice);
(f) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least ten (10) Trading Days;
(g) any payment default under any contract whatsoever or any
acceleration prior to maturity of any mortgage, indenture, contract or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or for money
borrowed the repayment of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, which in any
case, is in excess of $1,000,000;
(h) if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law;
(i) if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due;
(j) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that; (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian
<PAGE> 20
of the Company or for all or substantially all of its property, or (C) orders
the liquidation of the Company or any Subsidiary; or
(k) If Lynn Fantom ceases to serve as Chief Executive Officer of the
Company and Gary W. Brown ceases to serve as Chief Operating Officer
In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, the Buyer shall not be obligated to purchase any
shares of Common Stock under this Agreement. If pursuant to or within the
meaning of any Bankruptcy Law, the Company commences a voluntary case or any
Person commences a proceeding against the Company, a Custodian is appointed for
the Company or for all or substantially all of its property, or the Company
makes a general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof) this
Agreement shall automatically terminate without any liability or payment to the
Company without further action or notice by any Person. No such termination of
this Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's
obligations under this Agreement with respect to pending purchases and the
Company and the Buyer shall complete their respective obligations with respect
to any pending purchases under this Agreement.
10. CERTAIN DEFINED TERMS.
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "Available Amount" means initially Six Million Dollars
($6,000,000) in the aggregate which amount shall be reduced by the Purchase
Amount as the Buyer purchases shares of Common Stock pursuant to Section 1
hereof.
(c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.
(d) "Closing Bid Price" means, for any security as of any date, the
last closing bid price for such security on the Principal Market as reported by
Bloomberg Financial Markets ("Bloomberg"), or, if the Principal Market is not
the principal securities exchange or trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg.
(e) "Closing Sale Price" means, for any security as of any date, the
last closing trade price for such security on the Principal Market as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg.
(f) "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
<PAGE> 21
(g) "Fixed Purchase Price" means $15.00, appropriately adjusted for
any reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction.
(h) "Major Transaction" means any of the following: (A) the
consolidation, merger or other business combination of the Company into another
Person (other than pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company); (B) any
transaction by the Company, including the contract, license, sale or acquisition
by the Company of securities, services, assets or property, which involves or
which could reasonably be expected to involve a fair value of $5,000,000 or more
in a single transaction or series of related transactions; (C) the issuance of
debt or equity securities in a transaction or a series of related transactions
involving the receipt by the Company of aggregate proceeds of $5,000,000
(including fees and expenses paid with respect to the issuance thereof) or more
with any entity other than the Buyer or any of its affiliates; or (D) a
purchase, tender or exchange offer made by any person other than the Buyer or
any of the Buyer's affiliates to the holders of more than 50% of the outstanding
shares of Common Stock.
(i) "Mandatory Purchase Rights" means the mandatory purchase rights of
the Company pursuant to Section 1(c).
(j) "Maturity Date" means the date that is 720 calendar days (24
Monthly Periods) from the Commencement Date which such date may be extended by
up to an additional Six (6) months by the Company, in its sole discretion, by
written notice to the Buyer.
(k) "Monthly Base Amount" means Two Hundred Fifty Thousand Dollars
($250,000) per Monthly Period.
(l) "Monthly Period" means each successive 30 calendar day period
commencing with the Commencement Date.
(m) "Person" means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(n) "Principal Market" means The Nasdaq SmallCap Market.
(o) "Purchase Amount means the portion of the Available Amount
submitted in a Purchase Notice to be used to purchase Common Stock pursuant to
Section 1 hereof.
(p) "Purchase Date" means the actual date that the Buyer submits a
Purchase Notice to the Company to purchase Common Stock hereunder so long as the
Buyer shall transmit by facsimile (or otherwise deliver) to the Company on or
prior to 11:59 p.m., Central Time on such date.
(q) "Purchase Price" means, as of any Purchase Date or other date of
determination, the lower of the (A) Fixed Purchase Price and (B) the Variable
Purchase Price, each in effect as of such date.
(r) "Purchase Rate" means the number of shares of Common Stock
issuable upon purchase of a Purchase Amount as determined in accordance with the
following formula: Purchase Amount divided by the Purchase Price.
<PAGE> 22
(s) "Sale Price" means, for any security as of any date, the trade
price for such security on the Principal Market as reported by Bloomberg, or, if
the Principal Market is not the principal securities exchange or trading market
for such security, the trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg.
(t) "SEC" means the United States Securities and Exchange Commission.
(u) "Trading Day" means any day on which the Principal Market is open
for customary trading.
(v) "Variable Purchase Price" means, as of any Purchase Date or other
date of determination, the lower of: (A) the lowest Sale Price of the Common
Stock on the Purchase Date or such other date of determination or (B) the
arithmetic average of any five (5) Closing Bid Prices for the Common Stock,
selected by the Buyer, during the fifteen (15) consecutive Trading Days ending
on the Trading Day immediately preceding such Purchase Date or other date of
determination (to be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction).
11. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. The corporate laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and its shareholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
<PAGE> 23
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Buyer, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Trading Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
K2 Digital, Inc.
30 Broad Street, 16th Floor
New York, NY 10004
Telephone: 212-301-8800
Facsimile: 212-301-8801
Attention: Gary W. Brown
With a copy to:
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, NY 10036
Telephone: 212-944-1515
Facsimile: 212-840-2429
Attention: David Warburg, Esq.
If to the Buyer:
Fusion Capital Fund II, LLC
222 Merchandise Mart Plaza, Suite 9-112
Chicago, IL 60654
Telephone: 312-644-6644
Facsimile: 312-644-6244
Attention: Steven G. Martin
<PAGE> 24
If to the Transfer Agent:
Continental Stock Transfer and Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Telephone: (212) 509-4000
Facsimile: (212) 509-5150
Attention: Marlene Cunningham
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally recognized
overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights under this Agreement without
the consent of the Company, other than to an affiliate of the Buyer controlled
by Steven G. Martin or Joshua B. Scheinfeld.
(h) 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.
(i) Publicity. The Buyer shall have the right to approve before
issuance any press releases or any other public disclosure (including any
filings with the SEC) with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
(including any filings with the SEC) with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Termination. This Agreement may be terminated only as follows:
(i) By the Buyer any time an Event of Default exists without
any liability or payment to the Company. However, if pursuant to or
within the meaning of any Bankruptcy Law, the Company commences a
voluntary case or any Person commences a
<PAGE> 25
proceeding against the Company, a Custodian is appointed for the Company
or for all or substantially all of its property, or the Company makes a
general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 9(h), 9(i) and 9(j)
hereof) this Agreement shall automatically terminate without any
liability or payment to the Company without further action or notice by
any Person. No such termination of this Agreement under this Section
11(k)(i) shall affect the Company's or the Buyer's obligations under this
Agreement with respect to pending purchases and the Company and the Buyer
shall complete their respective obligations with respect to any pending
purchases under this Agreement.
(ii) At any time prior to the Commencement the Company shall
have the option to terminate this Agreement for any reason or for no
reason without liability of any party to any other party, except that the
Company shall issue to the Buyer the Commitment Shares immediately prior
to the termination hereof. In such case, the number of Commitment Shares
shall be equal to 12% of $6,000,000 divided by the lower of (A) the
arithmetic average of the Closing Bid Prices of the Common Stock for the
five (5) consecutive Trading Days immediately preceding the Trading Day
which is two (2) Trading Days prior to the date of termination of this
Agreement and (B) the arithmetic average of the Closing Bid Prices of the
Common Stock for the five (5) consecutive Trading Days immediately
preceding the date hereof. The number of Commitment Shares shall be
appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction.
(iii) In the event that the Commencement shall not have occurred
on or before March 31, 2001, due to the failure to satisfy the conditions
set forth in Sections 6 and 7 above with respect to the Commencement (and
the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement
at the close of business on such date or thereafter without liability of
any party to any other party. If this Agreement is terminated pursuant to
this Section 11(k)(iii) prior to the Commencement other than solely as a
result of any material breach of the Buyer's obligation hereunder, the
Company shall issue to the Buyer the Commitment Shares immediately upon
the termination hereof. In such case, the number of Commitment Shares
shall be equal to 12% of $6,000,000 divided by the lower of (A) the
arithmetic average of the Closing Bid Prices of the Common Stock for the
five (5) consecutive Trading Days immediately preceding the Trading Day
which is two (2) Trading Days prior to the date of termination of this
Agreement and (B) the arithmetic average of the Closing Bid Prices of the
Common Stock for the five (5) consecutive Trading Days immediately
preceding the date hereof. The number of Commitment Shares shall be
appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction.
(iv) If by the Maturity Date, for any reason or for no reason
the full Available Amount under this Agreement has not been purchased as
provided for in Section 1 of this Agreement, by the Buyer without any
liability or payment to the Company.
(v) At any time after the Commencement Date, and so long as the
Company has provided appropriate notice as described below, if during any
ten (10) consecutive Trading Days the Closing Sale Price of the Common
Stock is below the Fixed Purchase Price for each of such ten (10) Trading
Days, the Company shall have three (3) Trading Days to give written
notice (a "Company Termination Notice") to the Buyer electing to
terminate this Agreement without any liability or payment to the Buyer (a
"Company
<PAGE> 26
Termination"). The Company Termination Notice shall not be effective
until three (3) Trading Days after it has been received by the Buyer. Any
Purchase Notices submitted by the Buyer which have a Purchase Date on or
prior to the third (3rd) Trading Day after receipt by the Buyer of the
Company Termination Notice, must be honored by the Company as otherwise
provided herein. The Company may not deliver a Company Termination Notice
or otherwise effect a Company Termination in anticipation of or in
connection with a Major Transaction until such Major Transaction (whether
or not consummated) has been publicly disclosed for a period of at least
forty-five (45) Trading Days. In the event that within forty-five (45)
Trading Days of a Company Termination, the Company publicly discloses
that a Major Transaction has been consummated or may be consummated, the
Buyer shall be entitled to the following payment equal to the Purchase
Rate (determined as of the date of the Company Termination Notice
assuming a Purchase Amount equal to the remaining Available Amount)
multiplied by the amount, if any that (A) the arithmetic average of the
Closing Sale Price for the Common Stock for the ten (10) Trading Days
following either: (1) the public disclosure of the Major Transaction or
(2) the consummation of the Major Transaction, as selected by the Buyer,
exceeds (B) the Purchase Price determined as of the date the Company
Termination is effected. Any payments under the previous sentence shall
be made either in the form of cash or registered, freely tradable shares
of Common Stock, eleven (11) Trading Days following either: (1) the
public disclosure of the Major Transaction or (2) the consummation of the
Major Transaction, as selected by the Buyer. To the extent that such
payment has not been paid by the fifth (5th) Trading Date after its due
date, the Buyer shall be entitled to interest in an amount equal to one
percent (1.0%) of the unpaid amount per day, payable on demand. If paid
in shares of Common Stock, the "dollar value" per share of Common Stock
shall be the average of the Closing Bid Prices of the Common Stock for
the five (5) consecutive Trading Days prior to the payment date.
(vi) This Agreement shall automatically terminate on the date
that the Company sells and the Buyer purchases Six Million Dollars
($6,000,000) of Common Stock as provided herein, without any action or
notice on the part of any party.
Except as set forth in Sections 11(k)(i) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2 and 3 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 1(e), 1(g) and Section 11, shall survive the
Commencement and any termination of this Agreement. No termination of this
Agreement shall effect the Company's or the Buyer's obligations under this
Agreement with respect to pending purchases and the Company and the Buyer shall
complete their respective obligations with respect to any pending purchases
under this Agreement.
(l) No Financial Advisor, Placement Agent, Broker or Finder. The
Company represents and warrants to the Buyer that it has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Buyer represents and warrants to the
Company that it has not engaged any financial advisor, placement agent, broker
or finder in connection with the transactions contemplated hereby. The Company
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or
<PAGE> 27
expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(n) Remedies, Other Obligations, Breaches and Injunctive Relief. The
Buyer's remedies provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy of the Buyer contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Buyer's right to pursue actual damages for any failure by the
Company to comply with the terms of this Agreement. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
(o) Changes to the Terms of this Agreement. This Agreement and any
provision hereof may only be amended by an instrument in writing signed by the
Company and the Buyer. The term "Agreement" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
(p) Enforcement Costs. If: (i) this Agreement is placed by the Buyer
in the hands of an attorney for enforcement or is enforced by the Buyer through
any legal proceeding; or (ii) an attorney is retained to represent the Buyer in
any bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii) an
attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.
(q) Failure or Indulgence Not Waiver. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
* * * * *
<PAGE> 28
IN WITNESS WHEREOF, the Buyer and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.
THE COMPANY:
K2 DIGITAL, INC.
By:
-----------------------------
Name: Gary W. Brown
Title: Chief Operating Officer
BUYER:
FUSION CAPITAL FUND II, LLC
BY: FUSION CAPITAL PARTNERS, LLC
BY: SGM HOLDINGS CORP.
By:
----------------------------
Name: Steven G. Martin
Title: President
