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Exhibit 1.1
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as
of December 1, 2000 by and between On2.com Inc., a Delaware corporation (the
"Company"), and Crossover Ventures, Inc. (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS.
(a) "AVERAGE DAILY PRICE" shall be the price based on the VWAP
of the Company on the Principal Market.
(b) "DRAW DOWN" shall have the meaning assigned to such term
in Section 6.1(a) hereof.
(c) "DRAW DOWN PRICING PERIOD" shall mean a period of twenty
(20) consecutive Trading Days beginning on the date specified in the Draw Down
Notice (as defined in Section 6.1(e) hereof); PROVIDED, HOWEVER, the Draw Down
Pricing Period shall not begin before the day on which receipt of such notice in
accordance with Section 9.4 hereof.
(d) "EFFECTIVE DATE" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby is
declared effective by the Securities and Exchange Commission (the "SEC").
(e) "GAAP" shall mean the United States Generally Accepted
Accounting Principles as those conventions, rules and procedures are determined
by the Financial Accounting Standards Board.
(f) "INVESTMENT AMOUNT" shall have the meaning assigned to
such term in Section 6.1(e) hereof.
(g) "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on
the business, operations, properties, or financial condition of the Company that
is material and adverse to the Company and its subsidiaries, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other Material Agreement.
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(g) "PRINCIPAL MARKET" shall mean initially the American Stock
Exchange and shall include the Nasdaq National Market, Nasdaq Small-Cap Market,
and the New York Stock Exchange if the Company becomes listed and trades on such
market or exchange after the date hereof. Principal Market shall not include the
OTC Bulletin Board without the written consent of the Purchaser.
(h) "PURCHASE PRICE" shall mean with respect to Shares
purchased during each applicable Settlement Period (excluding Shares issued upon
the exercise of the Warrant):
(i) 90% of the Average Daily Price on the date in question
if the average VWAP during the 10 consecutive Trading Days immediately prior to
the applicable Settlement Period is less than $2.43; and
(ii) 94% of the Average Daily Price on the date in
question if the average VWAP during the 10 consecutive Trading Days immediately
prior to the applicable Settlement Period is equal to or greater than $2.43;
PROVIDED, HOWEVER, as to any Draw Downs in connection with a Special Activity
declared solely by the Company, the corresponding Purchase Price percentage
shall be reduced by an additional 3%.
(i) "REGISTRATION STATEMENT" shall mean the registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
to be filed with the Securities and Exchange Commission for the registration of
the Shares pursuant to the Registration Rights Agreement attached hereto as
EXHIBIT A (the "Registration Rights Agreement").
(j) "SEC DOCUMENTS" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its most recent annual meeting of
shareholders as of the time in question until such time as the Company no longer
has an obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
(k) "SETTLEMENT PERIOD" shall have the meaning assigned to
such term in Section 6.1(b).
(l) "SHARES" shall mean, collectively, the shares of Common
Stock of the Company being subscribed for hereunder and those shares of Common
Stock issuable to the Purchaser upon exercise of the Warrant.
(m) "SPECIAL ACTIVITY" shall mean any one time charge the
Company expects to incur for any reason, including, without limitation, in
connection with the acquisition of another business, as determined solely by the
Company.
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(n) "THRESHOLD PRICE" shall mean the price per share
designated by the Company as the lowest Average Daily Price during any Draw Down
Pricing Period at which the Company will sell its Common Stock in accordance
with Article VI hereof.
(o) "TRADING DAY" shall mean any day on which the Principal
Market is open for business.
(p) "VWAP" shall mean the daily volume weighted average price
of the Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. or any successor thereto, and if Bloomberg is no longer
available, any comparable nationwide subscribed financial reporting service
(based on a trading day from 9:30 am EST to 4:00 pm EST) using the VAP function
on the date in question.
(q) "WARRANT" shall have the meaning assigned to such term in
Section 5.2(f) hereof.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1. PURCHASE AND SALE OF STOCK. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company up to an
aggregate amount of twenty-three million dollars ($23,000,000) of the Company's
Common Stock (the "Commitment Amount"), $0.01 par value per share (the "Common
Stock"), and the Warrant. Notwithstanding anything to the contrary herein, the
Commitment Amount shall be increased to $40,000,000 if after the first
anniversary of the Initial Closing Date (i) the average VWAP during any 10
consecutive Trading Days is equal to or greater than ten dollars ($10) (the "$10
Period"), and (ii) the average trading volume of the Common Stock during any
twenty (20) consecutive Trading Days (which period must include a $10 Period)
equals or exceeds 100,000 shares.
Section 2.2. THE SHARES. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Shares to be
issued in connection with all Draw Downs requested under this Agreement.
Anything in this Agreement to the contrary notwithstanding, (i) at no time will
the Company request a Draw Down which would result in the issuance to the
Purchaser of an aggregate number of shares of Common Stock which exceeds 19.9%
of the number of shares of Common Stock issued and outstanding on the Initial
Closing Date without obtaining stockholder approval of such excess issuance,
unless otherwise permitted by the Principal Market, and (ii) excluding the
shares issued pursuant to the Warrant, the Company may not make a Draw Down to
the extent that, after such purchase by the Purchaser, the sum of the number of
shares of Common Stock beneficially owned by the Purchaser and its affiliates
would result in beneficial ownership by the Purchaser and its affiliates of more
than 9.9% of the then outstanding shares of Common
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Stock. For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act").
Section 2.3. PURCHASE PRICE AND INITIAL CLOSING. The Company agrees
to issue and sell to the Purchaser and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchaser agrees to purchase that number of the shares of
Common Stock to be issued in connection with each Draw Down at the applicable
Purchase Price. The delivery of executed documents under this Agreement and the
other agreements referred to herein and the payment of the fees set forth in
Article II of the Escrow Agreement, attached as EXHIBIT B hereto (the "Initial
Closing"), shall take place at the offices of Epstein Becker & Green, P.C., 250
Park Avenue, New York, New York 10177 (i) within five (5) days from the date
hereof, or (ii) such other time and place or on such date as the Purchaser and
the Company may agree upon (the "Initial Closing Date"). Each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Initial Closing. ARTICLE III
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATION AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more than fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents. The Company is duly qualified to do business and
is in good standing as a foreign corporation in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
(b) AUTHORIZATION, ENFORCEMENT. (i) The Company has the
requisite corporate power and corporate authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement and to issue the Draw Down Shares pursuant to their respective terms,
(ii) the execution and delivery of this Agreement, the Registration Rights
Agreement and the Escrow Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement and the Escrow Agreement have been
duly executed and delivered by the Company and at the Initial Closing shall
constitute valid and binding obligations
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of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the issuance of the
Draw Down Shares.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock of which 26,953,533
shares are issued and outstanding and 20,000,000 shares of preferred stock, par
value $0.01 per share, of which 400,000 shares of Series A Preferred Stock are
issued and outstanding, 34,100 shares of Series B Preferred Stock are issued and
outstanding, 1,644,304 shares of Series C Preferred Stock are issued and
outstanding, and 924,527 shares of Series C-II Preferred Stock are issued and
outstanding. All of the outstanding shares of the Company's Common Stock have
been duly and validly authorized and are fully paid and non-assessable, except
as set forth in the SEC Documents. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the SEC Documents, or on
SCHEDULE 3.1(C) hereto, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrant,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth in the SEC Documents or on SCHEDULE 3.1(C), there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. Except as set forth on SCHEDULE 3.1(C), the Company is not a party to
any agreement granting registration rights to any person with respect to any of
its equity or debt securities. Except as set forth on SCHEDULE 3.1(C), the
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the Company. Except
as set forth in the SEC Documents or on SCHEDULE 3.1(C) hereto, the offer and
sale of all capital stock, convertible securities, rights, warrants, or options
of the Company issued prior to the Initial Closing complied with all applicable
federal and state securities laws, and no stockholder has a right of rescission
or damages with respect thereto which would have a Material Adverse Effect on
the Company's financial condition or operating results. The Company has made
available to the Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof (the "Charter"),
and the Company's bylaws as in effect on the date hereof (the "Bylaws"). The
Company has not received any notice from the Principal Market questioning or
threatening the continued inclusion of the Common Stock on such market.
(d) ISSUANCE OF SHARES. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for and issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement
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by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, or local statute, rule, regulation, order, judgment or decree (including
any federal or state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries are bound or affected, except, in all cases, for such
conflicts, defaults, termination, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. To the knowledge of the Company, the business of the Company and
its subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under any federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the SEC or state
securities administrators subsequent to the Initial Closing and any registration
statement which may be filed pursuant hereto); provided that, for purpose of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchaser
herein.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Exchange Act, and,
except as disclosed in the SEC Documents or on SCHEDULE 3.1(F) hereto, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
Documents"). The Company has delivered or made available to the Purchaser true
and complete copies of the SEC Documents filed with the SEC since June 16, 1999.
The Company has not provided to the Purchaser any information which, according
to applicable law, rule or regulation, should have been disclosed publicly by
the Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as applicable, and the rules and
regulations of the SEC promulgated thereunder applicable to such documents, and,
as of their respective filing dates, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under
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which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements under GAAP and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(g) SUBSIDIARIES. The SEC Documents or Schedule 3.1(g) hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of the Company's
ownership of the outstanding stock or other interests of such subsidiary. For
the purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the issued and outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since the date of the
financial statement contained in the most recently filed Form 10-Q or Form 10-K,
whichever is most current, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC Documents or on
SCHEDULE 3.1(H) hereto.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in the SEC
Documents or on SCHEDULE 3.1(I) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its subsidiaries' respective businesses
since such date and which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or its subsidiaries.
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(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the date of
the financial statement contained in the most recently filed Form 10-Q or Form
10-K, whichever is most current, no event or circumstance has occurred or exists
with respect to the Company or its businesses, properties, operations or
financial condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed in the SEC Documents.
(k) INDEBTEDNESS. The SEC Documents or SCHEDULE 3.1(K) hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (A) any liabilities for borrowed money or amounts owed in excess of
$250,000 (other than trade accounts payable incurred in the ordinary course of
business), (B) all guaranties, endorsements and contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (C) the present
value of any lease payments in excess of $250,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any subsidiary
is in material default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property reflected
in the SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC Documents
or on SCHEDULE 3.1(1) hereto or such that do not cause a Material Adverse
Effect. All said leases of the Company and each of its subsidiaries are valid
and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or
on SCHEDULE 3.1(M) hereto, there is no material action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary.
(n) COMPLIANCE WITH LAW. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(o) TAXES. The Company and each subsidiary has filed all
material Tax
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Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects and have been prepared in
compliance with all applicable laws; the Company has paid all material Taxes due
and owing by it or any subsidiary (whether or not such Taxes are required to be
shown on a Tax Return) and has withheld and paid over to the appropriate taxing
authorities all material Taxes which it is required to withhold from amounts
paid or owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1999, the charges, accruals and reserves for material Taxes
with respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. To the knowledge of the
Company, there are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with respect
to the Company or any subsidiary; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority; and, except
as disclosed above, no written notice indicating an intent to open an audit or
other review has been received by the Company or any subsidiary from any
foreign, federal, state or local taxing authority. The Company (A) has not
executed or entered into a closing agreement pursuant to ss. 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; and (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign, or
other income,
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gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
(p) CERTAIN FEES. No brokers, finders or financial advisory
fees or commissions will be payable by the Company or any subsidiary with
respect to the transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchaser by or on behalf of the
Company or any subsidiary by an authorized officer of the Company or such
subsidiary in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the SEC Documents
or on SCHEDULE 3.1(R) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict to the knowledge of the Company with the rights of others.
(s) INSURANCE. Except as disclosed in the SEC Documents or on
Schedule 3.1(s) hereto, the Company carries or will have the benefit of
insurance in such amounts and covering such risks as is adequate for the conduct
of its business and the value of its properties.
(t) BOOKS AND RECORDS. To the knowledge of the Company, the
records and documents of the Company and its subsidiaries accurately reflect in
all material respects the information relating to the business of the Company
and the subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any subsidiary.
(u) MATERIAL AGREEMENTS. Except as set forth in the SEC
Documents, or on SCHEDULE 3.1(U) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the SEC as an exhibit to a registration statement on Form S-1 or other
applicable form (collectively, "Material Agreements") if the Company or any
subsidiary were registering securities under the Securities Act. Except as set
forth on Schedule 3.1(u), the Company and each of its subsidiaries has in all
material respects performed all the obligations
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required to be performed by them to date under the foregoing agreements, have
received no notice of default and, to the best of the Company's knowledge are
not in default under any Material Agreement now in effect, the result of which
could cause a Material Adverse Effect. Except as set forth in the SEC Documents
or SCHEDULE 3.1(U), no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in the
SEC Documents or on SCHEDULE 3.1(V) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $250,000 between (A) the Company, any
subsidiaries or, to the Company's knowledge, any of their respective material
customers or suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its subsidiaries, or,
to the Company's knowledge, any person owning 5% or more of the capital stock of
the Company or any subsidiary or, to the Company's knowledge, any member of the
immediate family of such officer, employee, consultant, director, stockholder
or, to the Company's knowledge, any corporation or other entity controlled by
any such officer, employee, consultant, director or stockholder, or a member of
the immediate family of such officer, employee, consultant, director or
stockholder.
(w) SECURITIES LAWS. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares and/or Warrant under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Shares.
(x) EMPLOYEES. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the SEC Documents or on SCHEDULE 3.1(X) hereto. Except as
set forth in the SEC Documents or on SCHEDULE 3.1(X) hereto, neither the Company
nor any subsidiary is in breach of any employment contract, agreement regarding
proprietary information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since the date of the
December 31, 1999 Form 10-KSB, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
<PAGE>
(y) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided in SEC
Documents or on SCHEDULE 3.1(Y) hereto, since the date of the financial
statement contained in the most recently filed Form 10-QSB or Form 10-KSB,
whichever is most current, neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchaser or its representatives;
(vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $500,000;
(x) entered into any other material transaction, whether
or not in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
<PAGE>
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing
kind which in the aggregate would be material to the Company or its
subsidiaries.
(aa) USE OF PROCEEDS. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes.
(bb) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF SHARES.
Company acknowledges and agrees that Purchaser is acting solely in the capacity
of arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the Shares. The
Company further represents to the Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER. The Purchaser
is a corporation duly incorporated, validly existing and in good standing under
the laws of the Cayman Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement, the Registration Rights Agreement and the Escrow Agreement have
been duly executed and delivered by the Purchaser and, at the Initial Closing,
shall constitute valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Purchaser is a
<PAGE>
party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares in accordance with
the terms hereof.
(d) FINANCIAL RISKS. The Purchaser acknowledges that it is
able to bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation. The
Purchaser is capable of evaluating the risks and merits of an investment in the
Shares by virtue of its experience as an investor and its knowledge, experience,
and sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.
(e) ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) INTENT. The Purchaser is entering into this Agreement for
its own account and not with a view to or for sale in connection with any
distribution of the Common Stock and the Purchaser 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 Purchaser 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.
(g) NOT AN AFFILIATE. Purchaser is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
(h) DISCLOSURE; ACCESS TO INFORMATION. Purchaser has reviewed
all documents, records, books and other publicly available information
pertaining to Purchaser's investment in the Company that have been requested and
received by the Purchaser.
(i) MANNER OF SALE. At no time was Purchaser presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or
<PAGE>
advertising.
(j) UNDERWRITER LIABILITY. Purchaser understands that it is
the position of the SEC that the Purchaser is an underwriter within the meaning
of Section 2(11) of the Securities Act and that the Purchaser will be identified
as an underwriter of the Draw Down shares of Common Stock in the Registration
Statement.
(k) GENERAL. The Purchaser understands that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the suitability of the Purchaser to acquire the Shares.
(l) DISCLOSURE. To the best of the Purchaser's knowledge,
neither this Agreement nor any other documents, certificates or instruments
furnished to the Purchaser by or on behalf of the Purchaser by an authorized
officer of the Purchaser in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1. SECURITIES COMPLIANCE.
If applicable, the Company shall notify the Principal Market, in
accordance with their rules and regulations, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Shares and the Warrant to the Purchaser or subsequent
holders.
Section 4.2. REGISTRATION AND LISTING. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted herein
and the Registration Rights Agreement. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the
Principal
<PAGE>
Market and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market and shall
provide the Purchaser with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Purchaser has disposed of all of their Shares.
Section 4.3. ESCROW ARRANGEMENT. The Company shall enter into an
escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow Agent") in the
Form of EXHIBIT B hereto respecting payment against delivery of the Shares.
Section 4.4. REGISTRATION RIGHTS AGREEMENT. The Company shall enter
into the Registration Rights Agreement in the Form of EXHIBIT A hereto. Before
the Purchaser shall be obligated to accept a Draw Down request from the Company,
the Company shall have caused a sufficient number of shares of Common Stock to
be registered to cover the Shares to be issued in connection with such Draw
Down.
Section 4.5. ACCURACY OF REGISTRATION STATEMENT. On each Settlement
Date, the Registration Statement and the prospectus therein shall not contain
any untrue statement of a material fact or omit to state any material fact to be
required to be stated therein or necessary in order to make the statements
therein not misleading in light of the circumstances under which they were made;
and on such Settlement Date or date of filing of the Registration Statement and
the prospectus therein will not include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus therein in reliance upon and in conformity with the
information furnished in writing to the Company by the Purchaser specifically
for inclusion in the Registration Statement and the prospectus therein.
Section 4.6. COMPLIANCE WITH LAWS. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
Section 4.7. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.8. OTHER AGREEMENTS/BEST EFFORTS. The Company shall not
enter into any agreement the terms of which such agreement would restrict or
impair the ability of the Company to perform its obligations under this
Agreement. The Company agrees (i) to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated
<PAGE>
by this Agreement and the agreements related hereto; (ii) to execute any
documents, instruments or conveyances of any kind that may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder and thereunder; and (iii) to cooperate with the Purchaser in
connection with the foregoing.
Section 4.9. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO REQUEST A DRAW DOWN. THE COMPANY WILL IMMEDIATELY NOTIFY
THE PURCHASER IN WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS IN
RESPECT OF THE REGISTRATION STATEMENT OR RELATED PROSPECTUS IN RESPECT OF THE
SHARES: (i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would require
any amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Purchaser any such supplement or amendment
to the related prospectus. THE COMPANY SHALL NOT DELIVER TO THE PURCHASER ANY
DRAW DOWN NOTICE IF ANY OF THE FOREGOING EVENTS SHALL HAVE OCCURRED UNLESS ANY
SUCH EXISTING EVENT(S) SHALL NOT CAUSE THE SUSPENSION OF SALES OF SHARES
PURSUANT TO THE REGISTRATION STATEMENT DURING THE CORRESPONDING DRAW DOWN
PRICING PERIOD AND DURING THE PERIOD OF TEN (10) CONSECUTIVE TRADING DAYS
IMMEDIATELY FOLLOWING THE END OF SUCH DRAW DOWN PRICING PERIOD.
Section 4.10. CONSOLIDATION; MERGER. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
or by operation of law the obligation to deliver to the Purchaser such shares of
stock and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11. LIMITATION ON FUTURE FINANCING. The Company agrees
that it will not enter into any other standby equity-based credit facility
during the term of this Agreement.
The Purchaser covenants with the Company as follows:
<PAGE>
Section 4.12. COMPLIANCE WITH LAW. Section 4.13. The Purchaser's
trading activities with respect to shares of the Company's Common Stock will be
in compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed. Without limiting the generality of the
foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
Section 4.14. ESCROW ARRANGEMENT. The Purchaser shall enter into an
escrow arrangement with Epstein Becker & Green, P.C. in the Form of EXHIBIT B
hereto respecting payment against delivery of the Shares.
Section 4.15. REGISTRATION RIGHTS AGREEMENT. The Purchaser shall
enter into the Registration Rights Agreement in the Form of EXHIBIT A hereto.
Section 4.16. ACCURACY OF REGISTRATION STATEMENT. On each Settlement
Date, the information furnished in writing to the Company by the Purchaser
specifically for inclusion or ommission in the Registration Statement and the
prospectus therein shall not contain any untrue statement of a material fact or
omit to state any material fact to be required to be stated therein or necessary
in order to make the statements therein not misleading in light of the
circumstances under which they were made.
Section 4.17. OTHER AGREEMENTS/BEST EFFORTS. The Purchaser shall not
enter into any agreement the terms of which such agreement would restrict or
impair the ability of the Purchaser to perform its obligations under this
Agreement. The Purchaser agrees (i) to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and the agreements related hereto; (ii) to
execute any documents, instruments or conveyances of any kind that may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder; and (iii) to cooperate with the Company
in connection with the foregoing.
Section 4.18. NO SHORT SALES. The Purchaser and its affiliates shall
not engage in short sales of the Company's Common Stock (as defined in
applicable SEC and the Principal Market rules) during the term of this
Agreement.
ARTICLE V
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
<PAGE>
Section 5.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE Shares. The obligation hereunder of the Company to issue and sell
the Shares to the Purchaser is subject to the satisfaction or waiver, at or
before the Initial Closing, and as of each Settlement Date of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Purchaser shall be
true and correct in all material respects as of the date when made and as of the
Initial Closing and as of each Settlement Date as though made at that time,
except for representations and warranties that speak as of a particular date.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Initial Closing and as of
each Settlement Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced by any third party, and no investigation by any governmental authority
shall have been threatened, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the Purchaser
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
Section 5.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER
TO CLOSE. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and warranties
that speak as of a particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or
<PAGE>
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced by any third party, and no investigation by any governmental authority
shall have been threatened, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the Company or
any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(e) OPINION OF COUNSEL, ETC. At the Initial Closing, the
Purchaser shall have received an opinion of counsel to the Company, dated the
date of the Initial Closing, in the form of EXHIBIT C hereto.
(f) WARRANT. On the Initial Closing Date, the Company shall
issue to the Purchaser a warrant certificate to purchase up to 50,000 shares of
Common Stock (the "Warrant"). The Warrant shall have a term from its initial
date of exercise of three (3) years and exercisable from six (6) months after
the Initial Closing Date. The exercise price of the Warrant shall be 125% of the
average VWAP during the five (5) Trading Days immediately prior to the Initial
Closing Date. The Common Stock underlying the Warrant will be registered in
accordance with the Registration Rights Agreement. The Warrant shall be in the
form of EXHIBIT E hereto.
Section 5.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER
TO ACCEPT A DRAW DOWN AND PURCHASE THE SHARES. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) SATISFACTION OF CONDITIONS TO INITIAL CLOSING. The Company
shall have satisfied, or the Purchaser shall have waived at the Initial Closing,
the conditions set forth in Section 5.2 hereof.
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement registering the Shares shall have been declared effective by the SEC
and shall be effective on each Settlement Date.
(c) NO SUSPENSION. Trading in the Company's Common Stock or
trading in securities generally whose trades are reported on the Principal
Market shall not have been suspended or limited by the SEC or the Principal
Market and minimum prices shall not have been established on securities
generally whose trades are reported on the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down Notice).
(d) MATERIAL ADVERSE EFFECT. No event which has a Material
Adverse Effect and no Consolidation Event where the successor entity has not
agreed to perform the Company's obligations shall have occurred.
<PAGE>
(e) OPINION OF COUNSEL. The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there is no
change from the counsel's previously delivered opinion, or else specifying with
particularity the reason for any change and an opinion as to the additional
items specified in EXHIBIT C hereto.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1. DRAW DOWN TERMS. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) For a period of 36 months commencing immediately after the
Effective Date (the "Commitment Period"), the Company may, in its sole
discretion, issue and exercise a draw down (a "Draw Down") during each Draw Down
Pricing Period, which Draw Down the Purchaser will be obligated to accept.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. There shall be at least five (5) Trading Days between Draw Down
Pricing Periods (such time between Draw Down Pricing Periods, the "Trading
Cushion"); EXCEPT THAT, in the event the Company gives the Purchaser twenty-one
(21) days notice of a Special Activity, the Trading Cushion shall be adjusted to
two (2) Trading Days for a period of ten (10) consecutive weeks and the Purchase
Price shall be adjusted as set forth in Section 1.1(h) herein as to any Draw
Downs occurring during such ten (10) week period. The number of shares of Common
Stock purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 6.1(d) herein and settled in accordance with
Section 6.1(f) on, (i) as to the 1st through the 10th Trading Days after a Draw
Down Pricing Period commences (the "First Settlement Period"), on the 12th
Trading Day after a Draw Down Pricing Period commences, and (ii) as to the 11th
through the 20th Trading Days after a Draw Down Pricing Period commences (the
"Second Settlement Period"), the 22nd Trading Day after a Draw Down Pricing
Period (each, a "Settlement Date" and the First and Second Settlement Periods
collectively referred to as "Settlement Periods"). In connection with each Draw
Down Pricing Period, the Company may set the Threshold Price, if any, in the
Draw Down Notice.
(c) The minimum Investment Amount shall be $100,000 and the
maximum Investment Amount shall be limited pursuant to the following formula:
4.5% of the weighted average price for the Common Stock for the thirty (30) day
period immediately prior to the applicable Commencement Date (defined below)
multiplied by the total trading volume in respect of the Common Stock for the
three (3) month period immediately prior to the applicable Commencement Date.
(d) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the quotients
(for each trading day within the Settlement Period) of (x) 1/20th of the
Investment Amount and (y) the Purchase Price on each
<PAGE>
Trading Day within such Settlement Period, subject to the following adjustments:
(i) if the Average Daily Price on a given Trading Day is
less than the Threshold Price, then the Investment Amount will be reduced by
1/20th and that day shall be withdrawn from the Settlement Period; and
(ii) trading of the Common Stock on the Principal Market
is suspended for more than three (3) hours, in the aggregate, or the
Registration Statement is not effective, on any Trading Day during the
Settlement Period, the Investment Amount shall be reduced by 1/20th and that day
shall be withdrawn from the applicable Settlement Period.
(e) The Company must inform the Purchaser by delivering a draw
down notice, in the form of EXHIBIT D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 9.4 as to the amount of the
Draw Down (the "Investment Amount") the Company wishes to exercise before the
first day of the Draw Down Pricing Period (the "Commencement Date"). If the
Commencement Date is to be the date of the Draw Down Notice, the Draw Down
Notice must be delivered to and receipt confirmed in accordance with Section 9.4
hereof at least one hour before trading commences on such date. At no time shall
the Purchaser be required to purchase more than the maximum Investment Amount
for a given Draw Down Pricing Period so that if the Company chooses not to
exercise the maximum Investment Amount permitted in a given Draw Down Pricing
Period the Purchaser is not obligated to and shall not purchase more than the
scheduled maximum Investment Amount in a subsequent Draw Down Pricing Period.
(f) On or before each Settlement Date, the Shares purchased by
the Purchaser shall be electronically delivered to the Purchaser or its
designees via The Depository Trust Company's ("DTC") Fast Automated Securities
Transfer program through its Deposit Withdrawal Agent Commission ("DWAC") system
and the Purchaser shall wire transfer immediately available funds to the
Company's designated account on such day. In the event the Purchaser elects to
use the Escrow Agent, the Shares shall be credited by the Company to the DTC
account designated by the Purchaser via DWAC upon receipt by the Escrow Agent of
payment for the Draw Down into the Escrow Agent's master escrow account as
provided in the Escrow Agreement. The Escrow Agent shall be directed to pay the
purchase price to the Company, net of Seven Hundred fifty Dollars ($750) per
Settlement as escrow expenses to the Escrow Agent. The delivery of the Shares
into the Purchaser's DTC account in exchange for payment therefor shall be
referred to herein as "Settlement".
ARTICLE VII
TERMINATION
Section 7.1. TERMINATION. Unless otherwise terminated in accordance
with Section 7.2 herein, the term of this Agreement shall be thirty-six (36)
months from the Effective Date; PROVIDED,
<PAGE>
HOWEVER, that the termination will not affect any obligations arising prior to
the date of such termination.
Section 7.2. OTHER TERMINATION.
(a) The Purchaser may terminate this Agreement upon one (1)
Trading Day's notice if (i) an event resulting in a Material Adverse Effect has
occurred and has not been cured for a period of 60 days, (ii) the Common Stock
is de-listed from the Principal Market unless such de-listing is in connection
with the listing of the Common Stock on the Nasdaq National Market, Nasdaq
SmallCap Market, or the New York Stock Exchange, or (iii) the Company files for
protection from creditors under any applicable law.
(b) The Company may terminate this Agreement upon one (1)
Trading Day's notice if the Purchaser shall fail to fund more than one properly
noticed Draw Down within three (3) Trading Days of a Settlement Date.
Section 7.3. EFFECT OF TERMINATION. In the event of termination by
the Company or the Purchaser, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. GENERAL INDEMNITY. The Company agrees to indemnify and
hold harmless the Purchaser and its directors, officers, affiliates, agents,
successors and assigns ("Purchaser Indemnified Parties") from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorney's fees, charges and
disbursements) incurred by the Purchaser Indemnified Parties as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Company herein. The Purchaser agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
("Company Indemnified Parties") from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys fees, charges and disbursements) incurred by
the Company Indemnified Parties as result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein.
Notwithstanding anything to the contrary herein, except for gross negligence or
willful misconduct, the Purchaser shall be liable under this Section 8.1 for
only that amount as does not exceed the gross proceeds to such Purchaser as a
result of
<PAGE>
the sale of Shares pursuant to the Registration Statement.
INDEMNIFICATION PROCEDURE. Promptly after receipt by an indemnified
party under this Article VIII of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Article VIII, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party except to the extent of actual prejudice demonstrated by the
indemnifying party. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Article VIII for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that, the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party,
or (ii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to the indemnifying party different from or in
conflict with any legal defenses which may be available to the indemnified party
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party, it being understood,
however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable only for the reasonable fees and expenses of one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by the indemnified party and be approved by the indemnifying party). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party; provided, that the indemnifying party may
require such indemnified party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such indemnified
party is not entitled to indemnification hereunder.
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1. FEES AND EXPENSES. Each party shall pay all of its own
fees and expenses related to the transactions contemplated by this Agreement;
PROVIDED, that the Company shall pay, prior to or at the Initial Closing, all
attorneys and escrow fees and expenses inclusive of disbursements and
out-of-pocket expenses) incurred by the Purchaser of $25,000 in connection with
the preparation, negotiation, execution and delivery of this Agreement and the
transactions contemplated hereunder. Notwithstanding anything to the contrary
herein, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or waivers
of this Agreement, the Escrow Agreement or the Registration Rights Agreement or
incurred in connection with the enforcement of this Agreement, the Escrow
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys' fees and expenses if such subsequent amendment,
modification or waiver is at the request of the Company. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 9.2. SPECIFIC ENFORCEMENT. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 9.3. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together
with the Registration Rights Agreement and the Escrow Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representations, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought and no condition to closing any Draw
Down in favor of the Purchaser may be waived by the Purchaser.
Section 9.4. NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
<PAGE>
If to the Company: 375 Greenwich Street
New York, New York 10013
Attn: CFO and General Counsel
Tel: (212) 941-2400
Fax: (212) 941-3853
With copies to: McGuire Woods LLP
notice): 9 West 57th Street
Suite 1620
New York, New York 10019
Attn: William Newman, Esq.
Tel: (212) 548-2160
Fax: (212) 548-2150
If to Purchaser: P.O. Box 1990
Georgetown, Grand Cayman
Attention: Secretary
Telephone:
Facsimile:
with copies to: Epstein Becker & Green P.C.
250 Park Avenue
New York, NY 10177-1211
Tel: (212) 351-3771
Fax: (212) 661-0989
Attn: Robert F. Charron
To the Escrow Agent: Epstein Becker & Green P.C.
250 Park Avenue
New York, NY 10177-1211
Tel: (212) 351-3771
Fax: (212) 661-0989
Attn: Robert F. Charron
Any party hereto may from time to time change its address for
notices by giving written notice of such changed address to the other party
hereto in accordance herewith.
Section 9.5. WAIVERS. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6. HEADINGS. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and
<PAGE>
shall not be deemed to limit or affect any of the provisions hereof.
Section 9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns;
PROVIDED, HOWEVER, that any successor or assignee Purchaser shall be reasonably
acceptable to the Company and shall agree to be bound by this Agreement and the
related agreements hereto. The parties hereto may not amend this Agreement or
any rights or obligations hereunder without the prior written consent of the
Company and each Purchaser to be affected by the amendment. After Initial
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8. NO THIRD PARTY BENEFICIARIES.This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9. GOVERNING LAW/ARBITRATION.This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the choice of law provisions. The Company and
the Purchaser agree to submit itself to the IN PERSONAM jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including attorney's fees, from the non-prevailing party.
Section 9.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts,
<PAGE>
all of which taken together shall constitute one and the same instrument and
shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart. Execution may be made by delivery by facsimile.
Section 9.11. PUBLICITY. Prior to the execution of this Agreement,
neither the Company nor the Purchaser shall issue any press release or otherwise
make any public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement. After the
execution of this Agreement, the Company may issue a press release or otherwise
make a public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement; provided,
however, that prior to issuing any such press release, making any such public
statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 9.12. SEVERABILITY. The provisions of this Agreement are
severable and, in the event that The Board of Arbitration or any court or
officials of any regulatory agency of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible, so long as such construction does not materially
adversely effect the economic rights of either party hereto.
Section 9.13. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 9.14. EFFECTIVENESS OF AGREEMENT. This Agreement shall
become effective only upon satisfaction of the conditions precedent to the
Initial Closing set forth in Article I of the Escrow Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorize officer as of this 1st day of
December, 2000.
ON2.COM INC.
By: __________________________________
Douglas McIntyre, President & CEO
CROSSOVER VENTURES, INC.
By: __________________________________
Name:
Title:
