EXHIBIT 99.2
------------
CONVERTIBLE NOTE PURCHASE
AGREEMENT
DATED AS OF DECEMBER 12, 2000
AMONG
IMAGING TECHNOLOGIES CORPORATION
AND
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Purchase and Sale of Notes......................................................................1
Section 1.1 Purchase and Sale of Notes......................................................................1
Section 1.2 The Conversion Shares...........................................................................1
Section 1.3 Purchase Price and Closing......................................................................1
Section 1.4 Warrants ..............................................................................2
ARTICLE II Representations and Warranties..................................................................2
Section 2.1 Representations and Warranties of the Company...................................................2
(a) Organization, Good Standing and Power..................................................2
(b) Authorization; Enforcement.............................................................3
(c) Capitalization.........................................................................3
(d) Issuance of Shares.....................................................................4
(e) No Conflicts...........................................................................4
(f) Commission Documents, Financial Statements.............................................5
(g) Subsidiaries...........................................................................5
(h) No Material Adverse Change.............................................................6
(i) No Undisclosed Liabilities.............................................................6
(j) No Undisclosed Events or Circumstances.................................................6
(k) Indebtedness...........................................................................6
(l) Title to Assets........................................................................6
(m) Actions Pending........................................................................7
(n) Compliance with Law....................................................................7
(o) Taxes..................................................................................7
(p) Certain Fees...........................................................................7
(q) Disclosure.............................................................................7
(r) Operation of Business..................................................................8
(s) Environmental Compliance...............................................................8
(t) Books and Record Internal Accounting Controls..........................................8
(u) Material Agreements....................................................................9
(v) Transactions with Affiliates...........................................................9
(w) Securities Act of 1933.................................................................9
(x) Governmental Approvals................................................................10
(y) Employees.............................................................................10
(z) Absence of Certain Developments.......................................................10
(aa) Use of Proceeds.......................................................................11
(ab) Public Utility Holding Company Act and
Investment Company Act Status.........................................................11
(ac) ERISA.................................................................................12
(ad) Dilutive Effect.......................................................................12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
TABLE OF CONTENTS (CONT'D)
<S> <C> <C>
Section 2.2 Representations and Warranties of the Purchasers...............................................12
(a) Organization and Standing of the Purchasers...........................................12
(b) Authorization and Power...............................................................12
(c) No Conflicts..........................................................................13
(d) Acquisition for Investment............................................................13
(e) Accredited Purchasers.................................................................13
(f) Rule 144..............................................................................13
(g) General...............................................................................14
ARTICLE III Covenants ..................................................................................14
Section 3.1 Securities Compliance..........................................................................14
Section 3.2 Registration and Listing.......................................................................15
Section 3.3 Inspection Rights 15
Section 3.4 Compliance with Laws...........................................................................15
Section 3.5 Keeping of Records and Books of Account........................................................15
Section 3.6 Reporting Requirements.........................................................................15
Section 3.7 Amendments .............................................................................16
Section 3.8 Other Agreements 16
Section 3.9 Distributions. .............................................................................16
Section 3.10 Intentionally Omitted..........................................................................16
Section 3.11 Intentionally Omitted..........................................................................17
Section 3.12 Future Financings 17
Section 3.13 Reservation of Shares..........................................................................18
Section 3.14 Transfer Agent Instructions....................................................................18
ARTICLE IV Conditions ..................................................................................19
Section 4.1 Conditions Precedent to the Obligation of the Company
to Sell the Shares.............................................................................19
(a) Accuracy of Each Purchaser's Representations and Warranties...........................19
(b) Performance by the Purchasers.........................................................19
(c) No Injunction.........................................................................19
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares............................................................................19
(a) Accuracy of the Company's Representations
and Warranties........................................................................19
(b) Performance by the Company............................................................19
(c) No Suspension, Etc....................................................................19
(d) No Injunction.........................................................................20
(e) No Proceedings or Litigation..........................................................20
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(f) Opinion of Counsel, Etc...............................................................20
(g) Registration Rights Agreement.........................................................20
(h) Certificates..........................................................................20
(i) Resolutions...........................................................................20
(j) Reservation of Shares.................................................................20
(k) Transfer Agent Instructions...........................................................21
(l) Secretary's Certificate...............................................................21
(m) Officer's Certificate.................................................................21
ARTICLE V Registration Rights............................................................................21
ARTICLE VI Certificate Legend.............................................................................21
Section 6.1 Legend.........................................................................................21
ARTICLE VII Termination 22
Section 7.1 Termination by Mutual Consent..................................................................22
Section 7.2 Other Termination 23
Section 7.3 Effect of Termination..........................................................................23
ARTICLE VIII Indemnification 23
Section 8.1 General Indemnity 23
Section 8.2 Indemnification Procedure......................................................................23
ARTICLE IX Miscellaneous24
Section 9.1 Fees and Expenses..............................................................................24
Section 9.2 Specific Enforcement, Consent to Jurisdiction..................................................25
Section 9.3 Entire Agreement; Amendment....................................................................25
Section 9.4 Notices .............................................................................26
Section 9.5 Waivers .............................................................................27
Section 9.6 Headings .............................................................................27
Section 9.7 Successors and Assigns.........................................................................27
Section 9.8 No Third Party Beneficiaries...................................................................27
Section 9.9 Governing Law .............................................................................27
Section 9.10 Survival .............................................................................27
Section 9.11 Counterparts .............................................................................27
Section 9.12. Publicity .............................................................................28
Section 9.13 Severability .............................................................................28
Section 9.14 Further Assurances.............................................................................28
</TABLE>
iii
<PAGE>
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is dated as
of December 12, 2000 by and among Imaging Technologies Corporation, a Delaware
corporation (the "Company"), and each of the Purchasers of the Convertible Notes
of the Company whose names are set forth on Exhibit A hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES
Section 1.1 Purchase and Sale of Notes. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, (i) separate convertible promissory
notes in the aggregate principal amount of $850,000 bearing interest at the rate
of 8% per annum, due December 12, 2003, each convertible into shares of the
Company's Common Stock, par value $.005 per share (the "Common Stock"), in
substantially the form attached hereto as Exhibit B (the "Notes"), and (ii)
Warrants to purchase shares of the Company's Common Stock, in substantially the
form attached hereto as Exhibit C (the "Warrants"). The Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded by Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act") or Section 4(2) of the Securities Act.
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, no less than 150% of the
aggregate number of shares of Common Stock needed to effect the conversion of
the Notes and any interest accrued and outstanding thereon and exercise of the
Warrants. Any shares of Common Stock issuable upon conversion of the Notes and
any interest accrued and outstanding thereon and exercise of the Warrants (and
such shares when issued) are herein referred to as the "Conversion Shares" and
the "Warrant Shares," respectively. The Notes, the Conversion Shares and the
Warrant Shares are sometimes collectively referred to herein as the "Shares."
<PAGE>
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that amount of the
Notes set forth opposite their respective names on Exhibit A for an aggregate
purchase price equal to $850,000. The closing of the purchase and sale of the
Notes and Warrants (the "Closing") to be acquired by the Purchasers from the
Company under this Agreement shall take place at the offices of Parker Chapin
LLP at 10:00 a.m. E.S.T. on the date on which the last to be fulfilled or waived
of the conditions set forth in Article IV hereof and applicable to the Closing
shall be fulfilled or waived in accordance herewith or such other time and place
or on such date as the Purchasers and the Company may agree upon (the "Closing
Date"). The Company acknowledges that a portion of the purchase price of Balmore
Funds, S.A. ("Balmore") pro rata portion of the Notes may be paid by surrender
of a promissory note issued by the Company in favor of Balmore for the principal
amount of $100,000 (the "Prior Note"). On the Closing Date, the Company shall
deliver to the Purchasers the certificates (in such denominations as the
Purchasers shall request) representing the Notes and the Purchasers shall pay by
wire transfer of funds into an account specified by the Company the purchase
price set forth opposite each such Purchaser's name on Exhibit A (which in the
case of Balmore shall be less the principal amount of the Prior Note). In
addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing. This Agreement shall become effective upon the date of execution of
this Agreement by each of the parties hereto, which date shall be no later than
December 31, 2000, unless otherwise agreed upon by the Purchasers and the
Company.
Section 1.4 Warrants. The Company agrees to issue to each of the
Purchasers on the Closing Date the number of Warrants set forth opposite each
Purchaser's name on Exhibit A hereto. The Warrants shall have an exercise price
equal to the Warrant Price (as defined in the Warrant) and shall expire on the
fifth anniversary of the issuance date of such Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth on Schedule 2.1(g) hereto. The Company and each such subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or
-2-
<PAGE>
financial condition of the Company or its subsidiaries and which is material to
such entity or other entities controlling or controlled by such entity.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement attached hereto as Exhibit D (the "Registration
Rights Agreement"), the Transfer Agent Instructions (as defined in Section 3.14
hereof) and the Warrants (collectively, the "Transaction Documents") and to
issue and sell the Shares in accordance with the terms hereof and the Warrants,
as applicable. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The Registration Rights
Agreement will have been duly executed and delivered by the Company at Closing.
Each of the Transaction Documents constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of October
31, 2000 are set forth on Schedule 2.1(c) hereto. All of the outstanding shares
of the Company's Common Stock have been duly and validly authorized. Except as
set forth in this Agreement and the Registration Rights Agreement and as set
forth on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company. Furthermore, except as set forth in this Agreement
and the Registration Rights Agreement and as set forth on Schedule 2.1(c), there
are no contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of the capital stock
of the Company or options, securities or rights convertible into shares of
capital stock of the Company. Except for customary transfer restrictions
contained in agreements entered into by the Company in order to sell restricted
securities or as provided on Schedule 2.1 (c) hereto, the Company is not a party
to any agreement granting registration or anti-dilution rights to any person
with respect to any of its equity or debt securities. The Company is not a party
to, and it has no knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of the Company. Except as set forth on
Schedule 2.1(c) hereto, the offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities laws, and no
stockholder has a right of rescission or damages with respect thereto which
would have a Material Adverse Effect (as defined in Section 2.1(e) herein) on
the Company's financial condition or operating results. The Company has
furnished or made available to the Purchasers true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
-3-
<PAGE>
(d) Issuance of Notes. The Notes to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for
or issued in accordance with the terms hereof, the Notes shall be validly issued
and outstanding, fully paid and nonassessable and free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares and
the Warrant Shares are issued in accordance with the terms of the Notes and the
Warrants, respectively, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated herein and therein do not (i) violate any
provision of the Company's Certificate or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the Notes,
the Conversion Shares and the Warrant Shares in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by the
Company with the Commission or state securities administrators subsequent to the
Closing or any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has
-4-
<PAGE>
delivered or made available to each of the Purchasers true and complete copies
of the Commission Documents filed with the Commission since September 30, 2000.
The Company has not provided to the Purchasers any material non-public
information or other information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective dates, the audited financial statements
as presented in the Commission Documents for the year ended June 30, 2000 (the
"Financial Statement") and the Form 10-Q for the fiscal quarter ended September
30, 2000 (the "Form 10-Q") complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
neither the Financial Statement nor the Form 10-Q referred to above contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such subsidiary. For the purposes of
this Agreement, "subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
-5-
<PAGE>
(h) No Material Adverse Change. Since September 30, 2000, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the Commission, a copy of which is included in
the Commission Documents, the Company has not experienced or suffered any
Material Adverse Effect.
(i) No Undisclosed Liabilities. Neither the Company nor any of
its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its subsidiaries respective businesses since September 30, 2000 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any subsidiary, or for which the Company or any subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $75,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $75,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on Schedule 2.1(k)
hereto, neither the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Except as set forth on Schedule 2.1(k)
hereto, each of the Company and the subsidiaries has good and marketable title
to all of its real and personal property, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those such
that, individually or in the aggregate, do not cause a Material Adverse Effect
on the Company's financial condition or operating results. All said leases of
the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents, there is no action, suit, claim, investigation or proceeding pending
or, to the knowledge of the Company, threatened, against or involving the
Company, any subsidiary or any of their respective properties or assets. Except
as set forth on Schedule 2.1(m) hereto, there are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator
-6-
<PAGE>
or governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such
that would, individually or in the aggregate, have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except such that, individually or in the aggregate, do not cause a
Material Adverse Effect. The Company and each of its subsidiaries have all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(o) Taxes. The Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns required
by law to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or any
subsidiary is subject and which are not currently due and payable. None of the
federal income tax returns of the Company or any subsidiary have been audited by
the Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
pending or threatened against the Company or any subsidiary for any period, nor
of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary or any Purchaser with respect to the
transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
(r) Operation of Business. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations and all
rights with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person,
-7-
<PAGE>
that are required under any Environmental Laws. No material permits, licenses
and other authorizations have been issued under any Environmental Laws to the
Company or its subsidiaries. "Environmental Laws" shall mean all applicable laws
relating to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance. "Environmental
Liabilities" means all liabilities of a person (whether such liabilities are
owed by such person to governmental authorities, third parties or otherwise)
whether currently in existence or arising hereafter which arise under or relate
to any Environmental Law.
(t) Books and Records Internal Accounting Controls. The
records and documents of the Company and its subsidiaries accurately reflect in
all material respects the information relating to the business of the Company
and the subsidiaries, the location and collection of their assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any subsidiary. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient, in the judgment of
the Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. Except as set forth on Schedule
2.1(u) hereto, neither the Company nor any subsidiary is a party to any written
or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or applicable form
(collectively, "Material Agreements") if the Company or any subsidiary were
registering
-8-
<PAGE>
securities under the Securities Act. The Company and each of its subsidiaries
has in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge are not in default
under any Material Agreement now in effect, the result of which could cause a
Material Adverse Effect. No written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Notes, its
preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Commission Documents and as set forth on Schedule 2.1(v) hereto, there are no
loans, leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions exceeding $100,000 between (a)
the Company, any subsidiary or any of their respective customers or suppliers on
the one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its subsidiaries, or any person owning any
capital stock of the Company or any subsidiary or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will
comply with all applicable Federal and state securities laws in connection with
the offer, issuance and sale of the Notes and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy the Notes, the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, or
has taken or will take any action so as to bring the issuance and sale of the
Notes and the Warrants under the registration provisions of the Securities Act
and applicable state securities laws. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Notes and the Warrants.
(x) Governmental Approvals. Except for the filing of any
notice prior or subsequent to the Closing that may be required under applicable
state and/or Federal securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or statements
pursuant to the Registration Rights Agreement, no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Notes, or for the performance by the Company of its
obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Neither the Company nor any subsidiary has any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
-9-
<PAGE>
consultant to be employed or engaged by the Company or such subsidiary. Since
September 30, 2000, no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as set forth on
Schedule 2.1(z) hereto, since September 30, 2000, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
-10-
<PAGE>
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Notes
will be used by the Company for working capital and general corporate purposes.
(ab) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Notes will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Notes and
the Warrant Shares
-11-
<PAGE>
issuable upon exercise of the Warrants will increase in certain circumstances.
The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Notes in accordance with this Agreement and its
obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Notes being sold to it hereunder. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action (if the
Purchaser is an entity), and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required. Each of this Agreement and the Registration Rights Agreement
has been duly authorized, executed and delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Purchaser
is a party, or result in a violation of any law, rule, or regulation, or any
order, judgment or decree of any court or governmental agency applicable to such
Purchaser or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on such Purchaser). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement, or
relating hereto or thereto, or to purchase the Notes in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing
the Notes and acquiring the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with
distribution. Such Purchaser does not have a present
-12-
<PAGE>
intention to sell the Notes or the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Notes or
the Warrants to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(f) below, such
Purchaser does not agree to hold the Notes or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Notes or the
Warrants at any time in accordance with Federal securities laws applicable to
such disposition. Such Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Notes or the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act and is
a resident of the jurisdiction indicated on Exhibit A hereto.
(f) Rule 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such person will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) General. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.
ARTICLE III
COVENANTS
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of each of the Purchasers and their permitted
assignees (as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, and shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Notes and the Warrant Shares to the Purchasers
or subsequent holders.
-13-
<PAGE>
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Notes.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the over-the-counter electronic bulletin board or
any successor market.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Notes or shall beneficially own any
Notes, or shall own Conversion Shares which, in the aggregate, represent more
than 2% of the total combined voting power of all voting securities then
outstanding, to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any subsidiary, and to discuss the
affairs, finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
following to each Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Notes or shall beneficially own any Notes, or shall
own Conversion Shares which, in the aggregate, represent more than 2% of the
total combined voting power of all voting securities then outstanding, provided,
however, that the Company shall not be obligated to furnish the following, if
the following reports have been filed by the Company with the Commission
pursuant to the Commission's "electronic data gathering and retrieval" (EDGAR)
service:
-14-
<PAGE>
(a) Quarterly Reports filed with the Commission on Form 10-Q
as soon as available, and in any event within 45 days after the end of each of
the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
provision of the Certificate or Bylaws of the Company, or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
holders of the Notes.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.
Section 3.9 Distributions. So long as any Notes remain outstanding, the
Company agrees that it shall not (i) declare or pay any dividends or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.
Section 3.10 Intentionally Omitted.
Section 3.11 Intentionally Omitted.
Section 3.12 Future Financings. The Company covenants and agrees that
during the period from the Closing Date through the 180th day immediately
following the effective date of the Registration Statement (as such term is
defined in the Registration Rights Agreement), the Company shall not, without
the written consent of each of the Purchasers, offer, sell or issue: (a)(i) any
shares of Common Stock or (ii) any securities convertible or exchangeable into
Common Stock based on variable or fixed rates of conversion, which provide for a
mechanism allowing for (1) a reset of the purchase price, exchange price or
conversion price, as applicable, of the security or (2) any adjustment of the
number of shares of Common Stock issuable upon conversion, exercise, exchange or
otherwise, as applicable, of such security based on the conversion of the Notes
or exercise of the Warrants; (b) any shares of Common Stock issued at a discount
to the then current market price of the Common Stock as quoted on the
over-the-counter bulletin board (the "OTC Bulletin Board") or any registered
national stock exchange or market on which the Common Stock is listed (or on the
"Pink Sheet" quotes, if the Common Stock is not listed on the OTC Bulletin Board
or any registered national stock exchange or market) (the "Applicable Trading
Market"); or (c) any securities convertible or exchangeable into Common
-15-
<PAGE>
Stock based on variable or fixed rates of conversion, convertible or
exchangeable into shares of Common Stock at a discount to the then current
market price of the Common Stock as quoted on the Applicable Trading Market (the
"Subsequent Financing") other than a Permitted Financing. For purposes of this
Section 3.12, a "Permitted Financing" shall mean (x) shares of Common Stock to
be issued pursuant to the Private Equity Line of Credit Agreement, dated July 5,
2000, by and among certain investors and the Company and (y) shares of Common
Stock to be issued pursuant to the Private Equity Line of Credit Agreement,
dated November __, 2000, by and among certain investors and the Company.
Section 3.13 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized, and reserved for the purpose of issuance, no less
than 150% of the aggregate number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit E
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers 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 3.14 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or 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.
-16-
<PAGE>
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Notes. The obligation hereunder of the Company to issue and sell the
Notes and the Warrants to the Purchasers is subject to the satisfaction or
waiver, at or before the Closing Date, of each of the conditions set forth
below. These conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Notes. The obligation hereunder of each Purchaser to acquire and
pay for the Notes and the Warrants is subject to the satisfaction or waiver, at
or before the Closing Date, of each of the conditions set forth below. These
conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a particular date), which shall be true and correct in all material
respects as of such date.
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of limited duration agreed to
by the Company, which suspension shall
-17-
<PAGE>
be terminated prior to the Closing Date), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on,
or any material adverse change in any financial market which, in each case, in
the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Notes.
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(f) Opinion of Counsel, Etc. At the Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of the
Closing, in the form of Exhibit F hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
the Closing.
(g) Registration Rights Agreement. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(h) Certificates. The Company shall have executed and
delivered to each Purchaser, the certificates (in such denominations as such
Purchaser shall request) for the Notes and the Warrants being purchased by such
Purchaser at the Closing.
(i) Resolutions. Prior to the Closing Date, the Board of
Directors of the Company shall have adopted resolutions consistent with Section
2.1(b) above in a form reasonably acceptable to such Purchaser (the
"Resolutions").
(j) Reservation of Shares. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Notes and the exercise of the
Warrants, a number of shares of Common Stock equal to at least 150% of the
aggregate number of Conversion Shares issuable upon conversion of the Notes
outstanding on the Closing Date and the number of Warrant Shares issuable upon
exercise of the Warrants assuming such Warrants were granted on the Closing Date
(after giving effect to the Notes and the Warrants to be issued on the Closing
Date and
-18-
<PAGE>
assuming all such Notes and Warrants were fully convertible or exercisable on
such date regardless of any limitation on the timing or amount of such
conversions or exercises).
(k) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(l) Secretary's Certificate. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(m) Officer's Certificate. At the Closing, the Company shall
have delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of the Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of the Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of such Closing Date.
ARTICLE V
REGISTRATION RIGHTS
At the Closing, the Company and the Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit D.
ARTICLE VI
CERTIFICATE LEGEND
Section 6.1 Legend. Each certificate representing the Notes and the
Warrants and, if appropriate, securities issued upon conversion and exercise
thereof, shall be stamped or otherwise imprinted with a legend substantially in
the following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR IMAGING
TECHNOLOGIES CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT
-19-
<PAGE>
AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
The Company agrees to reissue certificates representing the Notes and
the Warrants, without the legend set forth above if at such time, prior to
making any transfer of any Notes, Warrants, Conversion Shares or Warrant Shares,
such holder thereof shall give written notice to the Company describing the
manner and terms of such transfer and removal as the Company may reasonably
request. Such proposed transfer will not be effected until: (a) the Company has
notified such holder that either (i) in the opinion of Company counsel, the
registration of such Notes, Warrants, Conversion Shares or Warrant Shares under
the Securities Act is not required in connection with such proposed transfer; or
(ii) a registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act; and (b) the Company has notified such holder
that either: (i) in the opinion of Company counsel, the registration or
qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected. The Company
will use its best efforts to respond to any such notice from a holder within 10
days. In the case of any proposed transfer under this Section 6, the Company
will use reasonable efforts to comply with any such applicable state securities
or "blue sky" laws, but shall in no event be required, in connection therewith,
to qualify to do business in any state where it is not then qualified or to take
any action that would subject it to tax or to the general service of process in
any state where it is not then subject. The restrictions on transfer contained
in Section 6.1 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
Section 7.2 Other Termination. This Agreement may be terminated by the
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the Closing shall not have been consummated by
November __, 2000, as long as the failure to so consummate is not the fault of
the terminating party.
Section 7.3 Effect of Termination. In the event of termination by the
Company or any one or more of the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement and the Registration Rights Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 7.1 or 7.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 9.1 and 9.2, and Article VIII herein.
Nothing in this Section 7.3 shall be deemed to release the Company or any
Purchaser from any liability for any breach under
-20-
<PAGE>
this Agreement or the Registration Rights Agreement, or to impair the rights of
the Company and the Purchasers to compel specific performance by the other party
of its obligations under this Agreement and the Registration Rights Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within 30 days of receipt of any indemnification notice to
notify, in writing, such person of its election to defend, settle or compromise,
at its sole cost and expense, any action, proceeding or claim (or discontinues
its defense at any time after it commences such defense), then the indemnified
party may, at its option, defend, settle or otherwise compromise or pay such
action or claim. In any event, unless and until the indemnifying party elects in
writing to assume and does so assume the defense of any such claim, proceeding
or action, the indemnified party's costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall
be losses subject to indemnification hereunder. The indemnified party shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
indemnified party which relates to such action or claim. The indemnifying party
shall keep the indemnified party fully apprised at all times as to the status of
the defense or any
-21-
<PAGE>
settlement negotiations with respect thereto. If the indemnifying party elects
to defend any such action or claim, then the indemnified party shall be entitled
to participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. In addition,
the Company shall pay all reasonable fees and expenses incurred by the
Purchasers in connection with the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement), any amendments, modifications or waivers of this Agreement or any of
the other Transaction Documents or incurred in connection with the enforcement
of this Agreement and any of the other Transaction Documents, including, without
limitation, all reasonable attorneys fees and expenses. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Notes pursuant hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
-22-
<PAGE>
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Any suit, action or proceeding arising out of or
relating to this Agreement or the Registration Rights Agreement brought by
either the Company or the Purchasers shall be brought in the jurisdiction of the
United States District Court sitting in the Southern District of New York. Each
of the Company and the Purchasers consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 9.2 shall affect or limit any right to serve
process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents,
neither the Company nor any of the Purchasers makes any representations,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by a written instrument
signed by the Company and the holders of at least two-thirds (2/3) of the Notes
then outstanding, and no provision hereof may be waived other than by an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Notes then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to
the Transaction Documents or holders of Notes, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Imaging Technologies Corporation
15175 Innovation Drive
San Diego, California 92128
Attention: Chief Executive Officer
Telephone No.: (858) 613-1300
Facsimile No.: (858) 207-6505
-23-
<PAGE>
with copies (which copies
shall not constitute notice
to the Company) to: General Counsel
Imaging Technologies Corporation
15175 Innovation Drive
San Diego, California 92128
Telephone No.: (858) 613-1300
Facsimile No.: (858) 207-6505
If to any Purchaser: At the address of such
Purchaser set forth on Exhibit A to this
Agreement.
with copies (which copies
shall not constitute notice
to the Company) to: Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Christopher S. Auguste, Esq.
Telephone No.: (212) 704-6230
Facsimile No.: (212) 704-6288
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
-24-
<PAGE>
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closing
until the date three (3) years from the Closing Date, and the agreements and
covenants set forth in Article I, III, V, VII, VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder until
the Purchasers in the aggregate beneficially own (determined in accordance with
Rule 13d-3 under the Exchange Act) less than 2% of the total combined voting
power of all voting securities then outstanding, provided, that Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.12, 3.13, and 3.14 shall not expire until the
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional executed signature pages to be physically
delivered to the other parties within five (5) days of the execution and
delivery hereof.
Section 9.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers, which consent shall not be unreasonably
withheld, or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement and the
Registration Rights Agreement are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Registration Rights
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement or the Registration
Rights Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Notes, the Conversion Shares, the Warrants, the Warrant Shares and the
Registration Rights Agreement.
-25-
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
IMAGING TECHNOLOGIES CORPORATION
By:
------------------------------------
Name:
Title:
AMRO INTERNATIONAL, S.A
By:
------------------------------------
Name:
Title:
BALMORE FUNDS, S.A.
By:
------------------------------------
Name:
Title:
CELESTE TRUST REG
By:
------------------------------------
Name:
Title:
-27-
<PAGE>
EXHIBIT A
PURCHASERS / NUMBER OF NOTES AND WARRANTS
NAMES AND RESIDENCE NUMBER OF NOTES DOLLAR AMOUNT
OF PURCHASER AND WARRANTS PURCHASED OF INVESTMENT
------------------- ---------------------- -------------
AMRO INTERNATIONAL, S.A. $375,000
c/o Ultra Finance
Grossmuenster Platz, #6
Zurich, Switzerland CN822
BALMORE FUNDS, S.A. $287,500
c/o Trident Chambers
P.O. Box 146
Roadstown Tortola, BVI
CELESTE TRUST REG $187,500
Trevisa - Treuhand - Anstalt
Landstrase 8
9496 Furtentums
Balzers Lichenstein
-28-
<PAGE>
EXHIBIT B
FORM OF CONVERTIBLE PROMISSORY NOTE
-29-
<PAGE>
EXHIBIT C
FORM OF WARRANT
-30-
<PAGE>
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
-31-
<PAGE>
EXHIBIT E
FORM OF TRANSFER AGENT INSTRUCTIONS
-32-
<PAGE>
EXHIBIT F
FORM OF OPINION
-33-
