EXHIBIT 10.4. INVESTMENT AGREEMENT BETWEEN US AND SWARTZ PRIVATE EQUITY, LLC.
COSMOZ.COM, INC.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE INVESTOR
MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS
EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment
Agreement") is made as of the 26th day of June, 2000, by and between Cosmoz.com,
Inc., a corporation duly organized and existing under the laws of the State of
Delaware (the "Company"), and the undersigned Investor executing this Agreement
("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided herein,
shares of the Company's Common Stock, as part of an offering of Common Stock by
the Company to Investor, for a maximum aggregate offering amount of Twenty
Million Dollars ($20,000,000) (the "Maximum Offering Amount"); and
36
<PAGE>
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Act, Section 4(2) of the Act, and/or upon such other exemption from the
registration requirements of the Act as may be available with respect to any or
all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"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.
37
<PAGE>
"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.
"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 Cosmoz.com, Inc., a corporation duly organized and
existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
38
<PAGE>
"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 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:
39
<PAGE>
(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).
"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 Twenty Million Dollars
($20,000,000).
"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.
40
<PAGE>
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"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 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.
41
<PAGE>
"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.
"Rights of First Refusal" shall have the meaning set forth in Section
6.5.2.
"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 Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"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.
42
<PAGE>
"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).
"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 (signed by the
Company's counsel), (iii) the Transfer Agent Instructions (executed by the
Company and the Transfer Agent), and (iv) a Secretary's Certificate as to (A)
the resolutions of the Company's board of directors authorizing this
transaction, (B) the Company's Certificate of Incorporation, and (C) the
Company's Bylaws;
43
<PAGE>
(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").
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.
44
<PAGE>
(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 a number of shares of Common Stock equal
to or exceeding the lesser of (a) 50,000 shares of Common Stock, or (b) $50,000
worth of Common Stock) for all Evaluation Days (as defined below) in the Pricing
Period, (ii) 1,500,000 shares of Common Stock, (iii) the number of Put Shares
which, when multiplied by their respective Put Share Prices, equals the Maximum
Put Dollar Amount, and (iv) 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 a number of shares of Common Stock equal
to or exceeding the lesser of (a) 50,000 shares of Common Stock, or (b) $50,000
worth 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:
"Trigger Price" for any Pricing Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $.075, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the Common Stock is
less than the Trigger Price.
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 $.075, or (ii) 91% of the Market Price for such Put,
but shall in no event be less than the Company Designated Minimum Put Share
Price for such Put, if applicable. .
(d) Delivery of Put Notice. After delivery
of an Advance Put Notice, on the Put Date specified in the Advance Put Notice
the Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the
Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Put Notice Confirmation," the form of which is
attached hereto as Exhibit H) of the Put Notice to Company specifying that the
Put Notice has been received and affirming the Put Date and the Intended Put
Share Amount.
45
<PAGE>
(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 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
(e) the Company shall not exercise a Put
after the Company has breached any covenant in Section 2.6, Section 6, or
Section 9 hereof.
(f) if no Registration Statement has been
declared effective by the date that is one (1) year after the date of this
Agreement, the Automatic Termination shall occur on the date that is one (1)
year after the date of this Agreement.
46
<PAGE>
2.3.3 Put Limitations. The Company's right to
exercise a Put shall be limited as follows:
(a) notwithstanding the amount of any Put,
the Investor shall not be obligated to purchase any additional Put Shares once
the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(b) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has announced a subdivision or combination, including a reverse split, of its
Common Stock or has subdivided or combined its Common Stock during the Extended
Put Period;
(c) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has paid a dividend of its Common Stock or has made any other distribution of
its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which the Company
has made, during the Extended Put Period, a distribution of all or any portion
of its assets or evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to
acquire and pay for the Put Shares with respect to any Put for which a Major
Transaction has occurred during the Extended Put Period.
2.3.4 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;
(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.
47
<PAGE>
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, the Bring Down
Cold Comfort Letter required under Section 2.3.6 and an Agreed Upon Procedures
Report, if requested by the Investor, under Section 2.5;
(c) all other 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 and requested in writing by the Investor at
least five (5) Business Days prior to the Put Date.
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.
48
<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.
(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.
49
<PAGE>
(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 return
to the Company any shares of Common Stock in the Investor's possession that are
not being purchased by the Investor within five (5) Business Days.
2.4 Warrants.
2.4.1 Commitment Warrants. In consideration hereof,
following the execution of the Letter of Agreement dated on or about April 27,
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 2,400,000 shares of Common Stock. 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 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 110% 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.
50
<PAGE>
2.5 Due Diligence Review. The Company shall make
available for inspection and review by the Investor (the "Due Diligence
Review"), advisors to and representatives of the Investor (who may or may not be
affiliated with the Investor and who are reasonably acceptable to the Company),
any underwriter participating in any disposition of Common Stock on behalf of
the Investor pursuant to the Registration Statement, any Supplemental
Registration Statement, or amendments or supplements thereto or any blue sky,
NASD or other filing, all financial and other records, all 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.
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 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,
51
<PAGE>
(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.
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).
52
<PAGE>
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 Form 8-KA dated on or about January 10, 2000, (ii) the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 2000,
(iii) the Risk Factors, attached as Exhibit J, (the "Risk Factors") (iv) the
Capitalization Schedule, attached as Exhibit K, (the "Capitalization Schedule")
and (v) the Use of Proceeds Schedule, attached as Exhibit L, (the "Use of
Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely on the
documents described in (a) above, the Company's representations and warranties
and other information in this Agreement, including the exhibits, documents
prepared by the Company which have been specifically provided to Investor in
connection with this Offering (the documents described in this Section 3.2.4 (a)
and (b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Investor and Investor's representatives, if
any; (c) Investor has, prior to the 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying on any oral representation of the Company or
any other person, nor any written representation or assurance from the Company
other than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investor's right to
rely upon covenants, representations and warranties of the Company in Sections 5
and 6 of this Agreement. Investor acknowledges and agrees that the Company has
no responsibility for, does not ratify, and is under no responsibility
whatsoever to comment upon or correct any reports, analyses or other comments
made about the Company by any third parties, including, but not limited to,
analysts' research reports or comments (collectively, "Third Party Reports"),
and Investor has not relied upon any Third Party Reports in making the decision
to invest.
3.2.5 Investment Experience; Fend for Self. Investor
has substantial experience in investing in securities and it has made
investments in securities other than those of the Company. Investor acknowledges
that Investor is able to fend for Investor's self in the transaction
contemplated by this Agreement, that Investor has the ability to bear the
economic risk of Investor's investment pursuant to this Agreement and that
Investor is an "Accredited Investor" by virtue of the fact that Investor meets
the investor qualification standards set forth in Section 3.1 above. Investor
has not been organized for the purpose of investing in securities of the
Company, although such investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment
Agreement was not offered to Investor through, and Investor is not aware of, any
form of general solicitation or general advertising, including, without
limitation, (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, and (ii) any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands
that the Investment Agreement is, the Common Stock and Warrants issued at each
Put Closing will be, and the Warrant Shares will be, characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold without
registration under the Act or pursuant to an exemption therefrom. In this
connection, Investor represents that Investor is familiar with Rule 144 under
the Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor further
agrees not to sell, transfer, assign, or pledge the Securities (except for any
bona fide pledge arrangement to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein), or
to otherwise dispose of all or any portion of the Securities unless and until:
53
<PAGE>
(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
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;
54
<PAGE>
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.
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"):
"The securities represented hereby have not been registered under the Securities
Act of 1933, as amended, or applicable state securities laws, nor the securities
laws of any other jurisdiction. They may not be sold or transferred in the
absence of an effective registration statement under those securities laws or
pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, USA and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, The National Association of Securities 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
subsidiaries:
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 Company's Form 8-K and
10-Q have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted by 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.
55
<PAGE>
5.3 Authorization. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
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. The Company has not
furnished to the Investor any material nonpublic information concerning the
Company.
56
<PAGE>
5.7 Capitalization. The capitalization of the Company as of
the date hereof, is, and the capitalization as of the Closing, subject to
exercise of any outstanding warrants and/or exercise of any outstanding stock
options, after taking into account the offering of the Securities contemplated
by this Agreement and all other share issuances occurring prior to this
Offering, will be, as set forth in the Capitalization Schedule as set forth in
Exhibit K. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities.
Except as disclosed in the Capitalization Schedule, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Act (except the Registration Rights
Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted
and exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M lists
all patents, trademarks, trademark registrations, trade names and copyrights of
the Company. The Company has granted such licenses or has assigned or otherwise
transferred a portion of (or all of) such valid, unrestricted and exclusive
patents, trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business as set forth in Exhibit M. The Company has been granted licenses,
know-how, technology and/or other intellectual property necessary to the conduct
of its business as set forth in Exhibit M. To the best of the Company's
knowledge after due inquiry, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights. There are no restrictions in any
agreements, licenses, franchises, or other instruments that preclude the Company
from engaging in its business as presently conducted.
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.
57
<PAGE>
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 of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of 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 employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
58
<PAGE>
5.21 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Delaware law which is or could become
applicable to the Investor as a result of the transactions contemplated by this
Agreement, including, without limitation, the issuance of the Common Stock, any
exercise of the Warrants and ownership of the Common Shares and Warrant Shares.
The Company has not adopted and will not adopt any "poison pill" provision that
will be applicable to Investor as a result of transactions contemplated by this
Agreement.
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.
5.26 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.
59
<PAGE>
6.4 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any Subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 Capital Raising Limitations and 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. Notwithstanding the above, the Company may
issue or sell Equity Securities without the Investor's written approval (subject
to the Right of First Refusal described below)("Unauthorized Equity
Securities"), provided that the Company may not deliver an Advance Put Notice or
a Put Notice if, on the date of such proposed Advance Put Notice or Put Notice,
the dollar amount of Unauthorized Equity Securities outstanding exceeds the
following amount:
(A) the average per day trading volume of the Company's Common Stock
for the twenty trading days immediately preceding the proposed date of such
notice, multiplied by
(B) the closing price of the Company's Common Stock on the trading day
immediately preceding the proposed date of such notice, multiplied by
(C) seven.
6.5.2 Investor's Right of First Refusal. For any private
capital raising transactions of Equity Securities which close after the date
hereof and on or prior to the date that is 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 (the "Rights of First
Refusal") during the ten (10) day period following delivery of such notice to
purchase the securities being offered in such transaction on the same terms as
contemplated by such transaction.
6.5.3 Exceptions to Capital Raising Limitations and Rights of
First Refusal. Notwithstanding the above, the Capital Raising Limitations and
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 and Rights of First
Refusal also shall not apply to (a) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (b) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants, or (c) the issuance of debt securities, with no equity
feature, incurred solely for working capital purposes. The Capital Raising
Limitations shall not apply to, but the Rights of First Refusal shall apply to,
the issuance of an aggregate of not more than $5 million in any one year period
of restricted Common Stock in a Rule 144 private placement or placements, where
such Common Stock is not registered for resale, is not eligible for resale until
the date that is one (1) year after the date of its issuance and where the price
of such Common Stock is not subject to being reset or adjusted after its
issuance. 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.
60
<PAGE>
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.
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 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.
61
<PAGE>
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
and its consulting, legal and other services rendered 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.
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.
62
<PAGE>
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.
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.
(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.
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 (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.
63
<PAGE>
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]
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.
64
<PAGE>
(e) [ ] other [specify]
--------------------------------------------
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 26th day of June, 2000.
SWARTZ PRIVATE EQUITY, LLC
By: /s/Eric S. Swartz
--------------------------
Eric S. Swartz, Manager
SECURITY DELIVERY INSTRUCTIONS:
Swartz Private Equity, LLC
C/o Eric S. Swartz
200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 26th DAY OF JUNE, 2000.
COSMOZ.COM, INC.
By: /s/Wilfred Shaw
-------------------------------
Wilfred Shaw, Chairman & CEO
Address:
Attn: Wilfred Shaw
1515 S. El Camino Road, Suite 100
San Mateo, CA 94402
Telephone (650) 358-1188
Facsimile (650) 358-0188
65
<PAGE>
ADVANCE PUT NOTICE
COSMOZ.COM, 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 June 26, 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):
------------------------------------------------------.
COSMOZ.COM, INC.
By: /s/ Wilfred Shaw
---------------------------------
Wilfred Shaw, Chairman & CEO
Address:
Attn: Wilfred Shaw
1515 S. El Camino Road, Suite 100
San Mateo, CA 94402
Telephone (650) 358-1188
Facsimile (650) 358-0188
EXHIBIT E
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
COSMOZ.COM, 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 June 26, 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.: ___________________________________
66
<PAGE>
EXHIBIT F
PUT NOTICE
COSMOZ.COM, 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 June 26, 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.
COSMOZ.COM, INC.
By: /s/Wilfred Shaw
-------------------------------
Wilfred Shaw, Chairman & CEO
Address:
Attn: Wilfred Shaw
1515 S. El Camino Road, Suite 100
San Mateo, CA 94402
Telephone (650) 358-1188
Facsimile (650) 358-0188
EXHIBIT G
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Cosmoz.com, 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 June 26, 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.: ____________________________________
67
<PAGE>
EXHIBIT H
PUT CANCELLATION NOTICE
COSMOZ.COM, 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 June
26, 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.
COSMOZ.COM, INC.
By: /s/ Wilfred Shaw
--------------------------------
Wilfred Shaw, Chairman & CEO
Address:
Attn: Wilfred Shaw
1515 S. El Camino Road, Suite 100
San Mateo, CA 94402
Telephone (650) 358-1188
Facsimile (650) 358-0188
68
<PAGE>
EXHIBIT Q
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Cosmoz.com, Inc.'s, and Swartz Private Equity,
LLC dated on or about June 26, 2000, hereby confirms receipt of Cosmoz.com,
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.: ____________________________________
69
