COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated
as of July 21, 2000 by and between Cavion Technologies, Inc., a Colorado
corporation (the "Company"), and Mothlake International Limited (the
"Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. CERTAIN DEFINITIONS.
(a) "AVERAGE DAILY PRICE" shall be the price based on the
VWAP of the Company on the Principal Market.
(b) "DRAW DOWN" shall have the meaning assigned to such
term in Section 6.1(a) hereof.
(c) "DRAW DOWN PRICING PERIOD" shall mean a period of
twenty-two (22) consecutive Trading Days beginning on the date specified
in the Draw Down Notice; PROVIDED, HOWEVER, the Draw Down Pricing Period
shall not begin before the day on which receipt of such notice is
confirmed by the Purchaser.
(d) "EFFECTIVE DATE" shall mean the date the Registration
Statement of the Company covering the Shares being subscribed for hereby
is declared effective.
(e) "MATERIAL ADVERSE EFFECT" shall mean any adverse
effect on the business, operations, properties, prospects or financial
condition of the Company that is material and adverse to the Company and
its subsidiaries and affiliates, taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to perform any of its material
obligations under this Agreement or the Registration Rights Agreement or
to perform its obligations under any other material agreement.
(f) "PRINCIPAL MARKET" shall mean initially the Nasdaq
SmallCap Market and shall include the American Stock Exchange, Nasdaq
National Market, the Nasdaq National Market or the New York Stock Exchange
if the Company is listed and trades on such market or exchange. Principal
Market shall not include the OTC Bulletin Board without the express
written consent of the Purchaser.
(g) "PURCHASE PRICE" shall mean with respect to Shares
purchased during each applicable Draw Down Pricing Period (excluding
Shares issued upon the exercise of Warrants):
(i) if the Company's average market cap, calculated
by multiplying the number of shares of Common Stock issued and outstanding
by the closing bid price of the Common Stock (the "Market Cap"), is less
than $80,000,000, ninety percent (90%) (the "Purchase Price Percentage")
of the Average Daily Price on the date in question; and
(ii) for each $5,000,000 increase in the Market Cap
over $75,000,000 during a Market Cap Period, the Purchase Price Percentage
shall be increased by 0.25% on the date in question until the Purchase
Price Percentage equals 93%; PROVIDED, HOWEVER, each increase in the
Purchase Price Percentage shall only occur if each corresponding increase
in the Market Cap is maintained for at least the twenty-two (22)
consecutive Trading Days prior to the date the applicable Draw Down
Pricing Period commences (a "Market Cap Period".
(h) "REGISTRATION STATEMENT" shall mean the registration
statement under the Securities Act of 1933, as amended, to be filed with
the Securities and Exchange Commission for the registration of the Shares
pursuant to the Registration Rights Agreement attached hereto as EXHIBIT
A.
(i) "SEC DOCUMENTS" shall mean the Company's latest Form
10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-
K filed thereafter, and the Proxy Statement for its latest fiscal year as
of the time in question until such time as the Company no longer has an
obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
(j) "SHARES" shall mean, collectively, the shares of
Common Stock of the Company being subscribed for hereunder and those
shares of Common Stock issuable to the Purchaser upon exercise of the
Warrants.
(k) "THRESHOLD PRICE" is the lowest Average Daily Price
during any Draw Down Pricing Period at which the Company will sell its
Common Stock with respect to this Agreement.
(l) "TRADING DAY" shall mean any day on which the
Principal Market is open for business.
(m) "VWAP" shall mean the daily volume weighted average
price of the Company's Common Stock on the Principal Market as reported by
Bloomberg Financial L.P. (based on a trading day from 9:30 am EST to 4:00
pm EST) using the AQR function.
(n) "WARRANTS" shall mean the Initial Warrants and the
Purchaser Warrants as those terms are defined in Section 5.2(f) hereof.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1. PURCHASE AND SALE OF STOCK. Subject to the terms
and conditions of this Agreement, the Company may issue and sell to the
Purchaser and the Purchaser shall purchase from the Company up to one
million (1,000,000) shares of the Company's Class A Common Stock (the
"Commitment Amount"), $0.0001 par value per share (the "Common Stock") and
the Warrants, based on Draw Downs of up to One Million Five Hundred
Thousand Dollars ($1,500,000) per Draw Down (as defined below).
Section 2.2. THE SHARES. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights
and other similar contractual rights of stockholders, a sufficient number
of its authorized but unissued shares of its Common Stock to cover the
Shares to be issued in connection with all Draw Downs requested under this
Agreement. Anything in this Agreement to the contrary notwithstanding, (i)
at no time will the Company request a Draw Down which would result in the
issuance of a number of shares of Common Stock pursuant to this Agreement
which exceeds 19.9% of the number of shares of Common Stock issued and
outstanding on the Closing Date without obtaining stockholder approval of
such excess issuance, and (ii) the Company may not make a Draw Down to the
extent that, after such purchase by the Purchaser, the sum of the number
of shares of Common Stock beneficially owned by the Purchaser and its
affiliates would result in beneficial ownership by the Purchaser and its
affiliates of more than 9.9% of the then outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities and Exchange Act of 1934, as amended. Until approval of the
transactions contemplated by this Agreement has been obtained from the
Company's shareholders, no Shares shall be sold or issued under this
Agreement if, and to the extent, such sale or issuance would result in
violation by the Company of Nasdaq Rule 4310(c)(25)(G)(i), or any
successor rule or regulation of Nasdaq or another securities regulating
authority.
Section 2.3. PURCHASE PRICE AND INITIAL CLOSING. The Company
agrees to issue and sell to the Purchaser and, in consideration of and in
express reliance upon the representations, warranties, covenants, terms
and conditions of this Agreement, the Purchaser agrees to purchase that
number of the Shares to be issued in connection with each Draw Down. The
delivery of executed documents under this Agreement and the other
agreements referred to herein and the payment of the fees set forth in
Article II of the Escrow Agreement (the "Initial Closing") shall take
place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New
York, New York 10177 within fifteen (15) days from the date hereof, or
(ii) such other time and place or on such date as the Purchaser and the
Company may agree upon (the "Initial Closing Date"). Each party shall
deliver all documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the Initial
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATION AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties to
the Purchaser:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is
a corporation duly incorporated validly existing and in good standing
under the laws of the State of Colorado and has all requisite corporate
authority to own, lease and operate its properties and assets and to carry
on its business as now being conducted. The Company does not have any
subsidiaries and does not own more than fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not
have a Material Adverse Effect on the Company's financial condition.
(b) AUTHORIZATION, ENFORCEMENT. (i) The Company has the
requisite corporate power and corporate authority to enter into and
perform its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement and to issue the Draw Down Shares pursuant
to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement and the Escrow Agreement
by the Company and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors
or stockholders is required, and (iii) this Agreement, the Registration
Rights Agreement and the Escrow Agreement have been duly executed and
delivered by the Company and at the Initial Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application. The Company has
duly and validly authorized and reserved for issuance shares of Common
Stock sufficient in number for the issuance of the Draw Down Shares.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 19,970,000 shares of Class A Common Stock of which
4,966,974 shares are issued and outstanding and 10,000,000 shares of
preferred stock of which none are issued and outstanding. All of the
outstanding shares of the Company's Common Stock have been duly and
validly authorized and are fully-paid and non-assessable, except as set
forth in the SEC Documents. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the SEC Documents, or on
SCHEDULE 3.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company. Furthermore, except as
set forth in this Agreement and as set forth in the SEC Documents or on
Schedule 3.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the
Company. Except as set forth in SCHEDULE 3.1(c), the Company is not a
party to any agreement granting registration rights to any person with
respect to any of its equity or debt securities. Except as set forth in
SCHEDULE 3.1(c), the Company is not a party to, and it has no knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. Except as set forth in the SEC Documents or
on SCHEDULE 3.1(c) hereto, the offer and sale of all capital stock,
convertible securities, rights, warrants, or options of the Company issued
prior to the Initial Closing complied with all applicable federal and
state securities laws, and no stockholder has a right of rescission or
damages with respect thereto which would have a Material Adverse Effect on
the Company's financial condition or operating results. The Company has
made available to the Purchaser true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws"). The Company has not received any notice from the Principal
Market questioning or threatening the continued inclusion of the Common
Stock on such market.
(d) ISSUANCE OF SHARES. The Shares to be issued under
this Agreement have been duly authorized by all necessary corporate action
and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued and outstanding, fully paid and non-
assessable, and the Purchaser shall be entitled to all rights accorded to
a holder of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of
the transactions contemplated herein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by
which the Company is bound or by which any of its respective properties or
assets are bound, or (iv) result in a violation of any federal, state,
local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal or state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, termination,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental
entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company
is not required under any federal, state or local law, rule or regulation
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement,
or issue and sell the Shares in accordance with the terms hereof (other
than any filings which may be required to be made by the Company with the
Securities and Exchange Commission (the "SEC") or state securities
administrators subsequent to the Initial Closing and any registration
statement which may be filed pursuant hereto); provided that, for purpose
of the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and agreements
of the Purchaser herein.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock
of the Company is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed in the SEC Documents or on SCHEDULE 3.1(f) hereto, the Company
has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company has delivered or
made available to the Purchaser true and complete copies of the SEC
Documents filed with the SEC since December 31, 1998. The Company has not
provided to the Purchaser any information which, according to applicable
law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to
the transactions contemplated by this Agreement. As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of
the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
(g) SUBSIDIARIES. The SEC Documents or SCHEDULE 3.1(g)
hereto sets forth each subsidiary of the Company, showing the jurisdiction
of its incorporation or organization and showing the percentage of each
person's ownership of the outstanding stock or other interests of such
subsidiary. For the purposes of this Agreement, "subsidiary" shall mean
any corporation or other entity of which at least a majority of the
securities or other ownership interests having ordinary voting power
(absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of
the outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and non-assessable.
There are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any subsidiary
for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of any subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since March 31, 2000 no
Material Adverse Effect has occurred or exists with respect to the
Company, except as disclosed in the SEC Documents or on SCHEDULE 3.1(h)
hereof.
(i) NO UNDISCLOSED LIABILITIES. Except as disclosed in
the SEC Documents or on SCHEDULE 3.1(i) hereto, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) that would be required to be disclosed
on a balance sheet of the Company or any subsidiary (including the notes
thereto) in conformity with GAAP which are not disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since such date and
which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since March
31, 2000, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in the
SEC Documents.
(k) INDEBTEDNESS. The SEC Documents or SCHEDULE 3.1(k)
hereto sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (A) any liabilities for borrowed
money or amounts owed in excess of $250,000 (other than trade accounts
payable incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (C) the present value
of any lease payments in excess of $250,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any
subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the
subsidiaries has good and marketable title to all of its real and personal
property reflected in the SEC Documents, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated in the SEC Documents or on SCHEDULE 3.1(1) hereto or such that
do not cause a Material Adverse Effect on the Company's financial
condition or operating results. All said leases of the Company and each
of its subsidiaries are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the
validity of this Agreement or the transactions contemplated hereby or any
action taken or to be taken pursuant hereto or thereto. Except as set
forth in the SEC Documents or on SCHEDULE 3.1(m) hereto, there is no
action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company,
any subsidiary or any of their respective properties or assets. There are
no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company
or any subsidiary.
(n) COMPLIANCE WITH LAW. The business of the Company and
the subsidiaries has been and is presently being conducted in accordance
with all applicable federal, state and local governmental laws, rules,
regulations and ordinances, except as set forth in the SEC Documents or on
SCHEDULE 3.1(n) hereto or such that do not cause a Material Adverse
Effect. The Company and each of its subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of their respective
businesses as now being conducted by them unless the failure to possess
such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(o) TAXES. The Company and each subsidiary has filed all
Tax Returns which it is required to file under applicable laws; all such
Tax Returns are true and accurate and has been prepared in compliance with
all applicable laws; the Company has paid all Taxes due and owing by it or
any subsidiary (whether or not such Taxes are required to be shown on a
Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties;
and since December 31, 1999, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any
subsidiary is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company or any subsidiary; no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open
an audit or other review has been received by the Company or any
subsidiary from any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into
a closing agreement pursuant to Section 7121 of the Internal Revenue Code
or any predecessor provision thereof or any similar provision of state,
local or foreign law; and (B) has not agreed to or is required to make any
adjustments pursuant to Section 481 (a) of the Internal Revenue Code or
any similar provision of state, local or foreign law by reason of a change
in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with any
taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg.
Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement.
The Company has not made any payments, is not obligated to make payments
nor is it a party to an agreement that could obligate it to make any
payments that would not be deductible under Section 280G of the Internal
Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated and
other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
(p) CERTAIN FEES. Except as set forth on SCHEDULE 3.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will
be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchaser by or on behalf of
the Company or any subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under
which they were made herein or therein, not misleading.
(r) OPERATION OF BUSINESS. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks,
trade names, copyrights, licenses and authorizations as set forth in the
SEC Documents or on SCHEDULE 3.1(r) hereto, and all rights with respect to
the foregoing, which are necessary for the conduct of its business as now
conducted without any conflict with the rights of others.
(s) REGULATORY COMPLIANCE. The Company has all necessary
licenses, registrations and permits to conduct its business as now being
conducted in all states where the Company conducts its business.
(t) BOOKS AND RECORDS. The records and documents of the
Company and its subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature
of all transactions giving rise to the obligations or accounts receivable
of the Company or any subsidiary.
(u) MATERIAL AGREEMENTS. Except as set forth in the SEC
Documents, or on SCHEDULE 3.1(u) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, a copy of which
would be required to be filed with the SEC as an exhibit to a registration
statement on Form S-1 or other applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities
under the Securities Act of 1933, as amended (the "Securities Act").
Except as set forth in SCHEDULE 3.1(u), the Company and each of its
subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements,
have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect,
the result of which could cause a Material Adverse Effect. No written or
oral contract, instruments, agreement, commitment, obligation, plan or
arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company's Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in
the SEC Documents or on SCHEDULE 3.1(v) hereto, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company, any subsidiary or any of their respective customers or
suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other
entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(w) SECURITIES LAWS. The Company has complied and will
comply with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly, has or
will sell, offer to sell or solicit offers to buy the Shares or similar
securities to, or solicit offers with respect thereto from, or enter into
any preliminary conversations or negotiations relating thereto with, any
person (other than the Purchaser), so as to bring the issuance and sale of
the Shares and/or Warrants under the registration provisions of the
Securities Act and applicable state securities laws. Neither the Company
nor any of its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Shares.
(x) EMPLOYEES. Neither the Company nor any subsidiary has
any collective bargaining arrangements or agreements covering any of its
employees, except as set forth in the SEC Documents or on SCHEDULE 3.1(x)
hereto. Except as set forth in the SEC Documents or on SCHEDULE 3.1(x)
hereto, neither the Company nor any subsidiary is in breach of any
employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating
to the right of any officer, employee or consultant to be employed or
engaged by the Company or such subsidiary. Since the date of the September
30, 1999, Form 10-KSB, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any subsidiary.
(y) ABSENCE OF CERTAIN DEVELOPMENTS. Except as provided
in SEC Documents or in SCHEDULE 3.1(y) hereto, since March 31, 2000,
neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject
to any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature
and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as
adjusted to reflect the current nature and volume of the Company's or such
subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or redeem,
any shares of its capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchaser or its representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of prospective
business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past
practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $500,000;
(x) entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
(xiii) effected any two or more events of the
foregoing kind which in the aggregate would be material to the Company or
its subsidiaries.
(aa) USE OF PROCEEDS. The proceeds from the sale of the
Shares will be used by the Company and its subsidiaries for general
corporate purposes.
(bb) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF
SHARES. Company acknowledges and agrees that Purchaser is acting solely
in the capacity of arm's length purchaser with respect to this Agreement
and the transactions contemplated hereunder. The Company further
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereunder and any advice given
by the Purchaser or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereunder is merely
incidental to the Purchaser's purchase of the Shares. The Company further
represents to the Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby makes the following representations and warranties to
the Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER. The
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of British Virgin Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the
requisite power and authority to enter into and perform this Agreement and
to purchase the Shares being sold to it hereunder. The execution,
delivery and performance of this Agreement by Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action.
(c) NO CONFLICTS. The execution, delivery and performance
of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not
(i) result in a violation of such Purchaser's charter documents or bylaws
or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of any agreement, indenture or instrument to which the Purchaser is a
party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable
to the Purchaser or its properties (except for such conflicts, defaults
and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser). The Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or
to purchase the Shares in accordance with the terms hereof, provided that
for purposes of the representation made in this sentence, the Purchaser is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.
(d) FINANCIAL RISKS. The Purchaser acknowledges that it
is able to bear the financial risks associated with an investment in the
Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. The Purchaser is capable of evaluating the risks
and merits of an investment in the Shares by virtue of its experience as
an investor and its knowledge, experience, and sophistication in financial
and business matters and the Purchaser is capable of bearing the entire
loss of its investment in the Shares.
(e) ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) COMPLIANCE WITH LAW. The Purchaser's trading and
distribution activities with respect to the Shares will be in compliance
with all applicable state and federal securities laws, rules and
regulations and the rules and regulations of the Principal Market.
(g) GENERAL. The Purchaser understands that the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth
herein in order to determine the suitability of the Purchaser to acquire
the Shares.
ARTICLE IV
COVENANTS
The Company covenants with the Purchaser as follows:
Section 4.1. SECURITIES COMPLIANCE.
If applicable, the Company shall notify the NASD, in accordance
with their rules and regulations, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Shares and the Warrants to the
Purchaser or subsequent holders.
Section 4.2. REGISTRATION AND LISTING. The Company will cause
its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting
and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act or Securities Act,
except as permitted herein. The Company will take all action necessary to
continue the listing or trading of its Common Stock on the Principal
Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
Section 4.3. REGISTRATION STATEMENT. The Company shall cause
to be filed the Registration Statement, which Registration Statement shall
provide for the resale of the Shares by the Purchaser to the public in
accordance with this Agreement. The Company shall cause such Registration
Statement to be declared effective by the SEC as expeditiously as
practicable. Before the Purchaser shall be obligated to accept a Draw
Down request from the Company, the Company shall have caused a sufficient
number of shares of Common Stock to be registered to cover the Shares to
be issued in connection with such Draw Down.
Section 4.4. ESCROW ARRANGEMENT. The Company and the
Purchaser shall enter into an escrow arrangement with Epstein Becker &
Green, P.C. (the "Escrow Agent") in the Form of EXHIBIT B hereto
respecting payment against delivery of the Shares.
Section 4.5. COMPLIANCE WITH LAWS. The Company shall comply,
and cause each subsidiary to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could have a Material
Adverse Effect.
Section 4.6. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The
Company shall keep and cause each subsidiary to keep adequate records and
books of account, in which complete entries will be made in accordance
with GAAP consistently applied, reflecting all financial transactions of
the Company and its subsidiaries, and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall
be made.
Section 4.7. AMENDMENTS. The Company shall not amend or waive
any provision the Articles or Bylaws of the Company in any way that would
adversely affect the dividend rights or voting rights of the holders of
the Shares.
Section 4.8. OTHER AGREEMENTS. The Company shall not enter
into any agreement the terms of which such agreement would restrict or
impair the ability to perform of the Company or any subsidiary under this
Agreement.
Section 4.9. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION;
SUSPENSION OF RIGHT TO REQUEST A DRAW DOWN. The Company will immediately
notify the Purchaser upon the occurrence of any of the following events in
respect of the Registration Statement or related prospectus in respect of
the Shares: (i) receipt of any request for additional information from the
SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement the response to which would
require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and that in the case of the
related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company will promptly
make available to the Purchaser any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Purchaser any
Draw Down Notice during the continuation of any of the foregoing events.
Section 4.10. CONSOLIDATION; MERGER. The Company shall not, at
any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all of the
assets of the Company to, another entity (a "Consolidation Event") unless
the resulting successor or acquiring entity (if not the Company) assumes
by written instrument or by operation of law the obligation to deliver to
the Purchaser such shares of stock and/or securities as the Purchaser is
entitled to receive pursuant to this Agreement.
Section 4.11. LIMITATION ON FUTURE FINANCING. The Company
agrees that, except as set forth below, it will not enter into any sale of
its securities for cash at a discount to the current market price until
the earlier of (i) 24 months from the effective date of the Registration
Statement or (ii) sixty (60) days after the entire Commitment Amount has
been purchased by Purchaser. The foregoing shall not prevent or limit the
Company from engaging in any sale of securities (i) in a registered public
offering by the Company which is underwritten by one or more established
investment banks, (ii) in one or more private placements where the
purchasers do not have registration rights, (iii) pursuant to any
presently existing or future employee benefit plan which plan has been or
is approved by the Company's stockholders, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not simply to raise money, (vi) in
connection with bridge financing obtained by the Company prior to funding
under this Agreement, provided that such bridge financing is obtained with
the assistance of Avalon Research or of another placement agent of
comparable or better reputation, experience and quality who is approved in
writing by Purchaser, which approval shall not be unreasonably withheld or
delayed, or (vii) to which Purchaser gives its written approval. Further,
the Purchaser shall have a right of first refusal, to elect to
participate, in such subsequent transaction in the case of (ii) and (vi)
above. Such right of first refusal must be exercised in writing within
seven (7) Trading Days of the Purchaser's receipt of notice of the
proposed terms of such financing.
The Purchaser covenants with the Company as follows:
Section 4.12. NO SHORT SALES. The Purchaser and its affiliates
shall not engage in short sales of the Company's Common Stock (as defined
in applicable SEC and NASD rules) during the term of this Agreement.
ARTICLE V
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 5.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE SHARES. The obligation hereunder of the Company to
issue and sell the Shares to the Purchaser is subject to the satisfaction
or waiver, at or before the Initial Closing and as of each Settlement
Date, of each of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall be
true and correct in all material respects as of the date when made and as
of the Initial Closing and as of each Settlement Date as though made at
that time, except for representations and warranties that speak as of a
particular date.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall
have performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Purchaser at or prior
to the Initial Closing and as of each Settlement Date.
(c) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 5.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO CLOSE. The obligation hereunder of the Purchaser to perform
its obligations under this Agreement and to purchase the Shares is subject
to the satisfaction or waiver, at or before the Initial Closing, of each
of the conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in
its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Company
shall be true and correct in all material respects as of the date when
made and as of the Initial Closing as though made at that time (except for
representations and warranties that speak as of a particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Initial
Closing.
(c) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have
been commenced, and no investigation by any governmental authority shall
have been threatened, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the Company
or any subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.
(e) OPINION OF COUNSEL, ETC. At the Initial Closing, the
Purchaser shall have received an opinion of counsel to the Company, dated
the date of the Initial Closing, in the form of EXHIBIT C hereto, and such
other certificates as the Purchaser deems necessary.
(f) WARRANTS. In lieu of a minimum Draw Down commitment by
the Company, the Purchaser shall receive (i) at the Initial Closing, a
warrant certificate to purchase up to 60,000 shares of Common Stock (the
"Initial Warrant") and (ii) at each Settlement Date, a warrant certificate
to purchase up to a number of shares of Common Stock equal to 25% of the
Investment Amount (as defined in Section 6.1(e) divided by the weighted
average of the Purchase Prices during the applicable Settlement Period
(each a "Purchase Warrant")(the Initial Warrant and the Purchase Warrants
hereinafter collectively referred to as the "Warrants"). The Initial
Warrant shall have a term from its date of issuance of three (3) years.
The Purchase Warrants shall have a term from their date of issuance of 35
calendar days. The exercise price of the Initial Warrant shall be 110% of
the closing bid prices of the Common Stock on the 15 Trading Days
immediately prior to the Initial Closing Date. The exercise price of the
Purchase Warrants shall be the weighted average of the Purchase Prices of
the Common Stock during the applicable Settlement Period. The Common
Stock underlying the Warrants will be registered in the Registration
Statement referred to in Section 4.3 hereof. The Initial Warrant shall be
in the form of EXHIBIT E hereto. The Purchaser Warrant shall be in the
form of EXHIBIT F hereto.
Section 5.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO ACCEPT A DRAW DOWN AND PURCHASE THE SHARES. The obligation
hereunder of the Purchaser to accept a Draw Down request and to acquire
and pay for the Shares is subject to the satisfaction, at or before each
Settlement Date, of each of the conditions set forth below.
(a) SATISFACTION OF CONDITIONS TO INITIAL CLOSING. The
Company shall have satisfied, or the Purchaser shall have waived at the
Initial Closing, the conditions set forth in Section 5.2 hereof
(b) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement registering the Shares shall have been declared effective by the
SEC on or before November 30, 2000 and shall remain effective on each
Settlement Date.
(c) NO SUSPENSION. Trading in the Company's Common Stock
shall not have been suspended by the SEC or the Principal Market (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the delivery of
each Draw Down Notice), and, at any time prior to such Draw Down Notice,
trading in securities generally as reported on the Principal Market shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal
Market unless the general suspension or limitation shall have been
terminated prior to the deliver of such Draw Down Notice.
(d) MATERIAL ADVERSE EFFECT. No Material Adverse Effect
and no Consolidation Event where the successor entity has not agreed to
perform the Company's obligations shall have occurred.
(e) OPINION OF COUNSEL. The Purchaser shall have received
a "down-to-date" letter from the Company's counsel, confirming that there
is no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change.
(f) FUTURE FINANCING. The Company shall have not
completed any financing prohibited by Section 4.11 unless, prior to the
Company delivering the first Draw Down Notice after any such financing,
the Company pays the Purchaser the sum of $100,000 as liquidated damages.
ARTICLE VI
DRAW DOWN TERMS
Section 6.1. DRAW DOWN TERMS. Subject to the satisfaction of
the conditions set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and
exercise a draw down (a "Draw Down") during each Draw Down Pricing Period,
which Draw Down the Purchaser will be obligated to accept for a period of
24 months commencing immediately after the Effective Date.
(b) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. There shall be at least five (5) Trading Days between Draw
Down Pricing Periods. The price per share paid by the Purchaser shall be
based on the Average Daily Price on each separate Trading Day during the
Draw Down Pricing Period. The number of shares of Common Stock purchased
by the Purchaser with respect to each Draw Down shall be determined on a
daily basis during each Draw Down Pricing Period and settled on, (i) as to
the 1st through the 11th Trading Days after a Draw Down Pricing Period
commences (the "First Settlement Period"), on the 13th Trading Day after a
Draw Down Pricing Period commences and (ii) as to the 12th through the
22nd Trading Days after a Draw Down Pricing Period commences (the "Second
Settlement Period"), the 24th Trading Day after a Draw Down Pricing
Period. (each, a "Settlement Date" and the First and Second Settlement
Periods collectively referred to as "Settlement Periods"). In connection
with each Draw Down Pricing Period, the Company may set the Threshold
Price. If the Average Daily Price on any day within the Draw Down Pricing
Period is less than the Threshold Price, the Company shall not sell and
the Purchaser shall not be obligated to purchase the Shares otherwise to
be purchased for such day.
(c) The minimum Investment Amount shall be $250,000
(except that if the remaining Commitment Amount is less than $250,000,
then the Investment Amount shall equal such remaining Commitment Amount)
and the maximum Investment Amount shall be $1,500,000; provided, however,
the maximum Investment Amount during any Draw Down Pricing Period shall be
limited pursuant to the following formula: 4.5% of the weighted average
price for the Common Stock for the three (3) month period immediately
prior to the Commencement Date (defined below) multiplied by the total
trading volume in respect of the Common Stock for the three (3) month
period immediately prior to the Commencement Date.
(d) The number of Shares of Common Stock to be issued in
connection with each Draw Down shall be a number of shares equal to the
sum of the quotients (for each trading day within the Draw Down Pricing
Period) of (x) 1/22nd of the Draw Down amount and (y) the Purchase Price
on each Trading Day within the Draw Down Pricing Period, subject to the
following adjustments:
(i) If the Average Daily Price on a given Trading Day
is less than the Threshold Price, then the Draw Down will be reduced by
1/22nd and that day shall be withdrawn from the Draw Down Pricing Period;
and
(ii) If trading of the Common Stock on the Principal
Market is suspended for more than three (3) hours, in the aggregate, on
any Trading Day during the Draw Down Pricing Period, then the Draw Down
shall be reduced by 1/22nd and that day shall be withdrawn from the Draw
Down Pricing Period.
(e) The Company must inform the Purchaser by delivering a
draw down notice, in the form of EXHIBIT D hereto (the "Draw Down
Notice"), via facsimile transmission in accordance with Section 9.4 as to
the amount of the Draw Down (the " Investment Amount") the Company wishes
to exercise before the first day of the Draw Down Pricing Period (the
"Commencement Date"). If the Commencement Date is to be the date of the
Draw Down Notice, the Draw Down Notice must be delivered to and receipt
confirmed by the Purchaser at least one hour before trading commences on
such date. At no time shall the Purchaser be required to purchase more
than the maximum Draw Down amount for a given Draw Down Pricing Period so
that if the Company chooses not to exercise the maximum permitted Draw
Down in a given Draw Down Pricing Period the Purchaser is not obligated to
and shall not purchase more than the scheduled maximum amount in a
subsequent Draw Down Pricing Period.
(f) On or before each Settlement Date, the Shares
purchased by the Purchaser shall be delivered to The Depository Trust
Company ("DTC") on the Purchaser's behalf. Upon the Company delivering
whole shares of Common Stock to the Purchaser or its designees via DWAC by
1:00 pm EST, the Purchaser shall wire transfer immediately available funds
to the Company's designated account on the such day. Upon the Company
delivering whole shares of Common Stock to the Purchaser or its designees
via DWAC after 1:00 pm EST, the Purchaser shall wire transfer next day
available funds to the Company's designated account on such day. In the
event the Purchaser elects to use the Escrow Agent, the Shares shall be
credited by the Company to the DTC account designated by the Purchaser
upon receipt by the Escrow Agent of payment for the Draw Down into the
Escrow Agent's trust account as provided in the Escrow Agreement. The
Escrow Agent shall be directed to pay the purchase price to the Company,
net of One Thousand Five Hundred Dollars ($1,500) as escrow expenses to
the Escrow Agent and any brokerage or placement agent fees as set forth
in the Escrow Agreement. The delivery of the Shares into the Purchaser's
DTC account in exchange for payment therefor shall be referred to herein
as "Settlement".
ARTICLE VII
TERMINATION
Section 7.1. TERMINATION. The term of this Agreement shall be
twenty-four (24) months from the Effective Date. The Company may
terminate this Agreement (i) upon one (1) Trading Day's notice if the
Purchaser shall fail to fund a properly noticed Draw Down within three (3)
Trading Days of a Settlement Date.
Section 7.2. EFFECT OF TERMINATION. In the event of
termination by the Company or the Purchaser, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by
this Agreement shall be terminated without further action by either party.
If this Agreement is terminated as provided in Section 7.1 herein, this
Agreement shall become void and of no further force and effect, except for
Sections 9.1 and 9.2, and Article VIII herein. Nothing in this Section
7.2 shall be deemed to release the Company or the Purchaser from any
liability for any breach under this Agreement, or to impair the rights of
the Company and the Purchaser to compel specific performance by the other
party of its obligations under this Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1. GENERAL INDEMNITY. The Company agrees to
indemnify and hold harmless the Purchaser (and its directors, officers,
affiliates, agents, successors and assigns) from and against any and all
losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorney's fees, charges and disbursements)
incurred by the Purchaser as a result of any inaccuracy in or breach of
the representations, warranties or covenants made by the Company herein.
The Purchaser agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys fees,
charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants
made by the Purchaser herein. Notwithstanding anything to the contrary
herein, the Purchaser shall be liable under this Section 8.1 for only that
amount as does not exceed the net proceeds to such Purchaser as a result
of the sale of Shares pursuant to the Registration Statement.
Section 8.2. INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party
entitled to indemnification hereunder to give notice as provided herein
shall not relieve the indemnifying party of its obligations under this
Article VIII except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any action, proceeding
or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of
counsel to the indemnified party a conflict of interest between it and the
indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory
to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of
any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time
after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or
claim. In any event, unless and until the indemnifying party elects in
writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising
out of the defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder. The
indemnified party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action
or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The indemnifying
party shall not be liable for any settlement of any action, claim or
proceeding effected without its prior written consent. Notwithstanding
anything in this Article VIII to the contrary, the indemnifying party
shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect
thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by
the claimant or the plaintiff to the indemnified party of a release from
all liability in respect of such claim. The indemnification required by
this Article VIII shall be made by periodic payments of the amount thereof
during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so
long as the indemnified party irrevocably agrees to refund such moneys if
it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or
similar rights of the indemnified party against the indemnifying party or
others, and (b) any liabilities the indemnifying party may be subject to.
ARTICLE IX
MISCELLANEOUS
Section 9.1. FEES AND EXPENSES. The Company shall pay all
fees and expenses related to the transactions contemplated by this
Agreement; provided, that the Company shall pay, at the Initial Closing,
all attorneys and escrow fees and expenses (inclusive of disbursements and
out-of-pocket expenses) incurred by the Purchaser of $25,000 in connection
with the preparation, negotiation, execution and delivery of this
Agreement and the transactions contemplated hereunder. In addition, the
Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or
waivers of this Agreement, the Escrow Agreement or the Registration Rights
Agreement or incurred in connection with the enforcement of this
Agreement, the Escrow Agreement and the Registration Rights Agreement,
including, without limitation, all reasonable attorneys fees and expenses.
The Company shall pay all stamp or other similar taxes and duties levied
in connection with issuance of the Shares pursuant hereto.
Section 9.2. SPECIFIC ENFORCEMENT. The Company and the
Purchaser acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them
may be entitled by law or equity.
Section 9.3. ENTIRE AGREEMENT; AMENDMENT. This Agreement,
together with the Registration Rights Agreement and the Escrow Agreement
contains the entire understanding of the parties with respect to the
matters covered hereby and, except as specifically set forth herein,
neither the Company nor the Purchaser makes any representations, warranty,
covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or
waiver is sought and no condition to closing any Draw Down in favor of the
Purchaser may be waived by the Purchaser.
Section 9.4. NOTICES. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be
in writing and shall be effective (a) upon hand delivery or facsimile at
the address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: 6446 S. Kenton St.
Englewood, CO 80111
Attn: David Selina
Tel: (720) 875-1900
Fax:
With copies to: Gorsuch Kirgis LLP
notice): Tower I, Suite 1000
1515 Arapahoe Street
Denver, CO 80202
Attention: S. Lee Terry, Jr. Esq.
Telephone: (303) 376-5000
Facsimile: (303) 376-5001
If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green P.C.
250 Park Avenue
New York, New York 10177-1211
Telephone: (212) 351-3771
Fax: (212) 661-0989
Attention: Robert F. Charron
Any party hereto may from time to time change its address for
notices by giving written notice of such changed address to the other
party hereto in accordance herewith.
Section 9.5. WAIVERS. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provisions, condition or requirement hereof, nor shall
any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it thereafter.
Section 9.6. HEADINGS. The article, section and subsection
headings in this Agreement are for convenience only and shall not
constitute a part of this Agreement for any other purpose and shall not be
deemed to limit or affect any of the provisions hereof.
Section 9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors
and assigns. After the Initial Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such
party under this Agreement.
Section 9.8. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may
any provision hereof be enforced by, any other person.
Section 9.9. GOVERNING LAW/ARBITRATION. This Agreement shall
be governed by and construed in accordance with the internal laws of the
State of New York, without giving effect to the choice of law provisions.
Any dispute under this Agreement or any Exhibit attached hereto shall be
submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three
(3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New
York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other
party in respect of a claim filed. In connection with rendering its
decisions, the Board of Arbitration shall adopt and follow the laws of the
State of New York. To the extent practical, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all
parties involved in the dispute. The Board of Arbitration shall be
authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days
of any deadline for such participation. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties
to the dispute, and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The
prevailing party shall be awarded its costs, including attorneys' fees,
from the non-prevailing party as part of the arbitration award. Any party
shall have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. The prevailing
party in such injunctive action shall be awarded its costs, including
attorney's fees, from the non-prevailing party.
Section 9.10. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute
one and the same instrument and shall become effective when counterparts
have been signed by each party and delivered to the other parties hereto,
it being understood that all parties need not sign the same counterpart.
Execution may be made by delivery by facsimile.
Section 9.11. PUBLICITY. Except as required by applicable law
or regulation, prior to the Initial Closing, neither the Company nor the
Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement.
After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this
Agreement or the transactions contemplated hereby or the existence of this
Agreement; provided, however, that prior to issuing any such press
release, making any such public statement or announcement, the Company
obtains the prior consent of the Purchaser which consent shall not be
unreasonably withheld or delayed.
Section 9.12. SEVERABILITY. The provisions of this Agreement
are severable and, in the event that any court or officials of any
regulatory agency of competent jurisdiction shall determine that any one
or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or
part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent
possible, so long as such construction does not materially adversely
effect the economic rights of either party hereto.
Section 9.13. FURTHER ASSURANCES. From and after the date of
this Agreement, upon the request of the Purchaser or the Company, each of
the Company and the Purchaser shall execute and deliver such instruments,
documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes
of this Agreement.
Section 9.14. EFFECTIVENESS OF AGREEMENT. This Agreement shall
become effective only upon satisfaction of the conditions precedent to the
Initial Closing set forth in Article I of the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorize officer as of
this 21st day of July, 2000.
CAVION TECHNOLOGIES, INC.
By:/s/David J. Selina
David J. Selina, President and CEO
MOTHLAKE INTERNATIONAL LIMITED
By:/s/Hans Gassner
Hans Gassner, Authorized Signatory
