PRIME COMPANIES, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES
AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE
SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT
OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED
DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 3rd day of October, 2000, by and between Prime
Companies, Inc., a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and the undersigned Investor executing this
Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Thirty
Million Dollars ($30,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the recitals
above), the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Additional Warrant" shall have the meaning set forth in the Warrant
Antidilution Agreement.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a),
the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section
2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is open
for trading.
<PAGE>
"Calendar Month" shall mean the period of time beginning on the numeric day
in question in a calendar month and for Calendar Months thereafter, beginning on
the earlier of (i) the same numeric day of the next calendar month or (ii) the
last day of the next calendar month. Each Calendar Month shall end on the day
immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Change in Control" shall have the meaning set forth within the definition
of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii)
each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
inside closing bid price (as reported by Bloomberg L.P) for such security during
Normal Trading on the O.T.C. Bulletin Board, or, if the O.T.C. Bulletin Board is
not the principal securities exchange or trading market for such security, the
last closing bid price during Normal Trading of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by such principal securities exchange or trading market, or if the
foregoing do not apply, the last closing bid price during Normal Trading of such
security in the over-the-counter market on the electronic bulletin board for
such security, or, if no closing bid price is reported for such security, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the Investor in
this Offering. If the Company and the Investor in this Offering are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved by an investment banking firm mutually acceptable to the Company and
the Investor in this offering and any fees and costs associated therewith shall
be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section
2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
<PAGE>
"Company" shall mean Prime Companies, Inc., a corporation duly organized
and existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set forth
in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, or the New York Stock Exchange or
is suspended or delisted with respect to the trading of the shares of Common
Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance Put
Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
<PAGE>
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall have the meaning given to it in the Registration
Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it in
the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section
2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit B,
or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Lookback Volume Limitation" shall have the meaning set forth in Section
2.3.1(b).
"Major Transaction" shall mean and shall be deemed to have occurred at such
time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event
either (i) no longer hold a majority of the shares of Common Stock of the
Company or (ii) no longer have the ability to elect the board of directors
of the Company (a "Change of Control");
(ii) the sale or transfer of a portion of the Company's assets not in
the ordinary course of business;
(iii) the purchase of assets by the Company not in the ordinary course
of business;
or
(iv) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock.
<PAGE>
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude "after
hours" trading.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms of
this Agreement, the period beginning on the Business Day immediately following
the Put Date and ending on and including the date which is 20 Business Days
after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
<PAGE>
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2, the
form of which is attached hereto as Exhibit D.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.11(a).
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Cancellation Notice Confirmation" shall have the meaning set forth in
Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any Put
Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount
by the respective Put Share Prices with respect to such Put Shares, subject to
the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form
of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon by
the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
<PAGE>
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a), the form of which is attached hereto as Exhibit R.
"Registration Opinion Deadline" shall have the meaning set forth in Section
2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights
agreement entered into by the Company and Investor on even date herewith, in the
form attached hereto as Exhibit A, or such other form as agreed upon by the
parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Right of First Refusal" shall have the meaning set forth in Section 6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached
hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and
is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common
Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to
this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
<PAGE>
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section 2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to its
transfer agent, substantially in the form attached as Exhibit T, or such other
form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or its
nominee (as instructed by Investor) and not containing a restrictive legend or
stop transfer order, including but not limited to the Put Shares for the
applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
<PAGE>
"Warrant Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit O, or such other form as agreed
upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean the Purchase Warrants, the Commitment Warrants and
the Additional Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
------------------
Subject to the terms and conditions herein and the satisfaction of the
conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying
Warrants as the Company may, in its sole and absolute discretion, from time
to time elect to issue and sell to Investor according to one or more Puts
pursuant to Section 2.3 below.
2.2 Investment Commitment.
---------------------
2.2.1 Investment Commitment Closing. The closing of this Agreement
(the "Investment Commitment Closing") shall be deemed to occur when this
Agreement, the Registration Rights Agreement, the Commitment Warrant and
the Warrant Antidilution Agreement have been executed by both Investor and
the Company, the Transfer Agent Instructions have been executed by both the
Company and the Transfer Agent, and the other Conditions to Investor's
Obligations set forth in Section 2.2.2 below have been met.
2.2.2 Conditions to Investor's Obligations. As a prerequisite to the
Investment Commitment Closing and the Investor's obligations hereunder, all
of the following (the "Conditions to Investor's Obligations") shall have
been satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by
the Company and Investor), (ii) the Investment Commitment
Opinion of Counsel (signed by the Company's counsel), (iii)
the Transfer Agent Instructions (executed by the Company and
the Transfer Agent), and (iv) a Secretary's Certificate as
to (A) the resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's Certificate
of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall
have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading and
actually trading on the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American
Stock Exchange or the New York Stock Exchange;
<PAGE>
(d) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in
Section 3.2.4), as of the Closing there have been no
material adverse changes in the Company's business prospects
or financial condition since the date of the last balance
sheet included in the Disclosure Documents, including but
not limited to incurring material liabilities; and
(e) the representations and warranties of the Company in this
Agreement shall be true and correct in all material respects
and the conditions to Investor's obligations set forth in
this Section 2.2.2 shall have been satisfied as of such
Closing; and the Company shall deliver an Officer's
Certificate, signed by an officer of the Company, to such
effect to the Investor.
2.3 Puts of Common Shares to the Investor.
--------------------------------------
2.3.1 Procedure to Exercise a Put. Subject to the Individual Put
Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and
the other conditions and limitations set forth in this Agreement, at any
time beginning on the date on which the Registration Statement is declared
effective by the SEC (the "Effective Date"), the Company may, in its sole
and absolute discretion, elect to exercise one or more Puts according to
the following procedure, provided that each subsequent Put Date after the
first Put Date shall be no sooner than three (3) Business Days following
the preceding Pricing Period End Date:
(a) Delivery of Advance Put Notice. At least ten (10) Business
Days but not more than twenty (20) Business Days prior to any intended
Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put
Notice," the form of which is attached hereto as Exhibit E, the date
of such Advance Put Notice being the "Advance Put Notice Date") to
Investor stating the Put Date for which the Company shall, subject to
the limitations and restrictions contained herein, exercise a Put and
stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the
Company intends to sell to the Investor for the Put (the "Intended Put
Share Amount").
The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed
$2,000,000, which it shall sell to Investor during the Put (the
"Company Designated Maximum Put Dollar Amount") and/or (ii) a minimum
purchase price per Put Share at which the Investor may purchase shares
of Common Stock pursuant to such Put Notice (a "Company Designated
Minimum Put Share Price"). The Company Designated Minimum Put Share
Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business
Day immediately preceding the Advance Put Notice Date, or (ii) the
Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date minus $0.125. The
Company may decrease (but not increase) the Company Designated Minimum
Put Share Price for a Put at any time by giving the Investor written
notice of such decrease not later than 12:00 Noon, New York City time,
on the Business Day immediately preceding the Business Day that such
decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the
determination of Trigger Prices and Excluded Days for days preceding
the Business Day that such decrease takes effect, provided that the
Put Share Price for all shares in a Put shall be calculated using the
lowest Company Designated Minimum Put Share Price, as decreased.
<PAGE>
Notwithstanding the above, if, at the time of delivery of an
Advance Put Notice, more than two (2) Calendar Months have passed
since the date of the previous Put Closing, such Advance Put Notice
shall provide at least twenty (20) Business Days notice of the
intended Put Date, unless waived in writing by the Investor. In order
to effect delivery of the Advance Put Notice, the Company shall (i)
send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time,
and (ii) surrender such notice on such date to a courier for overnight
delivery to the Investor (or two (2) day delivery in the case of an
Investor residing outside of the U.S.). Upon receipt by the Investor
of a facsimile copy of the Advance Put Notice, the Investor shall,
within two (2) Business Days, send, via facsimile, a confirmation of
receipt (the "Advance Put Notice Confirmation," the form of which is
attached hereto as Exhibit F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming
the intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number of
shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the
Intended Put Share Amount, and (ii) the Individual Put Limit. The
"Individual Put Limit" shall equal the lesser of (A) 1,500,000 shares,
(B) 15% of the sum of the aggregate daily reported Trading Volumes in
the outstanding Common Stock on the Company's Principal Market,
excluding any block trades of 20,000 or more shares of Common Stock,
for all Evaluation Days (as defined below) in the Pricing Period, (C)
the number of Put Shares which, when multiplied by their respective
Put Share Prices, equals the Maximum Put Dollar Amount, and (D) the
9.9% Limitation, but in no event shall the Individual Put Limit exceed
15% of the sum of the aggregate daily reported Trading Volumes in the
outstanding Common Stock on the Company's Principal Market, excluding
any block trades of 20,000 or more shares of Common Stock, for the
twenty (20) Business Days immediately preceding the Advance Put Notice
Date (the "Lookback Volume Limitation")(this limitation, together with
the limitation in (B) immediately above are collectively referred to
herein as the "Volume Limitations"). Company agrees not to trade
Common Stock or arrange for Common Stock to be traded for the purpose
of artificially increasing the Volume Limitations. Notwithstanding the
above, Block Trades shall not be excluded from the above calculations
to the extent that the aggregate number of shares traded in all such
Block Trades on a given trading day constitute less than ten percent
(10%) of the total trading volume of all shares traded on that trading
day.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i) the
Company Designated Minimum Put Share Price, plus $0.075, or (ii) the Company
Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing Period
where the lowest intra-day trading price of the Common Stock is less than the
Trigger Price.
<PAGE>
An "Evaluation Day" shall mean each Business Day during a Pricing Period
that is not an Excluded Day.
(c) Put Share Price. The purchase price for the Put Shares (the
"Put Share Price") shall equal the lesser of (i) the Market Price for
such Put, minus $0.075, or (ii) 91% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put
Share Price for such Put, if applicable.
(d) Delivery of Put Notice. After delivery of an Advance Put
Notice, on the Put Date specified in the Advance Put Notice the
Company shall deliver written notice (the "Put Notice," the form of
which is attached hereto as Exhibit G) to Investor stating (i) the Put
Date, (ii) the Intended Put Share Amount as specified in the Advance
Put Notice (such exercise a "Put"), (iii) the Company Designated
Maximum Put Dollar Amount (if applicable), and (iv) the Company
Designated Minimum Put Share Price (if applicable). In order to effect
delivery of the Put Notice, the Company shall (i) send the Put Notice
by facsimile on the Put Date so that such notice is received by the
Investor by 6:00 p.m., New York, NY time, and (ii) surrender such
notice on the Put Date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing
outside of the U.S.). Upon receipt by the Investor of a facsimile copy
of the Put Notice, the Investor shall, within two (2) Business Days,
send, via facsimile, a confirmation of receipt (the "Put Notice
Confirmation," the form of which is attached hereto as Exhibit H) of
the Put Notice to Company specifying that the Put Notice has been
received and affirming the Put Date and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the Put Date
for such Put, the Company shall deliver the Required Put Documents (as
defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the
Investor, the delivery of the Put Shares of Common Stock shall be in
the form of physical certificates. If specifically requested by the
Investor, the Put Shares shall be transmitted electronically pursuant
to such electronic delivery system as the Investor shall request. If
the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date, the Put shall be automatically
cancelled, unless the Investor agrees to delay the Put Date by up to
three (3) Business Days, in which case the Pricing Period begins on
the Business Day following such new Put Date. If the Company has not
delivered all of the Required Put Documents to the Investor on or
before the Put Date (or new Put Date, if applicable), and the Investor
has not agreed in writing to delay the Put Date, the Put is
automatically canceled (an "Impermissible Put Cancellation") and,
unless the Put was otherwise canceled in accordance with the terms of
Section 2.3.11, the Company shall pay the Investor $5,000 for its
reasonable due diligence expenses incurred in preparation for the
canceled Put and the Company may deliver an Advance Put Notice for the
subsequent Put no sooner than ten (10) Business Days after the date
that such Put was canceled, unless otherwise agreed by the Investor.
(f) Limitation on Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, in no
event shall the Investor be required to purchase, and an Intended Put
Share Amount may not include, an amount of Put Shares, which when
added to the number of Put Shares acquired by the Investor pursuant to
this Agreement in any Put or Puts having a Put Closing Date that is
forty five (45) or fewer Business Days (not counting any Business days
during which the Registration Statement is in an Ineffective Period)
preceding the Put Date with respect to which this determination of the
permitted Intended Put Share Amount is being made (the "Aggregating
Period"), would exceed 9.99% of the number of shares of Common Stock
outstanding (on a fully diluted basis, to the extent that inclusion of
unissued shares is mandated by Section 13(d) of the
<PAGE>
Exchange Act) on the Put Date for such Pricing Period, as determined
in accordance with Section 13(d) of the Exchange Act (the "Section
13(d) Outstanding Share Amount"). Each Put Notice shall include a
representation of the Company as to the Section 13(d) Outstanding
Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a
Pricing Period than on the Put Date associated with such Pricing
Period, then the number of shares of Common Stock outstanding on such
date during such Pricing Period shall govern for purposes of
determining whether the Investor, when aggregating all purchases of
Shares made pursuant to this Agreement in the Aggregating Period,
would have acquired more than 9.99% of the Section 13(d) Outstanding
Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to require the
Investor to purchase any subsequent Put Shares shall terminate permanently
(each, an "Automatic Termination") upon the occurrence of any of the
following:
(a) the Company shall not exercise a Put or any Put thereafter
if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related
to the Company that has resulted in (i) a Securities and Exchange
Commission enforcement action, or (ii) a civil judgment or criminal
conviction for fraud or misrepresentation, or for any other offense
that, if prosecuted criminally, would constitute a felony under
applicable law;
(b) the Company shall not exercise a Put or any Put thereafter,
on any date after a cumulative time period or series of time periods,
consisting only of Ineffective Periods and Delisting Events, that
lasts for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put thereafter if
at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors instituted by or against the Company or any
subsidiary of the Company;
(d) the Company shall not exercise a Put after the sooner of (i)
the date that is three (3) years after the Effective Date, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for
all Puts equal the Maximum Offering Amount; and
(e) the Company shall not exercise a Put after the Company has
breached any covenant in Section 2.6, Section 6, or Section 9 hereof.
(f) if no Registration Statement has been declared effective by
the date that is one (1) year after the date of this Agreement, the
Automatic Termination shall occur on the date that is one (1) year
after the date of this Agreement.
<PAGE>
2.3.3 Put Limitations. The Company's right to exercise a Put shall be
limited as follows:
(a) notwithstanding the amount of any Put, the Investor shall not
be obligated to purchase any additional Put Shares once the aggregate
Put Dollar Amount paid by Investor equals the Maximum Offering Amount;
(b) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has
announced a subdivision or combination, including a reverse split, of
its Common Stock or has subdivided or combined its Common Stock during
the Extended Put Period;
(c) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has paid
a dividend of its Common Stock or has made any other distribution of
its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which the Company has made,
during the Extended Put Period, a distribution of all or any portion
of its assets or evidences of indebtedness to the holders of its
Common Stock;
(e) the Investor shall not be obligated to acquire and pay for
the Put Shares with respect to any Put for which a Major Transaction
has occurred during the Extended Put Period.
2.3.3 A Exception for Certain Major Transactions. Notwithstanding the
terms of Section 2.3.3(e) above, in the event that, during an Extended
Pricing Period, the Company announces a Major Transaction consisting of an
acquisition of either (i) assets in the telecommunications industry having
a value of less than $1,000,000, or (ii) a Company in the
telecommunications industry having gross revenues of less than $1,000,000
per year, and such transaction does not result in an Ineffective Period,
the Company may publicly announce such transaction during an Extended Put
Period, provided that each Business Day from and including the date of
public announcement of such transaction through and including the date that
the Company delivers to the Investor an opinion of counsel, as described
below (a "Registration Confirmation Opinion"), shall be consider to be an
"Excluded Day," as that term is used in this Agreement. A "Registration
Confirmation Opinion" shall (i) describe the acquisition in question, and
(ii) opine that the Registration Statement does not need to be amended by
virtue of the acquisition in question, and that the Registration Statement
remains current and effective, and is not in an Ineffective Period.
2.3.4 Conditions Precedent to the Right of the Company to Deliver an
Advance Put Notice or a Put Notice and the Obligation of the Investor to
Purchase Put Shares. The right of the Company to deliver an Advance Put
Notice or a Put Notice and the obligation of the Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (i) the date of delivery of such Advance Put Notice or Put
Notice and (ii) the applicable Put Closing Date, of each of the following
conditions:
<PAGE>
(a) the Company's Common Stock shall be listed for and
actively trading on the O.T.C. Bulletin Board, the
Nasdaq Small Cap Market, the Nasdaq National Market
or the New York Stock Exchange and the Put Shares
shall be so listed, and to the Company's knowledge
there is no notice of any suspension or delisting
with respect to the trading of the shares of Common
Stock on such market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights
Agreement, including, but not limited to, the filing
of the Registration Statement with the SEC with
respect to the resale of all Registrable Securities
and the requirement that the Registration Statement
shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company
shall have satisfied and shall be in compliance with
any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the Company are
true and correct in all material respects as if made
on such date and the conditions to Investor's
obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the
Company, to such effect to the Investor;
(d) the Company shall have reserved for issuance a
sufficient number of Common Shares for the purpose of
enabling the Company to satisfy any obligation to
issue Common Shares pursuant to any Put and to effect
exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration
Rights Agreement, the prospectus included therein is
current and deliverable, and to the Company's
knowledge there is no notice of any investigation or
inquiry concerning any stop order with respect to the
Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of
the Put would exceed the Cap Amount, the Company
shall have obtained the Stockholder 20% Approval as
specified in Section 6.11, if the Company's Common
Stock is listed on the NASDAQ Small Cap Market or the
NASDAQ National Market System (the "NMS"), and such
approval is required by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event more
likely than not to have the effect of causing any
Registration Statement to be suspended or otherwise
ineffective (which event is more likely than not to
occur within the thirty Business Days following the
date on which such Advance Put Notice and Put Notice
is deemed delivered);
<PAGE>
(h) there is not then in effect any law, rule or
regulation prohibiting or restricting the
transactions contemplated hereby, or requiring any
consent or approval which shall not have been
obtained, nor is there any pending or threatened
proceeding or investigation which may have the effect
of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement;
(i) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental
authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement, and no
actions, suits or proceedings shall be in progress,
pending or threatened by any person (other than the
Investor or any affiliate of the Investor), that seek
to enjoin or prohibit the transactions contemplated by
this Agreement. For purposes of this paragraph (i), no
proceeding shall be deemed pending or threatened unless
one of the parties has received written or oral
notification thereof prior to the applicable Closing
Date.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions to
Closing of any Put. The Closing of any Put and Investor's obligations hereunder
shall additionally be conditioned upon the delivery to the Investor of each of
the following (the "Required Put Documents") on or before the applicable Put
Date:
(a) a number of Unlegended Share Certificates equal to the Intended
Put Share Amount, in denominations of not more than 50,000 shares per
certificate;
(b) the following documents: Put Opinion of Counsel, Officer's
Certificate, Put Notice, Registration Opinion, and any report or disclosure
required under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other writings required to be
delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated
herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the Investor, (i)
whenever required by Section 2.3.6(b) or by Section 2.5.3, and (ii) on the
date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of Exhibit R (the "Registration
Opinion"), addressed to the Investor stating, inter alia, that no facts
("Material Facts") have come to such counsel's attention that have caused
it to believe that the Registration Statement is subject to an Ineffective
Period or to believe that the Registration Statement, any Supplemental
Registration Statement (as each may be amended, if applicable), and any
related prospectuses, contain an untrue statement of material fact or omits
a material fact required to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. If a
Registration Opinion cannot be delivered by the Company's independent
counsel to the Investor on the Registration Opinion Deadline due to the
existence of Material Facts or an Ineffective Period, the Company shall
promptly notify the Investor and as promptly as possible amend each of the
<PAGE>
Registration Statement and any Supplemental Registration Statements, as
applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and
updated prospectus as soon as possible thereafter. If at any time after a
Put Notice shall have been delivered to Investor but before the related
Pricing Period End Date, the Company acquires knowledge of such Material
Facts or any Ineffective Period occurs, the Company shall promptly notify
the Investor and shall deliver a Put Cancellation Notice to the Investor
pursuant to Section 2.3.11 by facsimile and overnight courier by the end of
that Business Day.
(b) (i) the Company shall engage its independent auditors to perform
the procedures in accordance with the provisions of Statement on Auditing
Standards No. 71, as amended, as agreed to by the parties hereto, and
reports thereon (the "Bring Down Cold Comfort Letters") as shall have been
reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the
date that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have requested delivery of
an Agreed Upon Procedures Report pursuant to Section 2.5.3, the Company
shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by
the Investor with respect to certain financial information of the Company
and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this
Section 2.3.6(b) cannot be delivered by the Company's independent auditors,
the Company shall, if necessary, promptly revise the Registration Statement
and the Company shall not deliver a Put Notice until such report is
delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares. Subject to
the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required
to purchase (each a "Purchase") from the Company a number of Put Shares
equal to the Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor
shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions
set forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the
Investor of Shares shall occur by 5:00 PM, New York City Time, on the date
which is five (5) Business Days following the applicable Pricing Period End
Date (the "Payment Due Date") at the offices of Investor. On each or before
each Payment Due Date, the Investor shall deliver to the Company, in the
manner specified in Section 8 below, the Put Dollar Amount to be paid for
such Put Shares, determined as aforesaid. The closing (each a "Put
Closing") for each Put shall occur on the date that both (i) the Company
has delivered to the Investor all Required Put Documents, and (ii) the
Investor has delivered to the Company such Put Dollar Amount and any Late
Payment Amount, if applicable (each a "Put Closing Date").
<PAGE>
If the Investor does not deliver to the Company the Put Dollar Amount
for such Put Closing on or before the Payment Due Date, then the Investor
shall pay to the Company, in addition to the Put Dollar Amount, an amount
(the "Late Payment Amount") at a rate of X% per month, accruing daily,
multiplied by such Put Dollar Amount, where "X" equals one percent (1%) for
the first month following the date in question, and increases by an
additional one percent (1%) for each month that passes after the date in
question, up to a maximum of five percent (5%) per month; provided,
however, that in no event shall the amount of interest that shall become
due and payable hereunder exceed the maximum amount permissible under
applicable law.
2.3.9 Limitation on Short Sales. The Investor and its affiliates shall
not engage in short sales of the Company's Common Stock; provided, however,
that the Investor may enter into any short exempt sale or any short sale or
other hedging or similar arrangement it deems appropriate with respect to
Put Shares after it receives a Put Notice with respect to such Put Shares
so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.10 Cap Amount. If the Company becomes listed on the Nasdaq Small
Cap Market or the Nasdaq National Market, then, unless the Company has
obtained Stockholder 20% Approval as set forth in Section 6.11 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued
Shares exceed the maximum number of shares of Common Stock (the "Cap
Amount") that the Company can, without stockholder approval, so issue
pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq
Rules or any successor rule) (the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time during a
Pricing Period the Company discovers the existence of Material Facts
or any Ineffective Period or Delisting Event occurs, the Company shall
cancel the Put (a "Put Cancellation"), by delivering written notice to
the Investor (the "Put Cancellation Notice"), attached as Exhibit Q,
by facsimile and overnight courier. The "Put Cancellation Date" shall
be the date that the Put Cancellation Notice is first received by the
Investor, if such notice is received by the Investor by 6:00 p.m., New
York, NY time, and shall be the following date, if such notice is
received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put Cancellation Notice
is delivered to Investor after the Put Date, the Put, shall remain
effective with respect to a number of Put Shares (the "Truncated Put
Share Amount") equal to the Individual Put Limit for the Truncated
Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon receipt by the
Investor of a facsimile copy of the Put Cancellation Notice, the
Investor shall promptly send, via facsimile, a confirmation of receipt
(the "Put Cancellation Notice Confirmation," a form of which is
attached as Exhibit S) of the Put Cancellation Notice to the Company
specifying that the Put Cancellation Notice has been received and
affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put Cancellation Notice has
been delivered to the Investor after the Put Date, the Pricing Period
for such Put shall end at on the close of trading on the last full
trading day on the Principal Market that ends prior to the moment of
initial delivery of the Put Cancellation Notice to the Investor (a
"Truncated Pricing Period").
<PAGE>
2.3.12 Investment Agreement Cancellation. The Company may terminate (a
"Company Termination") its right to initiate future Puts by providing
written notice ("Termination Notice") to the Investor, by facsimile and
overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other
rights and obligations under this Agreement, the Registration Rights
Agreement or the Warrants. Notwithstanding the above, any cancellation
occurring during an Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event that the number of
Shares purchased by the Investor pursuant to its obligations hereunder is
less than the Intended Put Share Amount, the Investor shall promptly return
to the Company any shares of Common Stock in the Investor's possession that
are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial consideration hereof, following
the execution of the Letter of Agreement dated on or about September 8,
2000 between the Company and the Investor, the Company issued and delivered
to Investor or its designated assignees, warrants (the "Commitment
Warrants") in the form attached hereto as Exhibit U, or such other form as
agreed upon by the parties, to purchase 1,521,000 shares of Common Stock.
Each Commitment Warrant shall be immediately exercisable in accordance with
its terms, and shall have a term beginning on the date of issuance and
ending on date that is five (5) years thereafter. The Warrant Shares shall
be registered for resale pursuant to the Registration Rights Agreement. The
Investment Commitment Opinion of Counsel shall cover the issuance of the
Commitment Warrant and the issuance of the common stock upon exercise of
the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is
not filed, and regardless of whether or not the Registration Statement is
approved or denied by the SEC, the Investor shall retain full ownership of
the Commitment Warrant as partial consideration for its commitment
hereunder.
2.4.2 Purchase Warrants. Within five (5) Business Days of the end of
each Pricing Period, the Company shall issue and deliver to the Investor a
warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or
such other form as agreed upon by the parties, to purchase a number of
shares of Common Stock equal to 10% of the Put Share Amount for that Put.
Each Purchase Warrant shall be exerciseable at a price (the "Purchase
Warrant Exercise Price") which shall initially equal the Market Price for
the applicable Put, and shall have semi-annual reset provisions. Each
Purchase Warrant shall be immediately exercisable at the Purchase Warrant
Exercise Price, and shall have a term beginning on the date of issuance and
ending on the date that is five (5) years thereafter. The Warrant Shares
shall be registered for resale pursuant to the Registration Rights
Agreement.
<PAGE>
2.5 Due Diligence Review. The Company shall make available for inspection
and review by the Investor (the "Due Diligence Review"), advisors to and
representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company shall not
disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to
accept or refuse to accept such nonpublic information for review. The
Company may, as a condition to disclosing any nonpublic information
hereunder, require the Investor and its advisors and representatives to
enter into a confidentiality agreement (including an agreement with such
advisors and representatives prohibiting them from trading in Common Stock
during such period of time as they are in possession of nonpublic
information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to
any investors who purchase stock in the Company in a public offering, to
money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives
of the Investor and, if any, underwriters, of any event or the existence of
any circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting nonpublic information
(whether or not requested of the Company specifically or generally during
the course of due diligence by and such persons or entities), which, if not
disclosed in the Prospectus included in the Registration Statement, would
cause such Prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to
mean that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such information)
may not obtain nonpublic information in the course of conducting due
diligence in accordance with the terms of this Agreement; provided,
however, that in no event shall the Investor's advisors or representatives
disclose to the Investor the nature of the specific event or circumstances
constituting any nonpublic information discovered by such advisors or
representatives in the course of their due diligence without the written
consent of the Investor prior to disclosure of such information.
<PAGE>
2.5.2 Disclosure of Misstatements and Omissions. The Investor's
advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained
therein, in the light of the circumstances in which they were made, not
misleading. Upon receipt of such disclosure, the Investor's counsel shall
consult with the Company's independent counsel in order to address the
concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto; provided,
however, that such consultation shall not constitute the advice of the
Company's independent counsel to the Investor as to the accuracy of the
Registration Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to be Untrue
or are Omitted. In the event after such consultation the Investor or the
Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which
they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the
Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so
amended, or
(b) if the Company disputes the existence of any such material
misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in
the event the dispute relates to the adequacy of financial disclosure
and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("Agreed Upon
Procedures Report") outlining the performance of such "agreed upon
procedures" as shall be reasonably requested by the Investor and the
Company shall provide the Investor with a copy of such letter.
2.6 Commitment Payments. On the last Business Day of each six (6) Calendar
Month period following the Effective Date (each such period a "Commitment
Evaluation Period"), if the Company has not Put at least $1,000,000 in aggregate
Put Dollar Amount during that Commitment Evaluation Period, the Company, in
consideration of Investor's commitment costs, including, but not limited to, due
diligence expenses, shall pay to the Investor an amount (the "Semi-Annual
Non-Usage Fee") equal to the difference of (i) $100,000, minus (ii) 10% of the
aggregate Put Dollar Amount of the Put Shares put to Investor during that
Commitment Evaluation Period. In the event that the Company delivers a
Termination Notice to the Investor or an Automatic Termination occurs, the
Company shall pay to the Investor (the "Termination Fee") the greater of (i) the
Semi-Annual Non-Usage Fee for the applicable Commitment Evaluation Period, or
(ii) the difference of (x) $200,000, minus (y) 10% of the aggregate Put Dollar
Amount of the Put Shares put to Investor during all Puts to date, and the
Company shall not be required to pay the Semi-Annual Non-Usage Fee thereafter.
Notwithstanding the above, the Company shall not be required to pay a Non Usage
Fee for any Commitment Evaluation Period during which the Company has delivered
at least five Put Notices to the Investor and each such Put Notice is for an
Intended Put Share Amount equal to at least the amount of the Lookback Volume
Limitation.
<PAGE>
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor hereby
represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has
checked the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
------------------------------------------------------------------------
3.2.1 Access to Information. Investor or Investor's professional
advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the terms and conditions of
this Offering, the Company and its business and prospects, and to
obtain any additional information which Investor or Investor's
professional advisor deems necessary to verify the accuracy and
completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely on
the advice of, or has consulted with, Investor's own personal tax,
investment, legal or other advisors and has not relied on the Company
or any of its affiliates, officers, directors, attorneys, accountants
or any affiliates of any thereof and each other person, if any, who
controls any of the foregoing, within the meaning of Section 15 of the
Act for any tax or legal advice (other than reliance on information in
the Disclosure Documents as defined in Section 3.2.4 below and on the
Opinion of Counsel). The foregoing, however, does not limit or modify
Investor's right to rely upon covenants, representations and
warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such
Investor to utilize the information made available to it in connection
with the Offering in order to evaluate the merits and risks of the
prospective investment, which are substantial, including without
limitation those set forth in the Disclosure Documents (as defined in
Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement
hereunder, represents that (a) Investor has received and had an
opportunity to review (i) the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999, (ii) the Company's quarterly
report on Form 10-QSB for the quarters ended March 31, 2000, and June
30, 2000, (iii) the Risk Factors, attached as Exhibit J, (the "Risk
Factors") (iv) the Capitalization Schedule, attached as Exhibit K,
(the "Capitalization Schedule") and (v) the Use of Proceeds Schedule,
attached as Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor
has read, reviewed, and relied solely on the documents described in
(a) above, the Company's representations and warranties and other
information in this Agreement, including the exhibits, documents
prepared by the Company which have been specifically provided to
Investor in connection with this Offering (the documents described in
this Section 3.2.4 (a) and (b) are collectively referred to as the
"Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has,
prior to the
<PAGE>
date of this Agreement, been given an opportunity to review material
contracts and documents of the Company which have been filed as
exhibits to the Company's filings under the Act and the Exchange Act
and has had an opportunity to ask questions of and receive answers
from the Company's officers and directors; and (d) is not relying on
any oral representation of the Company or any other person, nor any
written representation or assurance from the Company other than those
contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investor's
right to rely upon covenants, representations and warranties of the
Company in Sections 5 and 6 of this Agreement. Investor acknowledges
and agrees that the Company has no responsibility for, does not
ratify, and is under no responsibility whatsoever to comment upon or
correct any reports, analyses or other comments made about the Company
by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"),
and Investor has not relied upon any Third Party Reports in making the
decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor
acknowledges that Investor is able to fend for Investor's self in the
transaction contemplated by this Agreement, that Investor has the
ability to bear the economic risk of Investor's investment pursuant to
this Agreement and that Investor is an "Accredited Investor" by virtue
of the fact that Investor meets the investor qualification standards
set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such
investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
----------------------------------
3.3.1 No General Solicitation. The Investment Agreement was not
offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without
limitation, (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, and (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising.
3.3.2 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock and Warrants issued at each
Put Closing will be, and the Warrant Shares will be, characterized as
"restricted securities" under the federal securities laws inasmuch as
they are being acquired from the Company in a transaction exempt from
the registration requirements of the federal securities laws and that
under such laws and applicable regulations such securities may not be
transferred or resold without registration under the Act or pursuant
to an exemption therefrom. In this connection, Investor represents
that Investor is familiar with Rule 144 under the Act, as presently in
effect, and understands the resale limitations imposed thereby and by
the Act.
<PAGE>
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the
Securities are sold pursuant to an effective Registration Statement or
an exemption from registration, they will remain in the name of
Investor and will not be transferred to or assigned to any broker,
dealer or depositary. Investor further agrees not to sell, transfer,
assign, or pledge the Securities (except for any bona fide pledge
arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is
realized upon, any transfer to the pledgee shall comply with the
requirements set forth herein), or to otherwise dispose of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement under
the Act and any applicable state securities laws covering such
proposed disposition and such disposition is made in accordance
with such registration statement and in compliance with
applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed
disposition to the extent relevant for determination of the
availability of an exemption from registration, and (ii) if
reasonably requested by the Company, Investor shall have
furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not
require registration of the Securities under the Act or state
securities laws. It is agreed that the Company will not require
the Investor to provide opinions of counsel for transactions made
pursuant to Rule 144 provided that Investor and Investor's
broker, if necessary, provide the Company with the necessary
representations for counsel to the Company to issue an opinion
with respect to such transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Common Stock for any minimum or other specific
term and reserves the right to dispose of the Common Stock at any time in
accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
-----------------
3.4.1 Authority. The person executing this Investment Agreement,
if executing this Agreement in a representative or fiduciary capacity,
has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required
in such capacity and on behalf of the subscribing individual,
partnership, trust, estate, corporation or other entity for whom or
which Investor is executing this Agreement. Investor has reached the
age of majority (if an individual) according to the laws of the state
in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly organized,
validly existing and in good standing as a limited liability company
under the laws of Georgia with full power and authority to purchase
the Securities to be purchased by Investor and to execute and deliver
this Agreement.
<PAGE>
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth
above are true with respect to all partners of Investor (and if any
such partner is itself a partnership, all persons holding an interest
in such partnership, directly or indirectly, including through one or
more partnerships), and the person executing this Agreement has made
due inquiry to determine the truthfulness of the representations and
warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and
warranties shall be deemed to have been made on behalf of the person
or persons for whom Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in the
Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the
Disclosure Documents, this Agreement and the exhibits hereto do not purport
to contain all the information, which would be contained in a registration
statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon
the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of this
Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason
of exemptions from the registration requirements of the Act and such laws,
and may not be sold, pledged (except for any limited pledge in connection
with a margin account of Investor to the extent that such pledge does not
require registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is
realized upon, any transfer to the pledgee shall comply with the
requirements set forth herein), assigned or otherwise disposed of in the
absence of an effective registration of the Securities and any component
thereof under the Act or unless an exemption from such registration is
available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements
of the Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it
may be required to bear the economic risk of Investor's investment for an
indefinite period of time;
4.6 Exempt Transaction. Investor understands that the Securities are
being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
<PAGE>
4.7 Legends. The certificates representing the Put Shares shall not
bear a legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the
certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend
removal under the terms of Section 6.8 below, shall bear the following
legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, USA and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on the business or properties of the Company
and its subsidiaries taken as a whole. The Company is not the subject of
any pending, threatened or, to its knowledge, contemplated investigation or
administrative or legal proceeding (a "Proceeding") by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, or the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., the Nasdaq Stock Market, Inc. or any state securities
commission, or any other governmental entity, which have not been disclosed
in the Disclosure Documents. None of the disclosed Proceedings, if any,
will have a material adverse effect upon the Company or the market for the
Common Stock. The Company has the subsidiaries set forth on Schedule 5.1.
5.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents (as further set forth in
any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the Company. Except
for continuing losses, there have been no material adverse changes to the
Company's business, financial condition, or prospects since the dates of
such Disclosure Documents. The financial statements as contained in the
10-KSB and 10-QSB have been prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise permitted
by Regulation S-X of the Exchange Act, or Generally Accepted Accounting
Principles, as applicable), subject, in the case of unaudited interim
financial statements, to customary year end adjustments and the absence of
certain footnotes, and fairly present the financial condition of the
Company as of the dates of the balance sheets included therein and the
consolidated results of its operations and cash flows for the periods then
ended. Without limiting the foregoing, there are no material liabilities,
contingent or actual, that are not disclosed in the Disclosure Documents
(other than liabilities incurred by the Company in the ordinary course of
its business, consistent with its past practice, after the period covered
by the Disclosure Documents). The Company has paid all material taxes that
are due, except for taxes that it reasonably disputes. There is no
<PAGE>
material claim, litigation, or administrative proceeding pending or, to the
best of the Company's knowledge, threatened against the Company, except as
disclosed in the Disclosure Documents. This Agreement and the Disclosure
Documents do not contain any untrue statement of a material fact and do not
omit to state any material fact required to be stated therein or herein
necessary to make the statements contained therein or herein not misleading
in the light of the circumstances under which they were made. No event or
circumstance exists relating to the Company which, under applicable law,
requires public disclosure but which has not been so publicly announced or
disclosed.
5.3 Authorization. All corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or
the reservation for issuance) of the Warrants and the Warrant Shares have
been taken, and this Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except insofar as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally
or by principles governing the availability of equitable remedies. The
Company has obtained all consents and approvals required for it to execute,
deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants,
when issued, sold and delivered in accordance with the terms hereof, for
the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in
this Agreement, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Warrant Shares, when issued in
accordance with the terms of the Warrants, shall be duly and validly issued
and outstanding, fully paid and nonassessable, and based in part on the
representations and warranties of Investor, will be issued in compliance
with all applicable U.S. federal and state securities laws. The Put Shares,
the Warrants and the Warrant Shares will be issued free of any preemptive
rights. 5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation
or Bylaws, each as amended and in effect on and as of the date of the
Agreement, or of any material provision of any material instrument or
material contract to which it is a party or by which it is bound or of any
provision of any federal or state judgment, writ, decree, order, statute,
rule or governmental regulation applicable to the Company, which would have
a material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement or the Registration
Rights Agreement. The execution, delivery and performance of this Agreement
and the other agreements entered into in conjunction with the Offering and
the consummation of the transactions contemplated hereby and thereby will
not (a) result in any such violation or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a default
under any such provision, instrument or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company, which would have a material adverse effect on the Company's
business or prospects, or on the performance of its obligations under this
Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would
have a material adverse effect on the Company's business or prospects.
<PAGE>
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required by
the Exchange Act since the date the Company first became subject to such
reporting obligations. The Company undertakes to furnish Investor with
copies of such reports as may be reasonably requested by Investor prior to
consummation of this Offering and thereafter, to make such reports
available, for the full term of this Agreement, including any extensions
thereof, and for as long as Investor holds the Securities. The Common Stock
is duly listed or approved for quotation on the O.T.C. Bulletin Board. The
Company is not in violation of the listing requirements of the O.T.C.
Bulletin Board and does not reasonably anticipate that the Common Stock
will be delisted by the O.T.C. Bulletin Board for the foreseeable future.
The Company has filed all reports required under the Exchange Act. The
Company has not furnished to the Investor any material nonpublic
information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of the date
hereof is, and the capitalization as of the Closing, subject to exercise of
any outstanding warrants and/or exercise of any outstanding stock options,
after taking into account the offering of the Securities contemplated by
this Agreement and all other share issuances occurring prior to this
Offering, will be, as set forth in the Capitalization Schedule as set forth
in Exhibit K. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of the Securities. Except as disclosed in the Capitalization Schedule, as
of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into
or exercisable or exchangeable for, any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or
any of its subsidiaries is or may become bound to issue additional shares
of capital stock of the Company or any of its subsidiaries, and (ii) there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their
securities under the Act (except the Registration Rights Agreement), except
that the Company is obligated to register 6,569,444 shares of common stock
by January 1, 2000 pursuant to a private placement that closed in March of
2000.
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M
lists all patents, trademarks, trademark registrations, trade names and
copyrights of the Company. The Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations,
trade names, copyrights, know-how, technology and other intellectual
property necessary to the conduct of its business as set forth in Exhibit
M. The Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth
in Exhibit M. To the best of the Company's knowledge after due inquiry, the
Company is not infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Company's intellectual
property rights. There are no restrictions in any agreements, licenses,
franchises, or other instruments that preclude the Company from engaging in
its business as presently conducted.
<PAGE>
5.9 Use of Proceeds. As of the date hereof, the Company expects to use
the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule
set forth as Exhibit L hereto. These purposes and amounts are estimates and
are subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity, including, but
not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the financing contemplated by this Agreement which
has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other
agreements contemplated hereby, and the Company further acknowledges that
Investor has made no representations or warranties, either written or oral,
as to how long the Securities will be held by Investor or regarding
Investor's trading history or investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges that
this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the
SEC, or any other regulatory body and there is no guarantee that this
Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby will ever be approved by the SEC
or any other regulatory body. The Company is relying on its own analysis
and is not relying on any representation by Investor that either this
Investment Agreement, the transaction contemplated hereby or the
Registration Statement contemplated hereby has been or will be approved by
the SEC or other appropriate regulatory body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or
other representative in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company is
currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would
prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under Regulation D of the
Act or would require the issuance of any other securities to be integrated
with this Offering under the Rules of the SEC. The Company has not engaged
in any form of general solicitation or advertising in connection with the
offering of the Common Stock or the Warrants.
<PAGE>
5.16 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
5.17 Key Employees. Each "Key Employee" (as defined in Exhibit N) is
currently serving the Company in the capacity disclosed in Exhibit N. No
Key Employee, to the best knowledge of the Company and its subsidiaries,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each Key Employee
does not subject the Company or any of its subsidiaries to any liability
with respect to any of the foregoing matters. No Key Employee has, to the
best knowledge of the Company and its subsidiaries, any intention to
terminate his employment with, or services to, the Company or any of its
subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares
of Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director,
trustee or partner.
5.21 Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Delaware law which is or could become
applicable to the Investor as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Common
Stock, any exercise of the Warrants and ownership of the Common Shares and
Warrant Shares. The Company has not adopted and will not adopt any "poison
pill" provision that will be applicable to Investor as a result of
transactions contemplated by this Agreement, where "poison pill" provision
means a provision which effectively prevents a change in control of the
Company without the approval of the continuing board of directors.
<PAGE>
5.22 Other Agreements. The Company has not, directly or indirectly,
made any agreements with the Investor under a subscription in the form of
this Agreement for the purchase of Common Stock, relating to the terms or
conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.24 Financings. There are no other financings currently pending or
contemplated by the Company, except that the Company is contemplating up to
$3.5 million in equipment lease financing or straight equipment financing.
5.25 Shareholder Authorization. The Company shall, at its next annual
shareholder meeting following its listing on either the Nasdaq Small Cap
Market or the Nasdaq National Market, or at a special meeting to be held as
soon as practicable thereafter, use its best efforts to obtain approval of
its shareholders to (i) authorize the issuance of the full number of shares
of Common Stock which would be issuable under this Agreement and eliminate
any prohibitions under applicable law or the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities
with respect to the Company's ability to issue shares of Common Stock in
excess of the Cap Amount (such approvals being the "20% Approval") and (ii)
increase the number of authorized shares of Common Stock of the Company
(the "Share Authorization Increase Approval") such that at least 15,000,000
shares can be reserved for this Offering. In connection with such
shareholder vote, the Company shall use its best efforts to cause all
officers and directors of the Company to promptly enter into irrevocable
agreements to vote all of their shares in favor of eliminating such
prohibitions. As soon as practicable after the 20% Approval and the Share
Authorization Increase Approval, the Company agrees to use its best efforts
to reserve 15,000,000 shares of Common Stock for issuance under this
Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this
Investment Agreement are limited, among other things, based upon the
liquidity of the Company's Common Stock traded on its Principal Market.
6. Covenants of the Company.
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
<PAGE>
6.2 Corporate Existence and Taxes; Change in Corporate Entity. The
Company shall, until at least the Termination Date, maintain its corporate
existence in good standing and, once it becomes a "Reporting Issuer"
(defined as a Company which files periodic reports under the Exchange Act),
remain a Reporting Issuer and shall pay all its taxes when due except for
taxes which the Company disputes. The Company shall not, at any time after
the date hereof, enter into any merger, consolidation or corporate
reorganization of the Company with or into, or transfer all or
substantially all of the assets of the Company to, another entity unless
the resulting successor or acquiring entity in such transaction, if not the
Company (the "Surviving Entity"), (i) has Common Stock listed for trading
on Nasdaq or on another national stock exchange and is a Reporting Issuer,
(ii) assumes by written instrument the Company's obligations with respect
to this Investment Agreement, the Registration Rights Agreement, the
Transfer Agent Instructions, the Warrant Antidilution Agreement, the
Warrants, and the other agreements referred to herein, including but not
limited to the obligations to deliver to the Investor shares of Common
Stock and/or securities that Investor is entitled to receive pursuant to
this Investment Agreement and upon exercise of the Warrants and agrees by
written instrument to reissue, in the name of the Surviving Entity, any
Commitment Warrants, Purchase Warrants and Additional Warrants (each in the
same terms, including but not limited to the same reset provisions, as the
Commitment Warrants, Purchase Warrants and/or Additional Warrants
originally issued or required to be issued by the Company) that are
outstanding immediately prior to such transaction, making appropriate
proportional adjustments to the number of shares represented by such
Warrants and the exercise prices of such Warrants to accurately reflect the
exchange represented by the transaction.
6.3 Registration Rights. The Company will enter into a registration
rights agreement covering the resale of the Common Shares and the Warrant
Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell, convey
or otherwise dispose of any of its material assets to any subsidiary except
for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more
of the Common Stock or other securities of the Company.
6.5 Rights of First Refusal.
-----------------------
6.5.1 Capital Raising Limitations. During the period from the
date of this Agreement until the date that is sixty (60) days after
the Termination Date, the Company shall not issue or sell, or agree to
issue or sell Equity Securities (as defined below), for cash in
private capital raising transactions without obtaining the prior
written approval of the Investor of the Offering (the limitations
referred to in this subsection 6.5.1 are collectively referred to as
the "Capital Raising Limitations"). For purposes hereof, the following
shall be collectively referred to herein as, the "Equity Securities":
(i) Common Stock or any other equity securities, (ii) any debt or
equity securities which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional shares of
Common Stock or other equity securities, or (iii) any securities of
the Company pursuant to an equity line structure or format similar in
nature to this Offering. Notwithstanding the above, the Company may
issue or sell Equity Securities without the Investor's written
approval (subject to the Right of First Refusal described
below)("Unauthorized Equity Securities"), provided that the Company
may not deliver an Advance Put Notice or a Put Notice if, on the date
of such proposed Advance Put Notice or Put Notice, the dollar amount
of Unauthorized Equity Securities outstanding exceeds the following
amount:
<PAGE>
(A) the average per day trading volume of the Company's Common
Stock for the twenty trading days immediately preceding the proposed
date of such notice, multiplied by
(B) the closing price of the Company's Common Stock on the
trading day immediately preceding the proposed date of such notice,
multiplied by
(C) seven.
6.5.2 Investor's Right of First Refusal. For any private capital
raising transactions of Equity Securities which close after the date
hereof and on or prior to the date that is sixty (60) days after the
Termination Date of this Agreement, not including any warrants issued
in conjunction with this Investment Agreement, the Company agrees to
deliver to Investor, at least ten (10) days prior to the closing of
such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor
and its affiliates an option (the "Right of First Refusal") during the
ten (10) day period following delivery of such notice to purchase the
securities being offered in such transaction on the same terms as
contemplated by such transaction.
6.5.3 Exceptions to Capital Raising Limitations and Rights of
First Refusal. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to any
transaction involving issuances of securities in connection with a
merger, consolidation, acquisition or sale of assets, or in connection
with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the
Company or exercise of options by employees, or directors, or a
primary underwritten offering of the Company's Common Stock, but each
shall apply to the issuance of securities or options to consultants of
the Company. The Capital Raising Limitations and Rights of First
Refusal also shall not apply to (a) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof, (b) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan
for the benefit of the Company's employees, directors or consultants,
or (c) the issuance of debt securities, with no equity feature,
incurred solely for working capital purposes.
6.6 Financial 10-KSB Statements, Etc. and Current Reports on Form 8-K.
The Company shall deliver to the Investor copies of its annual reports on
Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the
Term of this Agreement.
<PAGE>
6.7 Opinion of Counsel. Investor shall, concurrent with the Investment
Commitment Closing, receive an opinion letter from the Company's legal
counsel, in the form attached as Exhibit B, or in such form as agreed upon
by the parties, and shall, concurrent with each Put Date, receive an
opinion letter from the Company's legal counsel, in the form attached as
Exhibit I or in such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any Securities
are issued with a restrictive Legend in accordance with the terms of this
Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it
is stamped, and a certificate for a security shall be originally issued
without the Legend, if (a) the sale of such Security is registered under
the Act, or (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions (the reasonable cost of which shall be borne by the
Investor), to the effect that a public sale or transfer of such Security
may be made without registration under the Act, or (c) such holder provides
the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144. Each Investor agrees to sell all Securities,
including those represented by a certificate(s) from which the Legend has
been removed, or which were originally issued without the Legend, pursuant
to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the Company
shall ensure that its shares of Common Stock (including all Warrant Shares
and Put Shares) are listed and available for trading on the O.T.C. Bulletin
Board. Thereafter, the Company shall (i) use its best efforts to continue
the listing and trading of its Common Stock on the O.T.C. Bulletin Board or
to become eligible for and listed and available for trading on the Nasdaq
Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing
and other obligations under the By-Laws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.10 The Company's Instructions to Transfer Agent. The Company will
instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering instructions in the form of Exhibit T hereto, to issue
certificates, registered in the name of each Investor or its nominee, for
the Put Shares and Warrant Shares in such amounts as specified from time to
time by the Company upon any exercise by the Company of a Put and/or
exercise of the Warrants by the holder thereof. Such certificates shall not
bear a Legend unless issuance with a Legend is permitted by the terms of
this Agreement and Legend removal is not permitted by Section 6.8 hereof
and the Company shall cause the Transfer Agent to issue such certificates
without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3
hereof to resell the Securities pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of
<PAGE>
applicable securities laws. If (a) an Investor provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable transactions, to
the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from registration or (b) an Investor
transfers Securities, pursuant to Rule 144, to a transferee which is an
accredited investor, the Company shall permit the transfer, and, in the
case of Put Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denomination as
specified by such Investor. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to an Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 6.10 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the
provisions of this Section 6.10, that an Investor shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put that
would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is
listed on NASDAQ, the Company shall obtain approval of its stockholders to
authorize (i) the issuance of the full number of shares of Common Stock
which would be issuable pursuant to this Agreement but for the Cap Amount
and eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or any of
its securities with respect to the Company's ability to issue shares of
Common Stock in excess of the Cap Amount (such approvals being the
"Stockholder 20% Approval").
6.12 Press Release. Any public announcement relating to this financing
(a "Press Release") shall be submitted to the Investor for review at least
two (2) business days prior to the planned release. The Company shall
obtain the Investor's written approval of the Press Release prior to
issuance by the Company.
6.13 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that
notwithstanding any termination under this section 6.13, the Investor shall
retain full ownership of the Commitment Warrant as partial consideration
for its commitment hereunder.
6.14. Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company shall immediately notify the Investor, but
in no event later than two (2) business days by facsimile and by overnight
courier, upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other deferral or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose; (iii) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any
event that makes any statement made in such Registration Statement or
related
<PAGE>
prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in the Registration Statement, related prospectus or
documents so that, in the case of a Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; (v) the declaration by the SEC of the
effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate, and the Company shall promptly
make available to the Investor any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investor any Put
Notice during the continuation of any of the foregoing events.
6.15 Acknowledgment Regarding Investor's Purchase of the Securities.
The Company acknowledges and agrees that the Investor is acting solely in
the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and
thereby and any advice given by the Investor or any of its representatives
or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Investor's
purchase of the Securities. The Company further represents to the Investor
that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives and advisors.
6.16. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable as Non-Usage Fees, Termination Fees and Ineffective
Registration Payments shall each give rise to liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred by the Investor is incapable or is difficult
to precisely estimate, (b) the amounts specified bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable
loss likely to be incurred by the Investor, and (c) the parties are
sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
6.17. Copies of Financial Statements, Reports and Proxy Statements.
Promptly upon the mailing thereof to the shareholders of the Company
generally, the Company shall deliver to the Investor copies of all
financial statements, reports and proxy statements so mailed and any other
document generally distributed to shareholders.
6.18. Notice of Certain Litigation. Promptly following the
commencement thereof, the Company shall provide the Investor written notice
and a description in reasonable detail of any litigation or proceeding to
which the Company or any subsidiary of the Company is a party, in which the
amount involved is $250,000 or more and which is not covered by insurance
or in which injunctive or similar relief is sought.
<PAGE>
7. Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability.
Investor's and the Company's representations and warranties shall survive
the Investment Date and any Put Closing contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration
Statement, this Agreement shall continue in full force and effect without
said provision; provided that if the removal of such provision materially
changes the economic benefit of this Agreement to the Investor, this
Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent. If assigned, the terms and
conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Investor may
assign Investor's rights hereunder, in connection with any private sale of
the Common Stock of such Investor, so long as, as a condition precedent to
such transfer, the transferee executes an acknowledgment agreeing to be
bound by the applicable provisions of this Agreement in a form acceptable
to the Company and provides an original copy of such acknowledgment to the
Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement. The use in this Agreement of
a masculine, feminine or neuter pronoun shall be deemed to include a
reference to the others.
7.5 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or
such other address as a party may request by notifying the other in
writing; provided, however, that in order for any notice to be effective as
to the Investor such notice shall be delivered and sent, as specified
herein, to all the addresses and facsimile telephone numbers of the
Investor set forth at the end of this Agreement or such other address
and/or facsimile telephone number as Investor may request in writing. In
addition, the Investor shall deliver copies of all notices to the Company
to the following addresses: Attention Irving Pfeffer, Pfeffer & Williams,
155 Montgomery Street, 6th Floor, San Francisco, CA 94194, and Norbert
Lima, Prime Companies, Inc., 409 Center Street, Yuba City, CA 95991.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and
expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
<PAGE>
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants, whether oral,
written, or otherwise except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the
parties hereto, shall be filed in any state or federal court sitting in
Atlanta, Georgia. Georgia law shall govern both the proceeding as well as
the interpretation and construction of the Transaction Documents and the
transaction as a whole. In any litigation between the parties hereto, the
prevailing party, as found by the court, shall be entitled to an award of
all attorney's fees and costs of court. Should the court refuse to find a
prevailing party, each party shall bear its own legal fees and costs.
7.9 Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the
Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg L.P. The written mutual
consent of the Investor and the Company shall be required to employ any
other reporting entity.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor shall deliver
Put Dollar Amounts (as payment towards any Put Share Price)
by wire transfer, to the Company pursuant to a wire
instruction letter to be provided by the Company, and signed
by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and
agrees, subject to the provisions of any applicable laws
providing for the refund of subscription amounts submitted
by Investor, that this Agreement is irrevocable and that
Investor is not entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such Investor
and delivered pursuant hereto, and that this Agreement and
such other agreements shall survive the death or disability
of such Investor and shall be binding upon and inure to the
benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and
assigns. If the Securities subscribed for are to be owned by
more than one person, the obligations of all such owners
under this Agreement shall be joint and several, and the
agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be
binding upon each such person and his heirs, executors,
administrators, successors, legal representatives and
assigns.
<PAGE>
9. Indemnification and Reimbursement.
(a) Indemnification. In consideration of the Investor's execution and
delivery of the Investment Agreement, the Registration Rights Agreement and
the Warrants (the "Transaction Documents") and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and
hold harmless Investor and all of its stockholders, officers, directors,
employees and direct or indirect investors and any of the foregoing
person's agents, members, partners or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising out
of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or documents contemplated hereby or
thereby, (b) any 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, (c) any cause of
action, suit or claim, derivative or otherwise, by any stockholder of the
Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against
any of the Indemnitees based on a violation of Section 5 of the Securities
Act caused by the integration of the private sale of common stock to the
Investor and the public offering pursuant to the Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
<PAGE>
(b) Reimbursement. If (i) the Investor, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, or (ii)
the Investor, other than by reason of its gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, then in
any such case, the Company will reimburse the Investor for its reasonable legal
and other expenses (including the cost of any investigation and preparation )
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which the Investor is a named party,
the Company will pay the Investor the charges, as reasonably determined by the
Investor, for the time of any officers or employees of the Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearing, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor and any such Affiliate and any such
person or entity. The Company also agrees that neither the Investor nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Investor or any inaccuracy in any representation or
warranty of the Investor contained herein or any breach by the Investor of any
of the provisions hereof.
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
10. Accredited Investor. Investor is an "accredited investor" because
(check all applicable boxes):
(a) [ ] it is an organization described in Section
501(c)(3) of the Internal Revenue Code, or a
corporation, limited duration company, limited
liability company, business trust, or partnership not
formed for the specific purpose of acquiring the
securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person who has such
knowledge and experience in financial and business
matters that he is capable of evaluating the merits
and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [x] an entity each equity owner of which is an
entity described in a - b above or is an individual
who could check one (1) of the last three (3) boxes
under subparagraph (c) above.
(e) [ ] other [specify] _____________________________________
<PAGE>
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 3rd day of October, 2000.
SWARTZ PRIVATE EQUITY, LLC
By: ____________________________________
Eric S. Swartz, Manager
SECURITY DELIVERY INSTRUCTIONS:
Swartz Private Equity, LLC
C/o Eric S. Swartz
200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 3RD DAY OF OCTOBER, 2000.
PRIME COMPANIES, INC.
By:
--------------------------------
Norbert J. Lima, CEO
Address: Attn: Stephen Goodman, CFO
2975 Treat Boulevard, Ste. C8
Concord, CA 94518
Telephone (925) 687-9669
Facsimile (925) 687-9670
<PAGE>
EXHIBIT E
ADVANCE PUT NOTICE
PRIME COMPANIES, INC. (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below, to
_____________________________, the Investor, as of the Intended Put Date written
below, all pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity, LLC dated on
or about October 3, 2000.
Date of Advance Put Notice: ___________________
Intended Put Date: ___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
PRIME COMPANIES, INC.
By:
-----------------------------------------
Norbert J. Lima, CEO
Address: Attn: Stephen Goodman, CFO
2975 Treat Boulevard, Ste. C8
Concord, CA 94518
Telephone (925) 687-9669
Facsimile (925) 687-9670
<PAGE>
EXHIBIT F
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
PRIME COMPANIES, INC.'s (the "Company") Advance Put Notice on the Advance Put
Date written below, and its intention to elect to exercise a Put to sell shares
of common stock ("Intended Put Share Amount") of the Company to the Investor, as
of the intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Swartz
Private Equity, LLC dated on or about October 3, 2000.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By: ________________________________
(Signature)
Address:____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
<PAGE>
EXHIBIT G
PUT NOTICE
PRIME COMPANIES, INC. (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about October 3, 2000.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in
this Investment Agreement.
PRIME COMPANIES, INC.
By:
-------------------------------------------------
Norbert J. Lima, CEO
Address: Attn: Stephen Goodman, CFO
2975 Treat Boulevard, Ste. C8
Concord, CA 94518
Telephone (925) 687-9669
Facsimile (925) 687-9670
<PAGE>
f
EXHIBIT H
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Prime Companies, Inc. (the "Company") Put Notice and election to exercise a Put
to sell ___________________________ shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company and
Swartz Private Equity, LLC dated on or about October 3, 2000.
Date of Confirmation: ____________________
Date of Put Notice: _______________
Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
----------------------------------------.
Company Designation Minimum Put Share Price (Optional):
----------------------------------------.
INVESTOR(S)
-----------------------------------
Investor's Name
By: _________________________________
(Signature)
Address:____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
<PAGE>
EXHIBIT Q
PUT CANCELLATION NOTICE
PRIME COMPANIES, INC. (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Swartz Private Equity, LLC dated on or about October
3, 2000, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice is
delivered to the Investor), provided that such cancellation shall not apply to
the number of shares of Common Stock equal to the Truncated Put Share Amount (as
defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation
(check one):
[ ] Material Facts, Ineffective Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
PRIME COMPANIES, INC.
By:
--------------------------------------------
Norbert J. Lima, CEO
Address: Attn: Stephen Goodman, CFO
2975 Treat Boulevard, Ste. C8
Concord, CA 94518
Telephone (925) 687-9669
Facsimile (925) 687-9670
<PAGE>
EXHIBIT S
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Prime Companies, Inc.'s, and Swartz Private
Equity, LLC dated on or about October 3, 2000, hereby confirms receipt of Prime
Companies, Inc.'s (the "Company") Put Cancellation Notice, and confirms the
following:
Date of this Confirmation: ______________
Put Cancellation Date: __________________
INVESTOR(S)
-----------------------------------
Investor's Name
By: _________________________________
(Signature)
Address:____________________________________
------------------------------------
------------------------------------
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
