<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
April 17, 2000
---------------------------------
Date of Report
(Date of Earliest Event Reported)
Power Technology, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
1000 W. Bonanza Road
Las Vegas, Nevada 89106
----------------------------------------
(Address of principal executive offices)
(702) 382-3385
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
--------------------------------------------------------------
(Former name and former address, if changed since last report)
Nevada 0-24867 88-0395816
--------------- ------------ -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
<PAGE>
ITEM 5. OTHER EVENTS
Power Technology, Inc. (the "Company") entered into an Investment
Agreement dated April 17, 2000 (the "Agreement") with Swartz Private Equity,
L.L.C. of Roswell, Georgia ("SPE").
The Agreement provides for SPE to commit to purchase up to an aggregate
of $35,000,000 of the Common Stock of the Company, subject to certain volume
limitations and other conditions, as requested from time to time by the
Company as its equity capital needs arise during the term of the Agreement.
Upon written notice from the Company, SPE is committed to purchase
Common Stock of the Company at a purchase price equal to the lesser of the
(i) then current market price minus $.10, or (ii) 91% of the then current
market price. Market price is defined to mean the lowest closing bid price
for the Common Stock during a pricing period beginning on the date following
the notice from the Company and ending on the 20th day thereafter.
Unless the Company specifically requests SPE to purchase its Common
Stock by written notification to SPE, SPE has no right to acquire any
securities of the Company and the Company has no obligation to offer and sell
its securities to SPE.
Under the terms of the Agreement, the Company will be issuing to SPE a
warrant to purchase 490,000 shares of the Common Stock of the Company at an
exercise price of $.8125 per share, payable in cash or in a cashless exercise
based upon a formula adjusted by such exercise price and the average closing
price for five trading days prior to the exercise date, (with price reset
provisions) during a term of five years. The Company will be issuing
additional warrants to SPE to purchase a number of shares equal to 10% of
each purchase of shares made by SPE during the term of the Agreement.
The shares of Common Stock and warrants of the Company to be issued to
SPE are covered by a Registration Rights Agreement requiring the Company to
file a registration statement with the U.S. Securities and Exchange
Commission to register such securities under the Securities Act of 1933.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Investment Agreement dated April 17, 2000, with Swartz Private Equity,
L.L.C.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned hereunto duly authorized.
Power Technology, Inc.
By: s/Lee A. Balak
--------------------------------------
Lee A. Balak, President
Date: May 18, 2000
<PAGE>
EXHIBIT 7(c)
POWER TECHNOLOGY, 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.
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973,
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
UNDER SUCH ACT.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 17TH day of April, 2000, by and between Power
Technology, Inc., a corporation duly organized and existing under the laws of
the State of Nevada (the "Company"), and the undersigned Investor executing this
Agreement ("Investor").
RECITALS:
<PAGE>
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 Five
Million Dollars ($35,000,000) (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 exemptions from the
registration requirements of the Securities Act of 1933 (the "Act"), as may be
available with respect to any or all of the purchases of Common Stock to be made
hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"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.
2
<PAGE>
"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.
"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.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the O.T.C. Bulletin
Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange
or trading market for such security, the last closing bid price during Normal
Trading of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by such principal securities
exchange or trading market, or if the foregoing do not apply, the last closing
bid price during Normal Trading of such security in the over-the-counter market
on the electronic bulletin board for such security, or, if no closing bid price
is reported for such security, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Investor in this Offering. If the Company and the
Investor in this Offering are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved by an investment banking firm
mutually acceptable to the Company and the Investor in this offering and any
fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as EXHIBIT U.
3
<PAGE>
"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.
"Company" shall mean Power Technology, Inc., a corporation duly organized
and existing under the laws of the State of Nevada.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to 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.
4
<PAGE>
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b)
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b)
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Initial Exercise Price" shall have the meaning set forth in Section
2.4.1.
"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
5
<PAGE>
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.
"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"); provided, however, that if
the other entity involved in such consolidation, merger, combination or event
is a publicly traded company with "Substantially Similar Trading
Characteristics" (as defined below) as the Company and the holders of Common
Stock are to receive solely Common Stock or no consideration (if the Company
is the surviving entity) or solely common stock of such other entity (if such
other entity is the surviving entity), such transaction shall not be deemed
to be a Major Transaction (provided the surviving entity, if other than the
Company, shall have agreed to assume all obligations of the Company under
this Agreement and the Registration Rights Agreement). For purposes hereof,
an entity shall have Substantially Similar Trading Characteristics as the
Company if the average daily dollar Trading Volume of the common stock of
such entity is equal to or in excess of $500,000 for the 90th through the
31st day prior to the public announcement of such transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender or
exchange offer a Change of Control shall have occurred.
"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).
6
<PAGE>
"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 Thirty Five Million Dollars
($35,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"NASD" shall have the meaning set forth in Section 6.9.
"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.
"NYSE" shall have the meaning set forth in Section 6.9.
"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.
"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 over-the-counter "pink sheet" market,
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
7
<PAGE>
the principal trading exchange or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as EXHIBIT D.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"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 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 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 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
8
<PAGE>
parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(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 mean Regulation D promulgated under the Act.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"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 U.S. 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.
9
<PAGE>
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.25.
"Six Month Anniversary" shall mean the date that is the same Numeric Day
of the sixth (6th) calendar month after the Investment Date, and the date that
is the same Numeric Day of each sixth (6th) calendar month thereafter, provided
that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all
of the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume" shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent 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).
10
<PAGE>
"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).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment 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 and the Registration Rights 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
<PAGE>
(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 Articles of Incorporation, as amended, and
(C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall
have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading and
actually trading on the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in Section
3.2.4), 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 five (5) 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").
11
<PAGE>
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 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 80% of the Closing Bid Price of the
Company's common stock on the Advance Put Notice Date. 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.
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 (i) 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, (ii) the number of
Put Shares which, when multiplied by their respective Put Share Prices, equals
the Maximum Put Dollar Amount, and (iii) 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 Put Date
(this limitation, together with the limitation in (i) immediately above, are
collectively referred to herein as the "Volume Limitations"). Company agrees not
to trade Common Stock or arrange for Common Stock to be traded for the purpose
of artificially increasing the Volume Limitations.
For purposes of this Agreement:
12
<PAGE>
"Trigger Price" for any Pricing Period shall mean the greater of
(i) the Company Designated Minimum Put Share Price, plus $.10, 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.
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 $.10, 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 Put
Shares of Common Stock shall be transmitted electronically pursuant to such
electronic delivery system as the Investor shall request; otherwise delivery
shall be by physical certificates. 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
13
<PAGE>
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 during the 31 days
preceding the Put Date with respect to which this determination of the permitted
Intended Put Share Amount is being made, 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 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
31 calendar days preceding such date, 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, including both 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
14
<PAGE>
(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, an
Automatic Termination shall occur on the date that is one (1) year after the
date of this Agreement.
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 material
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.
2.3.4 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:
(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;
15
<PAGE>
(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; and
(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 NMS, and such approval is
required by the rules of the NASDAQ.
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 (or
freely tradeable electronically delivered shares, as appropriate) 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;
16
<PAGE>
(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 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.
17
<PAGE>
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 (or such
other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On each or
before each Payment Due Date, the Investor shall deliver to the Company, in the
manner specified in Section 8 below, the Put Dollar Amount to be paid for such
Put Shares, determined as aforesaid. The closing (each a "Put Closing") for
each Put shall occur on the date that both (i) the Company has delivered to the
Investor all Required Put Documents, and (ii) the Investor has delivered to the
Company such Put Dollar Amount and any Late Payment Amount, if applicable (each
a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall pay
to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 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.
18
<PAGE>
(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 (a "Truncated Pricing Period")
to the Investor.
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
February 29, 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 490,000 shares of Common Stock.
19
<PAGE>
The Commitment Warrants shall be exerciseable at a price (the "Commitment
Warrant Exercise Price") which shall initially equal the lowest Closing Bid
Price for the five (5) Business Days immediately preceding February 29, 2000
("Initial Exercise Price"), or, if lower, the lowest Closing Bid Price for
the five (5) Business Days immediately preceding the date of execution by the
Company of this Investment Agreement, and shall have reset provisions. Each
Commitment Warrant shall be immediately exercisable at the Commitment Warrant
Exercise Price, 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 120% of 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.
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 SEC Documents and other 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.
20
<PAGE>
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives unless prior to disclosure of such information the
Company identifies such information as being nonpublic information and
provides the Investor and such advisors and representatives with the
opportunity to accept or refuse to accept such nonpublic information for
review. The Company may, as a condition to disclosing any nonpublic
information hereunder, require the Investor and its advisors and
representatives to enter into a confidentiality agreement (including an
agreement with such advisors and representatives prohibiting them from trading
in Common Stock during such period of time as they are in possession of
nonpublic information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due diligence by
and such persons or entities), which, if not disclosed in the Prospectus
included in the Registration Statement, would cause such Prospectus to include
a material misstatement or to omit a material fact required to be stated
therein in order to make the statements therein, in light of the circumstances
in which they were made, not misleading. Nothing contained in this Section
2.5 shall be construed to mean that such persons or entities other than the
Investor (without the written consent of the Investor prior to disclosure of
such information) may not obtain nonpublic information in the course of
conducting due diligence in accordance with the terms of this Agreement;
provided, however, that in no event shall the Investor's advisors or
representatives disclose to the Investor the nature of the specific event or
circumstances constituting any nonpublic information discovered by such
advisors or representatives in the course of their due diligence without the
written consent of the Investor prior to disclosure of such information.
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein,
in the light of the circumstances in which they were made, not misleading.
Upon receipt of such disclosure, the Investor's counsel shall consult with the
Company's independent counsel in order to address the concern raised as to the
existence of a material misstatement or omission and to discuss appropriate
disclosure with respect thereto; provided, however, that such consultation
shall not constitute the advice of the Company's independent counsel to the
Investor as to the accuracy of the Registration Statement and related
Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY
BELIEVED TO BE UNTRUE OR ARE OMITTED. In the event after such consultation
the Investor or the Investor's counsel
21
<PAGE>
reasonably believes that the Registration Statement contains an untrue
statement or 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.
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.
22
<PAGE>
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
January 31, 1999, (ii) the Company's quarterly reports on Form 10-QSB for the
quarters ended October 31, 1999, and July 31,1999, (iii) the Risk Factors,
attached as EXHIBIT J, (the "Risk Factors") (iv) the Capitalization Schedule,
attached as EXHIBIT K, (the "Capitalization Schedule") and (v)the Use of
Proceeds Schedule, attached as EXHIBIT L, (the "Use of Proceeds Schedule");
(b) Investor has read, reviewed, and relied solely on the documents described
in (a) above, the Company's representations and warranties and other
information in this Agreement, including the exhibits, documents prepared by
the Company which have been specifically provided to Investor in connection
with this Offering (the documents described in this Section 3.2.4(a) and (b)
are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Investor and Investor's representatives, if
any; (c) Investor has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which
have been filed as exhibits to the Company's filings under the Act and the
Exchange Act and has had an opportunity to ask questions of and receive
answers from the Company's officers and directors;
23
<PAGE>
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.
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
24
<PAGE>
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.
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
25
<PAGE>
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.
26
<PAGE>
4.7 LEGENDS. The certificates representing the Put Shares
shall not bear a 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"):
"These securities have been issued or sold in reliance on paragraph (13)
of code section 10-5-9 of the Georgia Securities Act of 1973, and may
not be sold or transferred except in a transaction which is exempt
under such act or pursuant to an effective registration under such act."
"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 Nevada, USA and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed
to be conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
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
Dealer, 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 following subsidiary: Power Technology Canada
Corp., a corporation organized under the laws of the Territory of Quebec,
Canada.
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
27
<PAGE>
Regulation S-X of the Exchange Act), subject, in the case of unaudited interim
financial statements, to customary year end adjustments and the absence of
certain footnotes, and fairly present the financial condition of the Company
as of the dates of the balance sheets included therein and the consolidated
results of its operations and cash flows for the periods then ended,. Without
limiting the foregoing, there are no material liabilities, contingent or
actual, that are not disclosed in the Disclosure Documents (other than
liabilities incurred by the Company in the ordinary course of its business,
consistent with its past practice, after the period covered by the Disclosure
Documents). The Company has paid all material taxes that are due, except for
taxes that it reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure
Documents. This Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, except insofar as the enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, or other similar
laws affecting creditors' rights generally or by principles governing the
availability of equitable remedies. The Company has obtained all consents and
approvals required for it to execute, deliver and perform each agreement
referenced in the previous sentence.
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and
warranties of Investor, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Put Shares, the Warrants and the
Warrant Shares will be issued free of any preemptive rights.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Articles 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
28
<PAGE>
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, (b) violate the Company's Articles 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.
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 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 except its Form 10-KSB annual report for its fiscal year ended
December 31, 1999. 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
April 17, 2000, 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).
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,
29
<PAGE>
trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in EXHIBIT M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the
conduct of its business as set forth in EXHIBIT M. To the best of the
Company's knowledge after due inquiry, the Company is not infringing on the
intellectual property rights of any third party, nor is any third party
infringing on the Company's intellectual property rights. There are no
restrictions in any agreements, licenses, franchises, or other instruments
that preclude the Company from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for
the purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as EXHIBIT L hereto. These purposes and amounts are
estimates and are subject to change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 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 other than the Investor 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
30
<PAGE>
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 Rule 506 of Regulation D of the Act or would require the issuance of any
other securities to be integrated with this Offering under the Rules of
Nasdaq. The Company has not engaged in any form of general solicitation or
advertising in connection with the offering of the Common Stock or the
Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
5.17 KEY EMPLOYEES. 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 as 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 consultants, 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
31
<PAGE>
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 Nevada 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.
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.
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) the increase in the number of
authorized shares of Common Stock of the Company (the "Share Authorization
Increase Approval") such that at least 25,000,000 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 25,000,000 shares of Common Stock for issuance under
this Agreement.
5.25 A SHAREHOLDER AUTHORIZATION TO INCREASE SHARES. The
Company has advised Investor that it does not have sufficient shares of the
Common Stock authorized under its articles of incorporation to issue all of
the shares relating to the outstanding warrants and stock options, including
the Commitment Warrant, or to issue the Common Stock Contemplated by this
32
<PAGE>
Agreement. The Company shall, prior to the Registration Statement becoming
effective at either its next annual shareholder meeting or at a special
meeting to be held for such purpose, use its best efforts to obtain approval
of its shareholders to increase the number of authorized shares of Common
Stock of the Company (the "Share Authorization Increase Approval") to a number
which is sufficient to cover all of said warrants and stock options, including
but not limited to the Commitment Warrant, as well as at least 25,000,000
shares to be reserved for this Offering which shares the Company shall reserve
prior to reserving any of the other newly authorized shares. To the extent
that the number of shares that are authorized hereunder are insufficient to
cover the all of the Warrant Shares and the Put Shares, the shares authorized
shall be applied first to the shares of Common Stock issuable upon exercise of
the Commitment Warrants, second to the shares of Common Stock issuable upon
exercise of the Purchase Warrants, and third to the Put Shares. As soon as
practicable after the Share Authorization Increase Approval, the Company
agrees to use its best efforts to reserve not less than 25,000,000 shares of
Common Stock for issuance under this Agreement, in the order specified above.
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.
6.2 CORPORATE EXISTENCE AND TAXES. 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 (provided,
however, that the foregoing covenant shall not prevent the Company from
entering into any merger or corporate reorganization as long as the surviving
entity in such transaction, if not the Company, assumes the Company's
obligations with respect to the Common Stock and has Common Stock listed for
trading on a stock exchange or on Nasdaq and is a Reporting Issuer) and shall
pay all its taxes when due except for taxes which the Company disputes.
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
33
<PAGE>
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 one year 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.
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 one (1) year 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 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 RIGHTS OF FIRST REFUSAL. Notwithstanding the
above, the Rights of First Refusal shall not 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,
consultants or directors, or a primary underwritten offering of the Company's
Common Stock, or the transactions set forth on Schedule 6.5.1. The Capital
Raising Limitations 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. If the Investor, at any time, is more than five (5) business days
late in paying any Put Dollar Amounts that are then due, the Investor shall
not be entitled to the benefits of Sections 6.5.1 and 6.5.2 above until the
date that the Investor has paid all Put Dollar Amounts that are then due.
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.
34
<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, by delivering
instructions in the form of EXHIBIT T hereto, to issue certificates,
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by
the holder thereof. Such certificates shall not bear a Legend unless issuance
with a Legend is permitted by the terms of this Agreement and Legend removal
is not permitted by Section 6.8 hereof and the Company shall cause the
Transfer Agent to issue such certificates without a Legend. Nothing in this
Section shall affect in any way Investor's obligations and agreement set forth
in Sections 3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) an Investor provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope 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
35
<PAGE>
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. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be
unreasonably withheld by Investor.
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.
7. INVESTOR COVENANT/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.
36
<PAGE>
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 neither pronoun shall be deemed to
include a reference to the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to the
terms of this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile or upon receipt if by overnight or two
(2) day courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing;
provided, however, that in order for any notice to be effective as to the
Investor such notice shall be delivered and sent, as specified herein, to all
the addresses and facsimile telephone numbers of the Investor set forth at the
end of this Agreement or such other address and/or facsimile telephone number
as Investor may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants, whether oral,
written, or otherwise except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
37
<PAGE>
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.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
8.1 SUBSCRIPTION
(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.
8.2 ACCEPTANCE OF SUBSCRIPTION. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
9. INDEMNIFICATION.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Investor and all of its stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents,
members, partners or other representatives
38
<PAGE>
(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.
[INTENTIONALLY LEFT BLANK]
39
<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) [ ] 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]__________________________________________.
40
<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 17th day of April, 2000.
____________________________________ _____________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
____________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where
your security is to be delivered
____________________________________ ATTN: _______________________________
____________________________________
Title/Representative Capacity
(if applicable)
____________________________________ _____________________________________
Name of Company You Represent Street Address
(if applicable)
____________________________________ _____________________________________
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where
is to be delivered Copy is to be delivered
ATTN: _______________________________________ ATTN: ________________________
_____________________________________________ ______________________________
Street Address Street Address
_____________________________________________
___________________________________________
City, State or Province, Country, Offshore City, State or Country,
Postal Code Offshore Postal Code
Telephone: __________________________________ Telephone: ___________________
Facsimile: __________________________________ Facsimile: ___________________
Facsimile: __________________________________ Facsimile: ___________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM
OFFERING AMOUNT ON THE 17th DAY OF APRIL, 2000.
POWER TECHNOLOGY, INC.
By: _________________________________
Lee Balak, President
Address:
Attn: Lee Balak
1818-1177 West Hastings Street
Vancouver, BC V6E 2K3 CANADA
Telephone (604) 925-0716
Facsimile (604) 925-0746
41
<PAGE>
ADVANCE PUT NOTICE
POWER TECHNOLOGY, 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 April 17, 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):
___________________________________________.
POWER TECHNOLOGY, INC.
By: _________________________________
Lee Balak, President
Address:
Attn: Lee Balak
1818-1177 West Hastings Street
Vancouver, BC V6E 2K3 CANADA
Telephone (604) 925-0716
Facsimile (604) 925-0746
42
<PAGE>
EXHIBIT E
43
<PAGE>
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
POWER TECHNOLOGY, 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 April 17, 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.: ___________________________________
44
<PAGE>
EXHIBIT F
45
<PAGE>
PUT NOTICE
POWER TECHNOLOGY, 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 April 17, 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.
POWER TECHNOLOGY, INC.
By: _________________________
Lee Balak, President
Address:
Attn: Lee Balak
1818-1177 West Hastings Street
Vancouver, BC V6E 2K3 CANADA
Telephone (604) 925-0716
Facsimile (604) 925-0746
46
<PAGE>
EXHIBIT G
47
<PAGE>
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
POWER TECHNOLOGY, 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 April 17, 2000.
Date of this Confirmation: ________________
Put Date : _____________________
Number of Put Shares of
Common Stock to be Issued: ________________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
_____________________________________
Investor's Name
By: _________________________________
(Signature)
Address: _____________________________________
_____________________________________
_____________________________________
Telephone No.: ____________________________________
Facsimile No.: ____________________________________
48
<PAGE>
EXHIBIT H
49
<PAGE>
PUT CANCELLATION NOTICE
POWER TECHNOLOGY, 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 April
17, 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.
POWER TECHNOLOGY, INC.
By: _________________________________
Lee Balak, President
Address:
Attn: Lee Balak
1818-1177 West Hastings Street
Vancouver, BC V6E 2K3 CANADA
Telephone (604) 925-0716
Facsimile (604) 925-0746
50
<PAGE>
EXHIBIT Q
51
<PAGE>
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Power Technology, Inc.'s, and Swartz Private
Equity, LLC dated on or about April 17, 2000, hereby confirms receipt of Power
Technology, 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.: ________________________________________
52
<PAGE>
EXHIBIT S
53
