Exhibit 4.1
Document is copied.
TIDELANDS OIL & GAS CORPORATION
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 17th day of October, 2000, by and between Tidelands Oil & Gas
Corporation, a corporation duly organized and existing under the laws of the
State of Nevada (the "Company"), and the undersigned Investor executing this
Agreement ("Investor").
RECITALS:
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
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.
<PAGE>
"Act" shall mean the Securities Act of 1933, as amended.
"Additional Warrant" shall have the meaning set forth in the Warrant
Antidilution Agreement.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of
Common Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar month
or (ii) the last day of the next calendar month. Each Calendar Month shall end
on the day immediately preceding the beginning of the next succeeding Calendar
Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Change in Control" shall have the meaning set forth within the
definition of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last
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.
<PAGE>
"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.
"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 Tidelands Oil & Gas Corporation, a corporation
duly organized and existing under the laws of the State of Nevada.
"Company Designated Maximum Put Dollar Amount" shall have the meaning
set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section
2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this
Investment Agreement, that the Company's Common Stock is not listed for and
actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
<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 have the meaning given to it in the
Registration Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it
in the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's outside legal 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
2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
<PAGE>
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control");
(ii) the sale or transfer of a portion of the Company's assets
not in the ordinary course of business;
(iii) the purchase of assets by the Company not in the
ordinary course of business; or
(iv) a purchase, tender or exchange offer made to the holders
of outstanding shares of Common Stock.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put
Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"Normal Trading" shall mean trading that occurs between 9:30 AM and
4:00 PM, New York City Time, on any Business Day, and shall expressly exclude
"after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the
Investment Date or the last day of the calendar month in question, whichever is
less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and
Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer
of the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
<PAGE>
"Opinion of Counsel" shall mean, as applicable, the Investment
Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration
Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20 Business
Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any
Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq
Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as Exhibit D.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section 2.3.1,
unless the Put Date is postponed pursuant to the terms hereof, in which case the
"Put Date" is such postponed date.
<PAGE>
"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 outside
legal 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.
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date herewith,
in the form attached hereto as Exhibit A, or such other form as agreed upon by
the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Right of First Refusal" shall have the meaning set forth in Section
6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
<PAGE>
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set
forth in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth
in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period
of time beginning on the date of this Agreement and ending on the Termination
Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's
Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
<PAGE>
"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 legally permitted 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 Antidilution Agreement" shall mean that certain Warrant
Antidilution Agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit O, or such other form as agreed
upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants, Commitment Warrants and
Additional Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
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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.
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2.2.1 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement, the Registration Rights Agreement, the Commitment Warrant and
the Warrant Antidilution Agreement have been executed by both Investor and the
Company, the Transfer Agent Instructions have been executed by both the Company
and the Transfer Agent, and the other Conditions to Investor's Obligations set
forth in Section 2.2.2 below have been met.
<PAGE>
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
Commitment Warrant, (iii) the Investment Commitment
Opinion of Counsel (signed by the Company's counsel),
(iv) the Warrant Antidilution Agreement (executed by the
Company and Investor), (v) the Transfer Agent
Instructions (executed by the Company and the Transfer
Agent), and (vi) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's
Certificate of Incorporation, and (C) the Company's
Bylaws;
(b) this Investment Agreement, accepted by (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.
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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").
<PAGE>
The Company may, at its option, also designate in any Advance Put
Notice (i) a maximum dollar amount of Common Stock, not to exceed $2,000,000,
which it shall sell to Investor during the Put (the "Company Designated Maximum
Put Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase shares of Common Stock pursuant to such Put Notice (a
"Company Designated Minimum Put Share Price"). The Company Designated Minimum
Put Share Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date, or (ii) the Closing Bid Price
of the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date minus $0.125. The Company may decrease (but not
increase) the Company Designated Minimum Put Share Price for a Put at any time
by giving the Investor written notice of such decrease not later than 12:00
Noon, New York City time, on the Business Day immediately preceding the Business
Day that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the determination of
Trigger Prices and Excluded Days for days preceding the Business Day that such
decrease takes effect, provided that the Put Share Price for all shares in a Put
shall be calculated using the lowest Company Designated Minimum Put Share Price,
as decreased.
Notwithstanding the above, if, at the time of delivery of an Advance
Put Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing, such Advance Put Notice shall provide at least twenty (20)
Business Days notice of the intended Put Date, unless waived in writing by the
Investor. In order to effect delivery of the Advance Put Notice, the Company
shall (i) send the Advance Put Notice by facsimile on such date so that such
notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on such date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside of
the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the Company
specifying that the Advance Put Notice has been received and affirming the
intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is
the number of shares of Common Stock that the Investor shall be obligated to
purchase in a given Put, and shall equal the lesser of (i) the Intended Put
Share Amount, and (ii) the Individual Put Limit. The "Individual Put Limit"
shall equal the lesser of (a) 1,500,000 shares, (b) 15% of the sum of the
aggregate daily reported Trading Volumes in the outstanding Common Stock on the
Company's Principal Market, excluding any block trades of 20,000 or more shares
of Common Stock, for all Evaluation Days (as defined below) in the Pricing
Period, (c) the number of Put Shares which, when multiplied by their respective
Put Share Prices, equals the Maximum Put Dollar Amount, and (d) the 9.9%
Limitation, but in no event shall the Individual Put Limit exceed 15% of the sum
of the aggregate daily reported Trading Volumes in the outstanding Common Stock
on the Company's Principal Market, excluding any block trades of 20,000 or more
shares of Common Stock, for the twenty (20) Business Days immediately preceding
the Advance Put Notice Date (this limitation, together with the limitation in
(b) immediately above are collectively referred to herein as the "Volume
Limitations"). Company agrees not to trade Common Stock or arrange for Common
Stock to be traded for the purpose of artificially increasing the Volume
Limitations.
<PAGE>
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater
of (i) the Company Designated Minimum Put Share Price, plus $0.075, or (ii) the
Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a
Pricing Period where the lowest intra-day trading price of the Common Stock is
less than the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a
Pricing Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the
Put Shares (the Put Share Price") shall equal the lesser of (i) the Market Price
for such Put, minus $0.075, or (ii) 91% of the Market Price for such Put, but
shall in no event be less than the Company Designated Minimum Put Share Price
for such Put, if applicable.
(d) Delivery of Put Notice. After delivery of an
Advance Put Notice, on the Put Date specified in the Advance Put Notice the
Company shall deliver written notice (the "Put Notice," the form of which is
attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the
Intended Put Share Amount as specified in the Advance Put Notice (such exercise
a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the
Investor shall, within two (2) Business Days, send, via facsimile, a
confirmation of receipt (the "Put Notice Confirmation," the form of which is
attached hereto as Exhibit H) of the Put Notice to Company specifying that the
Put Notice has been received and affirming the Put Date and the Intended Put
Share Amount.
(e) Delivery of Required Put Documents. On or
before the Put Date for such Put, the Company shall deliver the Required Put
Documents (as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the Investor,
the delivery of the Put Shares of Common Stock shall be in the form of physical
Unlegended Share Certificates. The Put Shares shall be capable of being
transmitted electronically pursuant to the Depository Trust Company ("DTC")
electronic delivery system. 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.
<PAGE>
(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 61
days preceding the Put Date with respect to which this determination of the
permitted Intended Put Share Amount is being made, would exceed 9.9% 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 61 calendar days preceding such date, would have acquired more
than 9.9% of the Section 13(d) Outstanding Share Amount. The limitation set
forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation".
2.3.2 Termination of Right to Put. The Company's right
to require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination") upon the occurrence of any of the
following:
(a) the Company shall not exercise a Put or any
Put thereafter if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or
misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any
Put thereafter, on any date after a cumulative time period or series of time
periods, consisting only of Ineffective Periods and Delisting Events, that lasts
for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any
Put thereafter if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
<PAGE>
(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.
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 the NASDAQ National Market
System (the "NMS"), and such approval is required by the
rules of the NASDAQ.
(g) the Company shall have no knowledge of any event more
likely than not to have the effect of causing any
Registration Statement to be suspended or otherwise
ineffective (which event is more likely than not to occur
within the thirty Business Days following the date on
which such Advance Put Notice and Put Notice is deemed
delivered).
(h) there is not then in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall
not have been obtained, nor is there any pending or
threatened proceeding or investigation which may have the
effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
<PAGE>
(i) no statute, rule, regulation, executiv order, decree,
ruling or injunction shall have been enacted, entered,
promulgated or adopted any court or governmental
authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement, and no
actions, suits or proceedings shall be in progress,
pending or threatened by any person (other than the
Investor or any affiliate of the Investor), that seek to
enjoin or prohibit the transactions contemplated by this
Agreement. For purposes of this paragraph (i), no
proceeding shall be deemed pending or threatened unless
one of the parties has received written or oral
notification thereof prior to the applicable Closing
Date.
(j) the Put Shares delivered to the Investor are DTC eligible
and can be immediately converted into electronic form;
and
(k) the Company shall have obtained all permits and
qualifications (if any) required by any state securities
laws or Blue Sky laws for the offer and sale of the
Common Stock to the Investor and by the Investor or shall
have the availability of exemptions therefrom.
2.3.5 Documents Required to be Delivered on the Put Date
as Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to the
Investor of each of the following (the "Required Put Documents") on or before
the applicable Put Date:
(a) a number of Unlegended Share Certificates
equal to the Intended Put Share Amount, in denominations of not more than 50,000
shares per certificate, and such Unlegended Share Certificates shall be capable
of being transmitted electronically pursuant to the Depository Trust Company
("DTC") electronic delivery system;
(b) the following documents: Put Opinion of
Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any report
or disclosure required under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other writings
required to be delivered on or before the Put Date pursuant to any provision of
this Agreement in order to implement and effect the transactions contemplated
herein.
<PAGE>
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 outside legal
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 outside legal 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.
2.3.7 Investor's Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the Investor's
receipt of a validly delivered Put Notice, the Investor shall be required to
purchase (each a "Purchase") from the Company a number of Put Shares equal to
the Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and
the Investor shall deliver all documents, instruments and writings required to
be delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is five
(5) Business Days following the applicable Pricing Period End Date (the "Payment
Due Date") at the offices of Investor. On each or before each Payment Due Date,
the Investor shall deliver to the Company, in the manner specified in Section 8
below, the Put Dollar Amount to be paid for such Put Shares, determined as
aforesaid. The closing (each a "Put Closing") for each Put shall occur on the
date that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar
Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
<PAGE>
If the Investor does not deliver to the Company the Put Dollar Amount
for such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent (1%)
for each month that passes after the date in question, up to a maximum of five
percent (5%) per month; provided, however, that in no event shall the amount of
interest that shall become due and payable hereunder exceed the maximum amount
permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its
affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or any
short sale or other hedging or similar arrangement it deems appropriate with
respect to Put Shares after it receives a Put Notice with respect to such Put
Shares so long as such sales or arrangements do not involve more than the number
of such Put Shares specified in the Put Notice.
2.3.10 Cap Amount. If the Company becomes listed on
the Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the
Company has obtained Stockholder 20% Approval as set forth in Section 6.11 or
unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued
Shares exceed the maximum number of shares of Common Stock (the "Cap Amount")
that the Company can, without stockholder approval, so issue pursuant to Nasdaq
Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor
rule) (the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time
during a Pricing Period the Company discovers the existence of Material Facts or
any Ineffective Period or Delisting Event occurs, the Company shall cancel the
Put (a "Put Cancellation"), by delivering written notice to the Investor (the
"Put Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight
courier. The "Put Cancellation Date" shall be the date that the Put Cancellation
Notice is first received by the Investor, if such notice is received by the
Investor by 6:00 p.m., New York, NY time, and shall be the following date, if
such notice is received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put, shall
remain effective with respect to a number of Put Shares (the "Truncated Put
Share Amount") equal to the Individual Put Limit for the Truncated Pricing
Period.
<PAGE>
(c) Put Cancellation Notice Confirmation. Upon
receipt by the Investor of a facsimile copy of the Put Cancellation Notice, the
Investor shall promptly send, via facsimile, a confirmation of receipt (the "Put
Cancellation Notice Confirmation," a form of which is attached as Exhibit S) of
the Put Cancellation Notice to the Company specifying that the Put Cancellation
Notice has been received and affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put
Cancellation Notice has been delivered to the Investor after the Put Date, the
Pricing Period for such Put shall end at on the close of trading on the last
full trading day on the Principal Market that ends prior to the moment of
initial delivery of the Put Cancellation Notice to the Investor (a "Truncated
Pricing Period").
2.3.12 Investment Agreement Cancellation. The Company
may terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other rights
and obligations under this Agreement, the Registration Rights Agreement or the
Warrants. Notwithstanding the above, any cancellation occurring during an
Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event
that the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial consideration
hereof, following the execution of the Letter of Agreement dated on or about
September 7, 2000 between the Company and the Investor, the Company issued and
delivered to Investor or its designated assignees, warrants (the "Commitment
Warrants") in the form attached hereto as Exhibit U, or such other form as
agreed upon by the parties, to purchase 1,500,000 shares of Common Stock. Each
Commitment Warrant shall be immediately exercisable in accordance with its
terms, and shall have a term beginning on the date of issuance and ending on
date that is ten (10) years thereafter. The Warrant Shares shall be registered
for resale pursuant to the Registration Rights Agreement. The Investment
Commitment Opinion of Counsel shall cover the issuance of the Commitment Warrant
and the issuance of the common stock upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is not
filed, and regardless of whether or not the Registration Statement is approved
or denied by the SEC, the Investor shall retain full ownership of the Commitment
Warrant as partial consideration for its commitment hereunder.
2.4.2 Purchase Warrants. Within five (5) Business Days
of the end of each Pricing Period, the Company shall issue and deliver to the
Investor a warrant ("Purchase Warrant"), in the form attached hereto as Exhibit
D, or such other form as agreed upon by the parties, to purchase a number of
shares of Common Stock equal to 10% of the Put Share Amount for that Put. Each
Purchase Warrant shall be exerciseable at a price (the "Purchase Warrant
Exercise Price") which shall initially equal the Market Price for the applicable
Put, and shall have semi-annual reset provisions. Each Purchase Warrant shall be
immediately exercisable at the Purchase Warrant Exercise Price, and shall have a
term beginning on the date of issuance and ending on the date that is ten (10)
years thereafter. The Warrant Shares shall be registered for resale pursuant to
the Registration Rights Agreement.
<PAGE>
2.5 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors to
and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any Supplemental Registration Statement,
or amendments or supplements thereto or any blue sky, NASD or other filing, all
financial and other records, all filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The Company
shall not disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such nonpublic information for review. The Company may, as a
condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as they
are in possession of nonpublic information) in form reasonably satisfactory to
the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate nonpublic information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
nonpublic information (whether or not requested of the Company specifically or
generally during the course of due diligence by and such persons or entities),
which, if not disclosed in the Prospectus included in the Registration
Statement, would cause such Prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Nothing contained in this Section 2.5 shall be construed to mean
that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain
nonpublic information in the course of conducting due diligence in accordance
with the terms of this Agreement; provided, however, that in no event shall the
Investor's advisors or representatives disclose to the Investor the nature of
the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due
diligence without the written consent of the Investor prior to disclosure of
such information.
<PAGE>
2.5.2 Disclosure of Misstatements and Omissions. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the opinion
that the Registration Statement contains an untrue statement of a material fact
or omits a material fact required to be stated in the Registration Statement or
necessary to make the statements contained therein, in the light of the
circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Investor's counsel shall consult with the Company's outside
legal 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 outside legal counsel to the Investor as to the
accuracy of the Registration Statement and related Prospectus.
2.5.3 Procedure if Material Facts are Reasonably
Believed to be Untrue or are Omitted. In the event after such consultation the
Investor or the Investor's counsel reasonably believes that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading,
(a) the Company shall file with the SEC an
amendment to the Registration Statement responsive to such alleged untrue
statement or omission and provide the Investor, as promptly as practicable, with
copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any
such material misstatement or omission, (i) the Company's outside legal 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.
<PAGE>
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).
<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 quarterly report on Form 10-QSB for the quarter ended
June 30, 2000, (ii) the Risk Factors, attached as Exhibit J, (the "Risk
Factors") (iii) the Capitalization Schedule, attached as Exhibit K, (the
"Capitalization Schedule") and (iv) 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 the contracts set
forth in Schedule 2.3.5 and the material contracts and other documents of the
Company which have been filed as exhibits to the Company's filings under the Act
and the Exchange Act and has had an opportunity to ask questions of and receive
answers from the Company's officers and directors; and (d) is not relying on any
oral representation of the Company or any other person, nor any written
representation or assurance from the Company other than those contained in the
Disclosure Documents or incorporated herein or therein. The foregoing, however,
does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments in
securities other than those of the Company. Investor acknowledges that Investor
is able to fend for Investor's self in the transaction contemplated by this
Agreement, that Investor has the ability to bear the economic risk of Investor's
investment pursuant to this Agreement and that Investor is an "Accredited
Investor" by virtue of the fact that Investor meets the investor qualification
standards set forth in Section 3.1 above. Investor has not been organized for
the purpose of investing in securities of the Company, although such investment
is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment Agreement
was not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
<PAGE>
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:
(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 the
Company and/or the Company's counsel to authorize the Company's stock transfer
agent to remove the restrictive legends in accordance with Rule 144.
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.
<PAGE>
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;
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;
<PAGE>
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 legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, nor the securities laws of any other jurisdiction. They may not
be sold or transferred in the absence of an effective registration
statement under those securities laws or pursuant to an exemption
therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada, USA and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative or
legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., the Nasdaq
Stock Market, Inc. or any state securities commission, or any other governmental
entity, which have not been disclosed in the Disclosure Documents. None of the
disclosed Proceedings, if any, will have a material adverse effect upon the
Company or the market for the Common Stock. The Company has the following
subsidiaries:
<PAGE>
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except for
changes in the ordinary course of business and normal year-end adjustments that
are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the Company's
business, financial condition, or prospects since the dates of such Disclosure
Documents. The financial statements as contained in the 10-QSB have been
prepared in accordance with generally accepted accounting principles,
consistently applied (except as otherwise permitted by Regulation S-X of the
Exchange Act, or Generally Accepted Accounting Principles, as applicable),
subject, in the case of unaudited interim financial statements, to customary
year end adjustments and the absence of certain footnotes, and fairly present
the financial condition of the Company as of the dates of the balance sheets
included therein and the consolidated results of its operations and cash flows
for the periods then ended. Without limiting the foregoing, the best of the
Company's knowledge, 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. To the
best of the Company's knowledge, this Agreement and the Disclosure Documents do
not contain any untrue statement of a material fact and do not omit to state any
material fact required to be stated therein or herein necessary to make the
statements contained therein or herein not misleading in the light of the
circumstances under which they were made. No event or circumstance exists
relating to the Company which, under applicable law, requires public disclosure
but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the
Company by its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Common Stock being sold hereunder and the issuance (and/or the
reservation for issuance) of the Warrants and the Warrant Shares have been
taken, and this Agreement and the Registration Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals required
for it to execute, deliver and perform each agreement referenced in the previous
sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and warranties
of Investor, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Put Shares, the Warrants and the Warrant Shares will
be issued free of any preemptive rights.
<PAGE>
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement, or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement or the Registration Rights Agreement. The execution, delivery and
performance of this Agreement and the other agreements entered into in
conjunction with the Offering and the consummation of the transactions
contemplated hereby and thereby will not (a) result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument or contract or
an event which results in the creation of any lien, charge or encumbrance upon
any assets of the Company, which would have a material adverse effect on the
Company's business or prospects, or on the performance of its obligations under
this Agreement, the Registration Rights Agreement, or (b) violate the Company's
Certificate of Incorporation or By-Laws or (c) violate any statute, rule or
governmental regulation applicable to the Company which violation would have a
material adverse effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed or approved for quotation
on the O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of
the date hereof is, and the capitalization as of the Closing, subject to
exercise of any outstanding warrants and/or exercise of any outstanding stock
options, after taking into account the offering of the Securities contemplated
by this Agreement and all other share issuances occurring prior to this
Offering, will be, as set forth in the Capitalization Schedule as set forth in
Exhibit K. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities.
Except as disclosed in the Capitalization Schedule, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Act (except the Registration Rights
Agreement).
<PAGE>
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.
5.13 Underwriter's Fees and Rights of First Refusal. The
Company is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative in connection with this Offering.
<PAGE>
5.14 Availability of Suitable Form for Registration. The
Company is currently eligible and agrees to maintain its eligibility to register
the resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under Regulation D of the Act or
would require the issuance of any other securities to be integrated with this
Offering under the Rules of the SEC. The Company has not engaged in any form of
general solicitation or advertising in connection with the offering of the
Common Stock or the Warrants.
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.
<PAGE>
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
5.21 Application of Takeover Protections. The Company and its
board of directors have taken, or agrees to use reasonable commercial efforts to
take, all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination or other similar anti-takeover provision
under Nevada law which is or could become applicable to the Investor as a result
of the transactions contemplated by this Agreement, including, without
limitation, the issuance of the Common Stock, any exercise of the Warrants and
ownership of the Common Shares and Warrant Shares. The Company has not adopted
and will not adopt any "poison pill" provision that will be applicable to
Investor as a result of transactions contemplated by this Agreement.
5.22 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.24 Financings. There are no other financings currently
pending or contemplated by the Company other than have been disclosed to the
Investor in writing.
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.
<PAGE>
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; Change in Corporate Entity.
The Company shall, until at least the Termination Date, maintain its corporate
existence in good standing and, once it becomes a "Reporting Issuer" (defined as
a Company which files periodic reports under the Exchange Act), remain a
Reporting Issuer and shall pay all its taxes when due except for taxes which the
Company disputes. The Company shall not, at any time after the date hereof,
enter into any merger, consolidation or corporate reorganization of the Company
with or into, or transfer all or substantially all of the assets of the Company
to, another entity unless the resulting successor or acquiring entity in such
transaction, if not the Company (the "Surviving Entity"), (i) has Common Stock
listed for trading on Nasdaq or on another national stock exchange and is a
Reporting Issuer, (ii) assumes by written instrument the Company's obligations
with respect to this Investment Agreement, the Registration Rights Agreement,
the Transfer Agent Instructions, the Warrant Antidilution Agreement, the
Warrants, and the other agreements referred to herein, including but not limited
to the obligations to deliver to the Investor shares of Common Stock and/or
securities that Investor is entitled to receive pursuant to this Investment
Agreement and upon exercise of the Warrants and agrees by written instrument to
reissue, in the name of the Surviving Entity, any Warrants (each in the same
terms, including but not limited to the same reset provisions, as the Commitment
Warrants, Additional Warrants and/or Purchase Warrants, as applicable,
originally issued or required to be issued by the Company) that are outstanding
immediately prior to such transaction, making appropriate proportional
adjustments to the number of shares represented by such Warrants and the
exercise prices of such Warrants to accurately reflect the exchange represented
by the transaction.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of the
Common Stock or other securities of the Company.
6.5 Capital Raising Limitations and Rights of First Refusal.
-----------------------
<PAGE>
6.5.1 Capital Raising Limitations. During the period
from the date of this Agreement until the date that is sixty (60) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor of the
Offering (the limitations referred to in this subsection 6.5.1 are collectively
referred to as the "Capital Raising Limitations"). For purposes hereof, the
following shall be collectively referred to herein as, the "Equity Securities":
(i) Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering.
6.5.2 Investor's Right of First Refusal. For any
private capital raising transactions of Equity Securities which close after the
date hereof and on or prior to the date that is sixty (60) days after the
Termination Date of this Agreement, not including any warrants issued in
conjunction with this Investment Agreement, the Company agrees to deliver to
Investor, at least ten (10) days prior to the closing of such transaction,
written notice describing the proposed transaction, including the terms and
conditions thereof, and providing the Investor and its affiliates an option (the
"Right of First Refusal") during the ten (10) day period following delivery of
such notice to purchase the securities being offered in such transaction on the
same terms as contemplated by such transaction.
6.5.3 Exceptions to Capital Raising Limitations and
Rights of First Refusal. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Refusal shall apply to any transaction
involving issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company or exercise of options by employees, or directors, or a
primary underwritten offering of the Company's Common Stock, but each shall
apply to the issuance of securities or options to consultants of the Company.
The Capital Raising Limitations and Rights of First Refusal also shall not apply
to (a) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof, (b) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option or restricted stock plan
for the benefit of the Company's employees directors or legal counsel, or (c)
the issuance of debt securities, with no equity feature, incurred solely for
working capital purposes.
6.6 Financial 10-KSB Statements, Etc. and Current Reports on
Form 8-K. The Company shall deliver to the Investor copies of its annual reports
on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the Term
of this Agreement.
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.
<PAGE>
6.8 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms of
this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without the
Legend, if (a) the sale of such Security is registered under the Act, or (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Investor), to the effect that a
public sale or transfer of such Security may be made without registration under
the Act, or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the O.T.C.
Bulletin Board. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the O.T.C. Bulletin
Board or to become eligible for and listed and available for trading on the
Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and
(ii) comply in all material respects with the Company's reporting, filing and
other obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by
delivering instructions in the form of Exhibit T hereto, to issue certificates,
registered in the name of each Investor or its legally permitted 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.
<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. Any public announcement relating to this
financing (a "Press Release") shall be submitted to the Investor for review at
least two (2) business days prior to the planned release. The Company shall not
disclose the Investor's name in any press release or other public announcement
without the Investor's prior written approval. The Company shall obtain the
Investor's written approval of the Press Release prior to issuance by the
Company.
6.13 Change in Law or Policy. In the event of a change in law,
or policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its commitment
hereunder.
6.14. Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company shall immediately notify the
Investor, but in no event later than two (2) business days by facsimile and by
overnight courier, upon the occurrence of any of the following events in respect
of a Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
<PAGE>
6.15 Acknowledgment Regarding Investor's Purchase of the
Securities. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that the Investor is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by the Investor or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Investor's purchase of the
Securities. The Company further represents to the Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives and advisors.
6.16. Liquidated Damages. The parties hereto acknowledge and
agree that the sums payable as Non-Usage Fees, Termination Fees and Ineffective
Registration Payments shall each give rise to liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of loss or
damages likely to be incurred by the Investor is incapable or is difficult to
precisely estimate, (b) the amounts specified bear a reasonable proportion and
are not plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investor, and (c) the parties are sophisticated business parties
and have been represented by sophisticated and able legal and financial counsel
and negotiated this Agreement at arm's length.
6.17. Copies of Financial Statements, Reports and Proxy
Statements. Promptly upon the mailing thereof to the shareholders of the Company
generally, the Company shall deliver to the Investor copies of all financial
statements, reports and proxy statements so mailed and any other document
generally distributed to shareholders.
6.18. Notice of Certain Litigation. Promptly following the
commencement thereof, the Company shall provide the Investor written notice and
a description in reasonable detail of any litigation or proceeding to which the
Company or any subsidiary of the Company is a party, in which the amount
involved is $250,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought.
7. Miscellaneous.
<PAGE>
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 or the Company, 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 membership interest of
such Investor, so long as, as a condition precedent to such transfer, the
transferee executes an acknowledgment agreeing to be bound by the applicable
provisions of this Agreement in a form acceptable to the Company and provides an
original copy of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. The use in this
Agreement of a masculine, feminine or neuter pronoun shall be deemed to include
a reference to the others.
7.5 Written Notices, Etc. Any notice, demand or request
required or permitted to be given by the Company or Investor pursuant to the
terms of this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile or upon receipt if by overnight or two (2)
day courier, addressed to the parties at the addresses and/or facsimile
telephone number of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing;
provided, however, that in order for any notice to be effective as to the
Investor such notice shall be delivered and sent, as specified herein, to all
the addresses and facsimile telephone numbers of the Investor set forth at the
end of this Agreement or such other address and/or facsimile telephone number as
Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
<PAGE>
7.7 Entire Agreement; Written Amendments Required. This
Agreement, including the Exhibits attached hereto, the Common Stock
certificates, the Warrants, the Registration Rights Agreement, and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants, whether oral, written, or
otherwise except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The
parties acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the parties
hereto, shall be filed in any state or federal court sitting in Atlanta,
Georgia. Georgia law shall govern both the proceeding as well as the
interpretation and construction of the Transaction Documents and the transaction
as a whole. In any litigation between the parties hereto, the prevailing party,
as found by the court, shall be entitled to an award of all attorney's fees and
costs of court. Should the court refuse to find a prevailing party, each party
shall bear its own legal fees and costs.
7.9 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on the Principal Market on any given Trading Day for the
purposes of this Agreement shall be the Bloomberg L.P. The written mutual
consent of the Investor and the Company shall be required to employ any other
reporting entity.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any Put
Share Price) by wire transfer, to the Company pursuant
to a wire instruction letter to be provided by the
Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges
and agrees, subject to the provisions of any applicable
laws providing for the refund of subscription amounts
submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel,
terminate or revoke this Agreement or any other
agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other
agreements shall survive the death or disability of such
Investor and shall be binding upon and inure to the
benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and
assigns. If the Securities subscribed for are to be
owned by more than one person, the obligations of all
such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties
and acknowledgments herein contained shall be deemed to
be made by and be binding upon each such person and his
heirs, executors, administrators, successors, legal
representatives and assigns.
<PAGE>
9. Indemnification and Reimbursement.
(a) Indemnification. In consideration of the
Investor's execution and delivery of the Investment Agreement, the Registration
Rights Agreement and the Warrants (the "Transaction Documents") and acquiring
the Securities thereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless Investor and all of its stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents, members, partners or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorney's fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim,
derivative or otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors of their
fiduciary or other obligations to the stockholders of the Company, or (d) claims
made by third parties against any of the Indemnitees based on a violation of
Section 5 of the Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to the
Registration Statement.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which it
would be required to make if such foregoing undertaking was enforceable which is
permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
<PAGE>
(b) Reimbursement. If (i) the Investor, other than
by reason of its gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by any stockholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Investor is
impleaded in any such action, proceeding or investigation by any person or
entity, or (ii) the Investor, other than by reason of its gross negligence or
willful misconduct, becomes involved in any capacity in any action, proceeding
or investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if the Investor is impleaded in
any such action, proceeding or investigation by any person or entity, then in
any such case, the Company will reimburse the Investor for its reasonable legal
and other expenses (including the cost of any investigation and preparation )
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which the Investor is a named party,
the Company will pay the Investor the charges, as reasonably determined by the
Investor, for the time of any officers or employees of the Investor devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearing, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Investor and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Investor and any such Affiliate and any such
person or entity. The Company also agrees that neither any the Investor nor any
such Affiliate, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any person asserting claims on behalf
of or in right of the Company in connection with or as a result of the
consummation of the Transaction Documents except to the extent that any losses,
claims, damages, liabilities or expenses incurred by the Company result from the
gross negligence or willful misconduct of the Investor or any inaccuracy in any
representation or warranty of the Investor contained herein or any breach by the
Investor of any of the provisions hereof.
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
10. Accredited Investor. Investor is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3)
of the Internal Revenue Code, or a corporation,
limited duration company, limited liability company,
business trust, or partnership not formed for the
specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and
experience in financial and business matters that he
is capable of evaluating the merits and risks of the
prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner
of the issuer of the securities being offered or sold
or a director, executive officer or general partner
of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in
each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation
of reaching the same income level in the current
year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who
could check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify]_____________________________________.
<PAGE>
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct and
that Investor by the following signature(s) executed this Agreement.
Dated this 17th day of October, 2000.
SWARTZ PRIVATE EQUITY, LLC
By: ____________________________________
Eric S. Swartz, Manager
SECURITY DELIVERY INSTRUCTIONS:
-------------------------------
Swartz Private Equity, LLC
C/o Eric S. Swartz
300 Colonial Center Parkway
Suite 300
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING
AMOUNT ON THE 17TH DAY OF OCTOBER, 2000.
TIDELANDS OIL & GAS CORPORATION
By:
Michael R. Ward, President & CEO
Address:
Attn: Michael R. Ward, President & CEO
13330 Leopard Street
Suite 26
Corpus Christi, TX 78410
Telephone (361) 241-2244
Facsimile (361) 241-5292
<PAGE>
ADVANCE PUT NOTICE
TIDELANDS OIL & GAS CORPORATION (the "Company") hereby intends, subject to the
Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to _____________________________, the Investor, as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Swartz
Private Equity, LLC dated on or about October 17, 2000.
Date of Advance Put Notice: _________________
Intended Put Date: __________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
_____________________________________________.
Company Designation Minimum Put Share Price (Optional):
_____________________________________________.
TIDELANDS OIL & GAS CORPORATION
By:
Michael R. Ward, President & CEO
Address:
Attn: Michael R. Ward, President & CEO
13330 Leopard Street
Suite 26
Corpus Christi, TX 78410
Telephone (361) 241-2244
Facsimile (361) 241-5292
<PAGE>
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
TIDELANDS OIL & GAS CORPORATION's (the "Company") Advance Put Notice on the
Advance Put Date written below, and its intention to elect to exercise a Put to
sell shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about October 17, 2000.
Date of Confirmation: _______________________
Date of Advance Put Notice: _________________
Intended Put Date: __________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
_____________________________________________.
Company Designation Minimum Put Share Price (Optional):
_____________________________________________.
INVESTOR(S)
____________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ____________________________________
Facsimile No.: ____________________________________
<PAGE>
EXHIBIT F
PUT NOTICE
TIDELANDS OIL & GAS CORPORATION (the "Company") hereby elects to exercise a Put
to sell shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about October 17, 2000.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
_____________________________________________.
Company Designation Minimum Put Share Price (Optional):
_____________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
TIDELANDS OIL & GAS CORPORATION
By:
Michael R. Ward, President & CEO
Address:
Attn: Michael R. Ward, President & CEO
13330 Leopard Street
Suite 26
Corpus Christi, TX 78410
Telephone (361) 241-2244
Facsimile (361) 241-5292
<PAGE>
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Tidelands Oil & Gas Corporation (the "Company") Put Notice and election to
exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Swartz Private Equity, LLC dated on or about October 17, 2000.
Date of Confirmation: ____________________
Date of Put Notice: _______________
Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
_____________________________________________.
Company Designation Minimum Put Share Price (Optional):
_____________________________________________.
INVESTOR(S)
_____________________________________
Investor's Name
By: _________________________________
(Signature)
Address: _____________________________________
_____________________________________
_____________________________________
Telephone No.: _______________________________________
Facsimile No.: _______________________________________
<PAGE>
EXHIBIT H
PUT CANCELLATION NOTICE
TIDELANDS OIL & GAS CORPORATION (the "Company") hereby cancels the Put specified
below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Swartz Private Equity, LLC dated on
or about October 17, 2000, as of the close of trading on the date specified
below (the "Cancellation Date," which date must be on or after the date that
this notice is delivered to the Investor), provided that such cancellation shall
not apply to the number of shares of Common Stock equal to the Truncated Put
Share Amount (as defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration
Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
TIDELANDS OIL & GAS CORPORATION
By:
Michael R. Ward, President & CEO
Address:
Attn: Michael R. Ward, President & CEO
13330 Leopard Street
Suite 26
Corpus Christi, TX 78410
Telephone (361) 241-2244
Facsimile (361) 241-5292
<PAGE>
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Tidelands Oil & Gas Corporation's, and Swartz
Private Equity, LLC dated on or about October 17, 2000, hereby confirms receipt
of Tidelands Oil & Gas Corporation'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.: _____________________________________
