<PAGE>
EXHIBIT 10.1
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
CHEQUEMATE INTERNATIONAL, INC.
AND
PALADIN TRADING COMPANY LIMITED
Dated as of August 31, 2000
4
<PAGE>
PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 31st day of
August, 2000 (this "AGREEMENT"), by and between PALADIN TRADING COMPANY LIMITED,
a corporation organized and existing under the laws of The Bahamas ("INVESTOR"),
and CHEQUEMATE INTERNATIONAL, INC., a corporation organized and existing under
the laws of the State of Utah (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to Fifteen
Million Dollars ($15,000,000) of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and Regulation D,
and the rules and regulations promulgated thereunder (the "SECURITIES ACT"),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings specified or indicated (such meanings to be
equally applicable to both the singular and plural forms of the terms defined)
"AGREEMENT" shall have the meaning specified in the preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common Stock on
the Principal Market.
"BLACKOUT NOTICE" shall have the meaning specified in the Registration
Rights Agreement.
"BLACKOUT SHARES" shall have the meaning specified in Section 2.6
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
5
<PAGE>
"CLAIM NOTICE" shall have the meaning specified in Section 9.3(a).
"CLOSING" shall mean one of the closings of a purchase and sale of
shares of Common Stock pursuant to Section 2.3.
"CLOSING DATE" shall mean, with respect to a Closing, the eleventh
(11th) Day following the Put Date related to such Closing, or such earlier date
as the Company and Investor shall agree, provided all conditions to such Closing
have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the earlier to
occur of (a) the Effective Date or (b) such earlier date as the Company and
Investor shall agree, and expiring on the earlier to occur of (i)the date on
which Investor shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of the Maximum Commitment Amount, (ii)the date this
Agreement is terminated pursuant to Section 2.5, or (iii) the date occurring
eighteen (18) months from the date of commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, par value $.0001
par value per share, and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in the distribution
of dividends (as and when declared) and assets (upon liquidation of the
Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in
Section 7.2.
"DAMAGES" shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
"DISCOUNT" shall mean fifteen percent (15%).
"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
6
<PAGE>
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering resale of the Registrable
Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of1934 and the
rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).
"INITIAL REGISTRABLE SECURITIES" shall have the meaning specified in
the Registration Rights Agreement.
"INITIAL REGISTRATION STATEMENT" shall have the meaning specified in
the Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within the range
specified in Section 2.2) to be invested by Investor to purchase Put Shares with
respect to any Put Date as notified by the Company to Investor in accordance
with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of the lowest
Bid Prices (not necessarily consecutive) for any three (3) Trading Days during
the ten (10) trading day period immediately following the Put Date.
"MINIMUM COMMITMENT AMOUNT" shall mean Four Million Dollars
($4,000,000).
"MAXIMUM COMMITMENT AMOUNT" shall mean Fifteen Million Dollars
($15,000,000), subject to increase as agreed to by the Company and Investor.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the
7
<PAGE>
ability of the Company to enter into and perform its obligations under any of
(a) this Agreement and (b) the Registration Rights Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, the lesser
of (a) Two Million Dollars ($2,000,000), or (b) one hundred fifty (150%) percent
of the Weighted Average Volume for the fifteen (15) trading days immediately
preceding the Put Date and the Closing Date, subject to adjustment as agreed by
the Company and the Investor.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Two Hundred
Fifty Thousand Dollars ($250,000), subject to decrease as agreed to by the
Company and Investor.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NEW BID PRICE" shall have the meaning specified in Section 2.6.
"OLD BID PRICE" shall have the meaning specified in Section 2.6.
"OUTSTANDING" shall mean, with respect to the Common Stock, at any
date as of which the number of shares of Common Stock is to be determined, all
issued and outstanding shares of Common Stock, including all shares of Common
Stock issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock; provided, however, that
Outstanding shall not include any shares of Common Stock then directly or
indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq
SmallCap Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
"PURCHASE PRICE" shall mean, with respect to a Put, the Market Price
on the applicable Closing Date (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this Agreement)
less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to exercise its
right to tender a Put Notice requiring Investor to purchase shares of Common
Stock, subject to the terms and conditions of this
8
<PAGE>
Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment Period
that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice, substantially in the form of
Exhibit B hereto, to Investor setting forth the Investment Amount with respect
to which the Company intends to require Investor to purchase shares of Common
Stock pursuant to the terms of this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued or issuable
pursuant to a Put that has been exercised or may be exercised in accordance with
the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the (a) Put Shares, (b) the
Blackout Shares and (c) any securities issued or issuable with respect to any of
the foregoing by way of exchange, stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
Registration Statement has been declared effective by the SEC and such
Registrable Securities have been disposed of pursuant to a Registration
Statement, (ii) such Registrable Securities have been sold under circumstances
under which all of the applicable conditions of Rule 144 are met, (iii) such
time as such Registrable Securities have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) in the opinion of counsel to
the Company, which counsel shall be reasonably acceptable to Investor, such
Registrable Securities may be sold without registration under the Securities
Actor the need for an exemption from any such registration requirements and
without any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration rights
agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement on Form
S-3 (if use of such form is then available to the Company pursuant to the rules
of the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate
and which form shall be available for the resale of the Registrable Securities
to be registered thereunder in accordance with the provisions of this Agreement
and the Registration Rights Agreement and in accordance with the intended method
of distribution of such securities), for the registration of the resale by
Investor of the Registrable Securities under the Securities Act.
"REGULATION D" shall have the meaning specified in the
9
<PAGE>
recitals of this Agreement.
"REMAINING PUT SHARES" shall have the meaning specified in Section
2.6.
"RULE 144" shall mean Rule 144 under the Securities Act or any similar
provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals of
this Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals of
this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and
other documents file by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since the beginning of the Company's then most recently completed
fiscal year as of the time in question (provided that if the date in question is
within ninety days of the beginning of the Company's fiscal year, the term shall
include all documents filed since the beginning of the second preceding fiscal
year).
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is
executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in Section
9.3(a).
"TRADING CUSHION" shall mean a minimum of fifteen (15) Trading Days
between Put Dates, unless a shorter period is agreed to by the Company and
Investor.
"TRADING DAY" shall mean any day during which the Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means the Private Equity Credit Agreement, the
Registration Rights Agreement, the Warrant, Closing Certificate, and the
Transfer Agent Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common Stock
(and to any substitute or replacement transfer agent for the Common Stock upon
the Company's appointment of any such substitute or replacement transfer agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to a
Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company
10
<PAGE>
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any other
distribution of shares of Common Stock, except for dividends
paid with respect to the Preferred Stock;
(c) issues any warrants, options or other rights to subscribe
for or purchase shares of Common Stock and the price per
share for which shares of Common Stock may at any time
thereafter be issuable pursuant to such warrants, options or
other rights shall be less than the Bid Price in effect
immediately prior to such issuance
(d) issues any securities convertible into or exchangeable for
shares of Common Stock and the consideration per share for
which shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than as provided in
the foregoing subsections (a) through (d), at a price per
share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or
without consideration;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend in
liquidation or by way of return of capital or other than as
a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Common
Stock, other than an action described in any of the
foregoing subsections (a) through (f) hereof, inclusive,
which in the opinion of the Company's Board of Directors,
determined in good faith, would have a materially adverse
effect upon the rights of Investor at the time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days
immediately following the date on which the applicable Put Notice is deemed to
be delivered and during which the Purchase Price of the Common Stock is valued;
provided, however, that if a Valuation Event
11
<PAGE>
occurs during any Valuation Period, a new Valuation Period shall begin on the
Trading Day immediately after the occurrence of such Valuation Event and end on
the tenth (10th) Trading Day thereafter.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the product of (a)
the Bid Price times (b) the volume on the Principal Market for the relevant
days.
"WEIGHTED VOLUME" shall mean the product of (a) the Closing Bid Price
times (b) the volume on the Principal Market.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII), on any Put Date the Company
may exercise a Put by the delivery of a Put Notice. The number of Put Shares
that Investor shall receive pursuant to such Put shall be determined by dividing
the Investment Amount specified in the Put Notice by the Purchase Price with
respect to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in accordance with
Section 2.2(a), deliver to Investor during the Commitment Period, Put Notices
with an aggregate Investment Amount at least equal to the Minimum Commitment
Amount. If the Company for any reason fails to issue and deliver such Put Shares
during the Commitment Period, on the first Trading Day after the expiration of
the Commitment Period, the Company shall wire to Investor a sum in immediately
available funds equal to the product of (i) the Minimum Commitment Amount minus
the aggregate Investment Amounts of the Put Notices delivered to Investor
hereunder and (ii) the Discount.
(c) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the requisite
approval of its shareholders in accordance with the corporate laws of the State
of Utah and the applicable rules of the Principal Market, no more than 2,043,000
shares of Common Stock (representing approximately 19.9% of the Outstanding
Common Stock on the date hereof) may be issued and sold to Investor pursuant to
this Agreement.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company
may deliver a Put Notice to Investor, subject to the conditions set forth in
Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall
12
<PAGE>
be deemed delivered on (i) the Trading Day it is received by facsimile or
otherwise by Investor if such notice is received on or prior to 12:00 noon New
York time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon New York time on a Trading Day or at
anytime on a day which is not a Trading Day.
Section 2.3 (i) CLOSINGS. On or prior to each Closing Date for a Put, (a)
the Company shall deliver to Escrow Agent one or more certificates, at
Investor's option, representing the Put Shares to be purchased by Investor
pursuant to Section 2.1 herein, registered in the name of Investor and (b)
Investor shall deliver to the Escrow Agent the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to an account
designated by the Escrow Agent on or before the Closing Date. In lieu of
delivering physical certificates representing the Common Stock issuable in
accordance with clause (a) of this Section 2.3, and provided that the Transfer
Agent then is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST")program, upon request of Investor, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit, prior to the Closing Date, the Put Shares by
crediting the account of the holder's prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system, and provide proof satisfactory to
the Escrow Agent of such delivery. In addition, on or prior to such Closing
Date, each of the Company and Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. On the Closing Date and provided
all conditions to Closing have been satisfied by the Company, the Escrow agent
shall wire transfer to the Company, the Investment Amount, less any applicable
fees and expenses.
Section 2.4 WARRANTS. The Company agrees to issue to Investor on each
Closing Date, transferable divisible warrants (the "Warrants"), to purchase
shares of Common Stock equal to twenty percent (20%) percent of the number of
Shares purchased under the relevant Put Notice. Such Warrants (substantially in
the form of Exhibit F), shall bear an exercise price per share of Common Stock
equal to one hundred twenty (120%) of the Market Price with respect to such
relevant Put, and shall be exercisable immediately upon issuance, and for a
period of five (5) years thereafter, together with cashless exercise and
registration rights under the Registration Rights Agreement.
Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The obligation of
Investor pursuant to this Agreement to purchase shares of Common Stock shall
terminate permanently (including with respect to a Closing Date that has not yet
occurred)in the event that (a) there shall occur any stop order or suspension of
the effectiveness of any Registration Statement for an aggregate of thirty
(30) Trading Days during the Commitment Period, for any reason other than
deferrals or suspension during a Blackout Period in accordance with the
Registration Rights Agreement, as a result of corporate developments subsequent
to the
13
<PAGE>
Subscription Date that would require such Registration Statement to be amended
to reflect such event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (b) the Company shall at any time fail to
comply with the requirements of Section 6.3, 6.4, 6.5 or 6.6 and such failure
shall continue for more than thirty (30) days.
Section 2.6 BLACKOUT SHARES. In the event that, (a) within fifteen (15)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("OLD BID PRICE") is greater than the Bid Price on the first
Trading Day following such Blackout Period that Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("NEW BID
PRICE"), then the Company shall issue to Investor the number of additional
shares of Registrable Securities (the "BLACKOUT SHARES") equal to the difference
between (i) the product of the number of Put Shares held by Investor immediately
prior to the Blackout Period that were issued on the most recent Closing
Date (the "REMAINING PUT SHARES") multiplied by the Old Bid Price, divided by
the New Bid Price, and (ii) the Remaining Put Shares.
Section 2.7 MINIMUM COMMITMENT. If the Company for any reason fails to
issue and deliver such Put Shares equal to or exceeding the Minimum Commitment
Amount during the Commitment Period, then on the first business day after the
expiration of the Commitment Period, the Company shall issue to the Investor
warrants to purchase a number of shares equal to the Minimum Commitment Amount
divided by the Bid Price. Such warrants shall be for the period of four (4) four
years, shall have cashless exercise provisions, and shall be deemed shares under
the Registration Rights Agreement annexed hereto, and shall be exercisable at a
price equal to sixty (60%) percent of the Bid Price.
Section 2.8 LIQUIDATED DAMAGES. Each of the Company and Investor
acknowledge and agree that the sums payable under Section 2.1(b) and Section 2.7
and the requirement to issue Blackout Shares under Section 2.6 shall give rise
to liquidated damages and not penalties. Each of the Company and Investor
further acknowledge that (a) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by Investor in
connection with the failure by the Company to make Puts with aggregate Purchase
Prices totaling at least the Minimum Commitment Amount or in connection with a
Blackout Period under the Registration Rights Agreement, and (c) each of the
Company and Investor are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
14
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its own
account and Investor has no present arrangement (whether or not legally binding)
at any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, Investor does not
agree to hold the Common Stock for any minimum or other specific term and
reserves the right to dispose of the Common Stock at any time in accordance with
federal and state securities laws applicable to such disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk.
Section 3.3 AUTHORITY. (a) Investor has the requisite power and authority
to enter into and perform its obligations under this Agreement and the
transactions contemplated hereby in accordance with its terms; (b) the execution
and delivery of this Agreement and the Registration Rights Agreement, and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action and no further consent or authorization
of Investor or its partners is required; and (c) this Agreement has been duly
authorized and validly executed and delivered by Investor and is a valid and
binding agreement of Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited liability
company duly organized, validly existing and in good standing under the laws of
the Bahamas, and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Investor 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, other than those in which the
failure so to qualify would not have a material adverse effect on Investor.
15
<PAGE>
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, and compliance
with the requirements hereof and thereof, will not (a) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investor, (b) violate any provision of any indenture, instrument or agreement to
which Investor is a party or is subject, or by which Investor or any of its
assets is bound, or conflict with or constitute a material default thereunder,
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party, or (d) require the approval
of any third-party (that has not been obtained) pursuant to any material
contract, instrument, agreement, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor has
reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the financial
capacity and the necessary capital to perform its obligations hereunder and
shall and has provided to the Company such financial and other information that
the Company has requested to demonstrate such capacity.
Section 3.10 (a) OFFSHORE TRANSACTION.
(i) Investor is not a U.S. person as that term is defined under
Regulation S of the Rules and Regulations of the Securities
Exchange Act.
(ii) Investor is outside the United States as of the date of the
execution and delivery of this Agreement.
(iii) Investor is purchasing the Put Shares for its own account
and not on behalf of any U.S. person, and has not
pre-arranged any sale with purchaser in the United States.
(iv) Investor represents and warrants and hereby agrees that all
offers and sales of the Common Stock prior to the
expiration of a period commencing on the date of the
transaction and ending after the
16
<PAGE>
Distribution Compliance Period shall only be made in
compliance with the safe harbor contained in Regulation S,
pursuant to registration of securities under the Securities
Act of 1933 or pursuant to an exemption from registration,
and all offers and sales after the expiration of the
Distribution Compliance Period shall be made only pursuant
to such registration or to such exemption from registration.
(v) Investor understands that in the view of the SEC the
statutory basis for the exemption claimed for this
transaction would not be present if the offering of
Securities, although in technical compliance with Regulation
S, is part of a plan or scheme to evade the registration
provisions of the 1933 Act. Investor is acquiring the
Securities for investment purposes and has no present
intention to sell the Shares in the United States or to a
U.S. Person or for the account or benefit of a U.S. Person
either now or after the expiration of the Distribution
Compliance Period.
(vi) Investor is not an underwriter of, or dealer in, the
Securities, and Investor is not participating, pursuant to a
contractual agreement, in the distribution of Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that, except as disclosed
in the SEC Documents:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Utah, and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company does
not own more than fifty percent (50%) of the outstanding capital stock of or
control any other business entity. The Company 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, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement and
the Registration Rights Agreement and to issue
17
<PAGE>
the Put Shares and the Blackout Shares, if any; (b) the execution and delivery
of this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (c) each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 4.3 CAPITALIZATION. As of August 17, 2000, the authorized capital
stock of the Company consisted of 500,000,000 shares of Common Stock, of which
10,246,357 shares were issued and outstanding. Except for (a) options to
purchase 2,332,137 shares of Common Stock with exercise prices ranging between
$0.04 and $28.00 per share; (b) warrants to purchase 200,542 shares of Common
Stock with an exercise price of $6.252 to $8.00 per share, (c) warrants to
purchase shares of Common Stock as set forth in Section 2.4, and (d) the
contractual obligations listed in Schedule 5(b), there were no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of the Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date of this Agreement, the Principal Market is the American
Stock Exchange. The Company meets the registration requirements for filing of
Form S-3.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available to
Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were
18
<PAGE>
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form and substance in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) 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 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).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The sale and
issuance of the Put Shares and the Blackout Shares, if any, in accordance with
the terms and on the bases of the representations and warranties set forth in
this Agreement, may and shall be properly issued by the Company to Investor
pursuant to Section 4(2), Regulation D and/or any applicable state law. When
issued and paid for as herein provided, the Put Shares, and the Blackout Shares,
if any, shall be duly and validly issued, fully paid, and nonassessable. Neither
the sales of the Put Shares or the Blackout Shares, if any, pursuant to, nor the
Company's performance of its obligations under, this Agreement or the
Registration Rights Agreement shall (a) result in the creation or imposition of
any liens, charges, claims or other encumbrances upon the Put Shares or the
Blackout Shares, if any, or any of the assets of the Company, or (b) entitle the
holders of Outstanding Common Stock to preemptive or other rights to subscribe
to or acquire the Common Stock or other securities of the Company. The Put
Shares and the Blackout Shares, if any, shall not subject Investor to personal
liability by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares or the Blackout Shares, if
any, or (b) made any offers or sales of any security or solicited any offers to
buy any security under any circumstances that would require registration of the
Common Stock under the Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to Investor true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the"CERTIFICATE"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the
19
<PAGE>
Company of the transactions contemplated hereby, including without limitation
the issuance of the Put Shares and the Blackout Shares, if any, do not and will
not (a) result in a violation of the Certificate or By-Laws or (b) conflict
with, or constitute a material default (or an event that with notice or lapse
of time or both would become a material default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (c) result in a violation of any federal, state, local or foreign
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations)applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a
Material Adverse Effect) nor is the Company otherwise in violation of,
conflict with or in default under any of the foregoing; provided, however,
that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (c), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly 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
this Agreement or issue and sell the Common Stock in accordance with the
terms hereof (other than any SEC, NASD or state securities filings that may be
required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock
trades on the Nasdaq National Market); 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 Investor
herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since July 1, 1999, no event has
occurred that would have a Material Adverse Effect on the Company, except as
disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since March 1,
1999 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on
20
<PAGE>
the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since July 1, 1999, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may beset forth in
the SEC Documents, there are no lawsuits or proceedings pending or to the best
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares or the Blackout Shares, if any, in
connection with the transactions contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to Investor, any
material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect on the price of the Common Stock
or (b) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
Section 4.17.
a. OFFSHORE TRANSACTION. The Company has not offered these
securities to any person in the United States or to any U.S. person as that term
is defined in Regulation S.
21
<PAGE>
b. NO DIRECTED SELLING EFFORTS. In regard to this transaction, the
Company has not conducted any "direct selling efforts" as that term is defined
in Rule 902 of Regulation S nor has Company conducted any general solicitation
relating to the offer and the sale of the within securities to persons resident
within the United States or elsewhere.
c. FILINGS. The Company undertakes and agrees pursuant to the sale
of its securities under Regulation S to make all necessary filings in connection
with the sale of its securities as required by the laws and regulations of all
appropriate jurisdictions.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with respect
to shares of the Common Stock will be in compliance with all applicable state
and federal securities laws, rules and regulations and the rules and regulations
of the NASD and the Principal Market on which the Common stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has available and the Company shall reserve and keep available at all times,
free of preemptive rights, shares of Common Stock for the purpose of enabling
the Company to satisfy any obligation to issue the Put Shares, the Warrant
Shares and the Blackout Shares, if any; such amount of shares of Common Stock to
be reserved shall be calculated based upon a [minimum Purchase Price of $0.75
(50% of current Price)] for the Put Shares under the terms and conditions of
this Agreement and a good faith estimate by the Company in consultation with
Investor of the number of Blackout Shares, if any, that will need to be issued.
The number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares actually
delivered hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall maintain the listing
of the Common Stock on a Principal Market, and will cause the Put Shares and the
Blackout Shares, if any, to be listed on the Principal Market. The Company
further shall, if the Company applies to have the Common Stock traded on any
other Principal Market, include in such application the Put Shares and the
Blackout Shares, if any, and
22
<PAGE>
shall take such other action as is necessary or desirable in the reasonable
opinion of Investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company shall use its commercially
reasonable efforts to continue the listing and trading of the Common Stock on
the Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all
commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the rules
thereunder)to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put Shares and the
Blackout Shares, if any, shall be free of legends, except as provided for in
Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
the Company.
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to
Investor, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT. The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (a)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of
23
<PAGE>
any changes in the registration statement, related prospectus or documents so
that, in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (e) the Company's
reasonable determination that a post-effective amendment to the registration
statement would be appropriate, and the Company shall promptly make available to
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to Investor any Put Notice during the continuation of any of
the foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days after
the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify Investor
as to its reasonable expectations as to the dollar amount it intends to raise
during such calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying Investor at
any time as to its reasonable expectations with respect to the current calendar
quarter.
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to Investor
such shares of Common Stock and/or securities as Investor is entitled to receive
pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The sale of the
Put Shares and the issuance of the Blackout Shares, if any, shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state law.
Section 6.12 REIMBURSEMENT. If (i) Investor, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the
24
<PAGE>
federal securities laws, becomes involved in any capacity in any action,
proceeding or investigation brought by the SEC against or involving the Company
or in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
Section 6.13 DILUTION. The number of shares of Common Stock issuable as Put
Shares may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Commitment Period. The Company's executive officers and directors have studied
and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Put Shares is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
Section 6.14 USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Common Stock) for internal
working capital purposes, and, unless specifically consented to in advance in
each instance by the Investor, the Company shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person or for the repayment of any outstanding
loan by the Company to any other party.
Section 6.15 CERTAIN AGREEMENTS. (i) The Company covenants and agrees that
it will not, without the prior written consent of the
25
<PAGE>
Investor, enter into any subsequent or further offer or sale of Common Stock or
Common Stock Equivalents (collectively, "New Common Stock") with any third party
pursuant to a transaction which in any manner permits the sale of the New Common
Stock on any date which is thirty (30) days prior or subsequent to any Closing
Date.
(ii) The provisions of subparagraph 6.15(i) will not apply to (w)
Common Stock issued pursuant to an exemption from registration under the
Securities Act of 1933; (x) an underwritten public offering of shares of Common
Stock or Preferred Stock; (y) an offering of convertible Preferred Stock at
market or above; or (z) the issuance of securities (other than for cash) in
connection with an acquisition, merger, consolidation, sale of assets,
disposition or the exchange of the capital stock for assets, stock or other
joint venture interests.
(iii) In the event the Company breaches the provisions of this
Section, the Discount (as defined in Section 1.1) shall be amended to be equal
to (x) 110% of the Discount set forth herein and the Investor may terminate its
obligations under this Agreement and demand such amounts as may be owing under
Section 2.7.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell
the Put Shares to Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time, except for changes which have not
had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor 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
Investor at or prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A
PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of
the Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC.
26
<PAGE>
As set forth in the Registration Rights Agreement, the Company shall have filed
with the SEC the Initial Registration Statement with respect to the resale of
the Initial Registrable Securities by Investor and such Registration Statement
shall have been declared effective by the SEC prior to the first Put Date. For
the purposes of any Put Notice with respect to the Registrable Securities other
than the Initial Registrable Securities, the Company shall have filed with the
SEC a Registration Statement with respect to the resale of such Registrable
Securities by Investor which shall have been declared effective by the SEC prior
to the Put Date therefor.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the
Registration Rights Agreement, a Registration Statement shall have previously
become effective for the resale by Investor of the Registrable Securities
subject to such Put Notice and such Registration Statement shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
Investor shall have received notice that the SEC has issued or intends to issue
a stop order with respect to such Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of such Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such
action),and (ii) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits or directly and materially adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or materially adversely affecting any of the
27
<PAGE>
transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market.
(h) LEGAL OPINION. The Company shall have caused to be delivered to
Investor at the Initial Closing, and within five (5) Trading Days of the
effective date of the Initial Registration Statement and each subsequent
Registration Statement, an opinion of the Company's legal counsel in the form of
Exhibits C-1 and C-2 hereto, addressed to Investor.
(i) DUE DILIGENCE. No dispute between the Company and Investor shall
exist pursuant to Section 7.3 as to the adequacy of the disclosure contained in
any Registration Statement.
(j) TEN PERCENT LIMITATION. On each Closing Date, the number of Put
Shares then to be purchased by Investor shall not exceed the number of such
shares that, when aggregated with all other shares of Registrable Securities
then owned by Investor beneficially or deemed beneficially owned by Investor,
would result in Investor owning no more than [9.9%] of all of such Common Stock
as would be outstanding on such Closing Date, as determined in accordance with
Section 16 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section 7.2(j), in the event that the amount of Common Stock
outstanding as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing Date than on the
date upon which the Put Notice associated with such Closing Date is given, the
amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and Blackout Shares, if any, would
own more than 9.9% of the Common Stock following such Closing Date.
(k) MINIMUM BID PRICE AND WEIGHTED AVERAGE VOLUME. The average of the
Bid Prices and the Weighted Average Volume for the fifteen (15) Trading Days
immediately preceding each of the Put Notice and the Closing Date, shall have
equaled or exceeded $0.75 and $50,000 respectively (as adjusted for stock
splits, stock dividends, reverse stock splits, and similar events).
(l) NO KNOWLEDGE. The Company shall have no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days
28
<PAGE>
following the Trading Day on which such Notice is deemed delivered).
(m) TRADING CUSHION. The Trading Cushion shall have elapsed since the
immediately preceding Put Date.
(n) SHAREHOLDER VOTE. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.
(o) NO VALUATION EVENT. No Valuation Event shall have occurred since
the Put Date.
(p) OTHER. On each Condition Satisfaction Date, Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by Investor in order for
Investor to confirm the Company's satisfaction of the conditions set forth in
this Section 7.2., including, without limitation, a certificate in substantially
the form and substance of Exhibit D hereto, executed by an executive officer of
the Company and to the effect that all the conditions to such Closing shall have
been satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall make available for inspection and review by
Investor, advisors to and representatives of Investor (who may or may not be
affiliated with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by Investor or any such representative,
advisor or Underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration Statement for the sole
purpose of enabling Investor and such representatives, advisors and Underwriters
and their respective accountants and attorneys to conduct initial and ongoing
due diligence with respect to the Company and the accuracy of such Registration
Statement.
(b) Each of the Company, its officers, directors, employees and
agents shall in no event disclose non-public information to Investor, advisors
to or representatives of Investor, unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides Investor, such advisors and representatives with the
opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to
29
<PAGE>
disclosing any non-public information hereunder, require Investor's advisors and
representatives to enter into a confidentiality agreement in form and substance
reasonably satisfactory to the Company and Investor.
(c) Nothing herein shall require the Company to disclose non-public
information to Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than Investor (without the written consent of Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms and
conditions of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, any Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in such Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"LEGEND"):
The securities represented by this certificate have not been registered
under the Securities Act of 1933 (the "Securities Act") or qualified under
applicable state securities laws. These securities may not be offered,
sold, pledged, hypothecated, transferred or otherwise disposed of except
pursuant to (i) an effective registration statement and qualification in
effect with respect thereto under the Securities Act and under any
applicable state securities law, (ii) to the
30
<PAGE>
extent applicable, Rule 144 under the Securities Act, or (iii) an opinion
of counsel reasonably acceptable to the Company that such registration and
qualification is not required under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent Instructions in substantially the form of
Exhibit E hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or Investor; provided that (a) a Registration
Statement shall then be effective, (b) Investor confirms to the Transfer Agent
and the Company that it has or intends to sell such Common Stock to a third
party which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to the
Transfer Agent to add the Legend in the event the Common Stock is not sold, and
(c) if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other
than the one specified in Section 8.1 has been or shall be placed on the share
certificates representing the Common Stock and no instructions or"stop transfers
orders," so called, "stock transfer restrictions," or other restrictions have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VIII.
Section 8.3 COVER. If the Company fails for any reason to deliver the Put
Shares on such Closing Date and the holder of the Put Shares (a "INVESTOR")
purchases, in an open market transaction or otherwise, shares of Common Stock
(the "COVERING SHARES") in order to make delivery in satisfaction of a sale of
Common Stock by such Investor (the "SOLD SHARES"), which delivery such Investor
anticipated to make using the Put Shares (a "BUY-IN"), then the Company shall
pay to such Investor, in addition to all other amounts contemplated in other
provisions of the Transaction Documents, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "BUY-IN ADJUSTMENT AMOUNT" is the
amount equal to the excess, if any, of (x) such
31
<PAGE>
Investor"s total purchase price (including brokerage commissions, if any) for
the Covering Shares over (y) the net proceeds (after brokerage commissions, if
any) received by such Investor from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to such Investor in immediately available
funds immediately upon demand by such Investor. By way of illustration and not
in limitation of the foregoing, if such Investor purchases Covering Shares
having a total purchase price (including brokerage commissions) of $11,000 to
cover a Buy-In with respect to shares of Common Stock that it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount that the Company will be
required to pay to such Investor will be $1,000.
Section 8.4 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall
affect in any way Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
Section 8.5 OFFSHORE TRANSACTIONS. Subject to the completeness and accuracy
of the Buyer's representations and warranties herein, upon request of an
investor who is a non-U.S. Person, and following the expiration of any
applicable Distribution Compliance Period (as those terms are defined in
Regulation S), the Company, shall, at its expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates without restrictive legend or stop
orders in the name of Investor (or its nominee (being a non-U.S. Person) or such
non-U.S. Persons as may be designated by Investor. Nothing in this Section,
however, shall affect in any way Investor's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (a) personally served, (b)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, 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 (ii) on the second business day
following the date
32
<PAGE>
of mailing by express courier service or on the fifth business day after
deposited in the mail, in each case, 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:
Chequemate International, Inc.
d/b/a C-3D Digital, Inc.
330 Washington Boulevard, Suite 507
Marina del Rey, California 90292
ATTENTION: Alan Hunter, Esq.
General Counsel
Tel No.: (310) 306-6666
Fax No.: (310) 305-1455
IF TO PURCHASER:
PALADIN TRADING COMPANY LIMITED
Lion Corporate Services Limited
Nassau, Bahamas
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Krieger & Prager, LLP
39 Broadway, Suite 1440
New York, New York 10006
ATTENTION: Samuel M. Krieger, Esq.
Tel No.: (212) 363-2900
Fax No: (212) 363-2999
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION.
The Company agrees to indemnify and hold harmless Investor and its
officers, directors, employees, and agents, and each Person or entity, if any,
who controls Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, together with the Controlling Persons (as
defined in the Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which Investor, its
partners, affiliates, officers, directors, employees, and duly authorized
agents, and any such Controlling Person becomes subject to, resulting from,
arising out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Company contained in this Agreement, as such Damages are incurred, except to the
extent such Damages result primarily from
33
<PAGE>
Investor's failure to perform any covenant or agreement contained in this
Agreement or Investor's or its officer's, director's, employee's, agent's or
Controlling Person's negligence, recklessness or bad faith in performing its
obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.2
(an "INDEMNIFIED PARTY") might seek indemnity under Section 9.2 is asserted
against or sought to be collected from such Indemnified Party by a person other
than a party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 9.2 against any person
(the "INDEMNIFYING PARTY"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under Section 9.2 and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. (i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Indemnified
Party with respect to the Third Party Claim pursuant to this Section 9.3(a),
then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
34
<PAGE>
of the Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this clause (i),
file any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects
to contest. The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this clause (i), and except as provided in the preceding
sentence, the Indemnified Party shall bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing, the Indemnified
Party may takeover the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right to indemnity under
Section 9.2 with respect to such Third Party Claim. (ii) If the Indemnifying
Party fails to notify the Indemnified Party within the Dispute Period that
the Indemnifying Party desires to defend the Third Party Claim pursuant to
Section 9.3(a), or if the Indemnifying Party gives such notice but fails to
prosecute vigorously and diligently or settle the Third Party Claim, or if
the Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be settled
at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim
which the Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute
is resolved in favor of the Indemnifying Party in the manner provided in
clause (iii) below, the Indemnifying Party will not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this clause
(ii) or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such litigation. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this clause (ii), and the Indemnifying
Party shall bear its own costs and expenses with respect to such
participation. (iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its
35
<PAGE>
liability or the amount of its liability to the Indemnified Party with respect
to the Third Party Claim under Section 9.2 or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party with respect
to such Third Party Claim, the amount of Damages specified in the Claim Notice
shall be conclusively deemed a liability of the Indemnifying Party under Section
9.2 and the Indemnifying Party shall pay the amount of such Damages to the
Indemnified Party on demand. If the Indemnifying Party has timely disputed its
liability or the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that if the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying
Party shall be entitled to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under
Section 9.2 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9.2 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "INDEMNITY NOTICE") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the amount of
Damages specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party
shall pay the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(c) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar rights of the Indemnified Party
against the Indemnifying Party or others, and (ii) any liabilities the
Indemnifying Party may be subject to.
36
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of law. Each of the Company and Investor
hereby submit to the exclusive jurisdiction of the United States Federal and
state courts located in Delaware with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
Section 10.2 SPECIFIC ENFORCEMENT. The Company and the Investor acknowledge
and agree that irreparable damage would occur to the Investor in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the Investor shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 10.3 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by Investor hereunder with respect to the Common
Stock held by such person, and (b) Investor's interest in this Agreement may be
assigned at any time, in whole but not in part, to any affiliate of Investor.
Section 10.4 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
Section 10.5 TERMINATION. This Agreement shall terminate twelve (12) months
after the commencement of the Commitment Period (unless extended by the
agreement of the Company and Investor); provided, however, that the provisions
of Article VI, VIII, and Sections [10.1, 10.3, and 10.5] shall survive the
termination of this Agreement.
Section 10.6 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the
instruments referenced herein contain the entire understanding of the Company
and Investor with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters. No
37
<PAGE>
provision of this Agreement may be waived or amended other than by an instrument
in writing signed by the party to be charged with enforcement.
Section 10.7 FEES AND EXPENSES. Each of the Company and Investor agrees to
pay its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder, except that the Company shall pay
Krieger & Prager, LLP the fee of $25,000 at the Initial Closing and $3,500 at
each subsequent Closing. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Investor in connection with any amendments,
modifications or waivers of this Agreement or the Registration Rights Agreement
or incurred in connection with the enforcement of this Agreement and the
Registration Rights Agreement, including, without limitation, all reasonable
attorneys fees and expenses. The Company shall pay all stamp or other similar
taxes and duties levied in connection with issuance of the Shares pursuant
hereto.
Section 10.8 NO BROKERS. Each of the Company and Investor represents that
it has had no dealings in connection with this transaction with any broker who
will demand payment of any commission from the other party, except Dutchess
Advisors, Ltd. ("Finder") who shall be entitled to receive a finder's fee equal
to 6% of the gross amount obligated by the Investor to the Company on each
Closing Date. Such fee shall be paid to the Finder directly from escrow on each
Closing Date. The Company on the one hand, and Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any persons claiming brokerage commissions or finder's fees
on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.9 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the Company and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 10.10 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the Company hereto shall survive each Closing
hereunder for a period of one (1) year thereafter. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.
Section 10.11 FURTHER ASSURANCES. Each party shall do and
38
<PAGE>
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Section 10.12 NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 10.13 EQUITABLE RELIEF. The Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to
Investor. The Company therefore agrees that Investor shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
Section 10.14 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.15 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price of the Common Stock on
any given Trading Day for the purposes of this Agreement shall be Bloomberg L.P.
or any successor thereto. The written mutual consent of Investor and the Company
shall be required to employ any other reporting entity.
Section 10.16 PUBLICITY. The Company and Investor shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Investor without the prior written consent of such Investor, except to the
extent required by law. Investor acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the Exchange Act.
Investor further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
CHEQUEMATE INTERNATIONAL, INC.
By: /s/ J. Michael Heil
---------------------------------
Name:
Title: CEO
PALADIN TRADING COMPANY LIMITED
By: /s/ Barry W. Herman
---------------------------------
Name:
Title: President
40
<PAGE>
EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Warrant
41
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of August 31,
2000, is made by and between CHEQUEMATE INTERNATIONAL, INC., a Utah corporation
("Company"), and PALADIN TRADING COMPANY LIMITED, A Bahamian corporation (the
"Subscriber").
Recitals
WHEREAS, upon the terms and subject to the conditions of the Common Stock
Purchase Agreement ("Purchase Agreement"), between the Subscriber and the
Company, the Company has agreed to issue and sell to the Subscriber up to
fifteen million dollars ($15,000,000) of the common stock of the Company
("Subscribed Shares") par value $.0001 per share (the "Common Stock"), and
WHEREAS, pursuant to the terms of the Purchase Agreement the Company will
issue to the Subscriber warrants: (i) upon the effectiveness of the Registration
Statement required to be filed pursuant to Section 2 hereof, and (ii) to
purchase shares of Common Stock ("Warrants") on a pro rata basis in conjunction
with the draw downs, as set forth in the Purchase Agreement, exercisable at 120%
of the closing bid price, at the date of each draw down.
WHEREAS, to induce the Subscriber to execute and deliver the Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, "Securities Act"),
and applicable state securities laws with respect to the Subscribed Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Subscriber
hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not ripe for disclosure in
a Registration Statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the Registration Statement would be detrimental to the business
and affairs of the Company, or (b) any material engagement or activity by the
Company which would, in the good
42
<PAGE>
faith determination of the Board of Directors of the Company, be adversely
affected by disclosure in a Registration Statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the Registration Statement would be materially
misleading absent the inclusion of such information.
(ii) "Subscription Date" means the date of this Agreement.
(iii) "Subscriber", has the meaning set forth in the preamble to
this Agreement.
(iv) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
delayed or continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(v) "Registrable Securities" means the Subscribed Shares and
the Warrants.
(vi) "Registration Statement" means a registration statement of
the Company under the Securities Act.
(vii) "Warrant" means the Initial Warrant, Registration Warrant,
and any Further Warrants.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with
the SEC, no later than fifteen (15) business days after the Subscription Date, a
Registration Statement on Form S-3 ("Registration Statement"), covering a
sufficient number of shares of Common Stock for the Subscribers to cover the
registration of the fifteen million dollars ($15,000,000) of Subscribed Shares
and the conversion of the Warrants based on the closing bid price of the Common
Stock as of the most recent practicable date, and in any event not less than two
hundred fifteen percent (215%) of shares of the Common Stock (the "Initial
Registrable Securities"). Such Registration Statement shall state that, in
accordance with the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable to prevent dilution
resulting from stock splits, or stock dividends. If at any time (i) the number
of Subscribed Shares and (ii) the number of shares of Common Stock issuable upon
exercise of the Warrants exceeds the aggregate number of shares of Common Stock
then registered, the
43
<PAGE>
Company shall, within ten (10) business days after receipt of written notice
from the Subscriber, file with the SEC an additional Registration Statement on
Form [____] or any other applicable registration statement, to register (i)
Subscribed Shares and (ii) the shares of Common Stock issuable upon exercise of
the Warrants that exceed the aggregate number of shares of Common Stock already
registered.
(b) PAYMENT BY THE COMPANY. If the Registration Statement covering
the Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not declared effective within one hundred and fifty (150)
days from the Subscription Date, then the commitment contained in the Common
Stock Purchase Agreement and in this Agreement (the "Commitment") shall
terminate and the Subscriber shall be entitled to the sums set forth in Section
2.1(b) and 2.7 of the Private Equity Credit Agreement.
The Company acknowledges that its failure to have the Registration
Statement declared effective within one hundred (150) days from the Subscription
Date (for any reason other than the requirement by the SEC of modifications to
the structure of the transactions contemplated hereby that are unacceptable to
the Company or the Subscriber) shall cause the Subscriber to suffer damages in
an amount that shall be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in the Private Equity Credit Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to register the Common Stock and deliver the Common Stock
pursuant to the terms of this Agreement, the Purchase Agreement and the
Subscribed Shares.
3. OBLIGATION OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within fifteen (15) days
of the Subscription Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a) above, and,
thereafter, use all diligent efforts to cause the Registration Statement
relating to the Registrable Securities to become effective the earlier of (a)
five (5) business days after notice from the Securities and Exchange Commission
that the Registration Statement may be declared effective, or (b) one hundred
fifty (150) days after the Subscription Date, and keep the Registration
Statement effective at all times until the earliest of (i) the date that is one
year after the completion of the last Closing Date under the Purchase Agreement,
(ii) the date when the Subscriber may sell all Registrable Securities under Rule
144 without volume limitations, or (iii) the date the Subscriber no longer owns
any of the Registrable Securities (collectively, the "Registration Period"),
which Registration Statement (including any
44
<PAGE>
amendments or supplements, thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, and to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the expiration of the Registration Period.
(c) Permit a single firm of counsel designated by Subscriber to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) Business Day) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects.
(d) Notify Subscriber and Subscriber's legal counsel identified to
the Company (which, until further notice, shall be deemed to be Krieger &
Prager, LLP, ATTN: Samuel Krieger, Esq.; "SUBSCRIBER'S COUNSEL") (and, in the
case of (i)(A) below, not less than one (1) Business Day prior to such filing)
and (if requested by any such person) confirm such notice in writing no later
than one (1) Business Day following the day (i): (A) when a prospectus or any
prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) whenever the SEC notifies the Company whether there
will be a "review" of such Registration Statement; (C) whenever the Company
receives (or a representative of the Company receives on its behalf) any oral or
written comments from the SEC in respect of a Registration Statement (copies or,
in the case of oral comments, written or oral summaries of such comments shall
be promptly furnished by the Company to Subscriber's Counsel); and (D) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the SEC or any other Federal
or state governmental authority for amendments or supplements to the
Registration Statement or the prospectus or for additional information; (iii) of
the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any securities purchase agreement) contemplated hereby ceases to be
true and correct in all material respects; (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (vi) of the occurrence of any event that to the
45
<PAGE>
knowledge of the Company makes any statement made in the Registration Statement
or the prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any
revisions to the Registration Statement, the prospectus or other documents so
that, in the case of the Registration Statement or the prospectus, as the case
may be, it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish Subscriber's
Counsel with copies of all intended written responses to the comments
contemplated in clause (C) of this Section not later than one (1) Business Day
in advance of the filing of such responses with the SEC so that Subscriber shall
have the opportunity to comment thereon.
(e) Furnish to Subscriber, (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company, one
(1) copy of the Registration Statement, each preliminary prospectus and the
prospectus, and each amendment or supplement thereto, and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents, as the Subscriber may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Subscriber;
(f) Use all diligent efforts to (i) register and/or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Subscriber may
reasonably request and in which significant volumes of shares of Common Stock
are traded, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualification in effect at all
times during the Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions: PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith or as a condition thereto to (A) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(f), (B) subject itself to general taxation in any such
jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Company or (E) make any change in its charter or by-laws or any
then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(g) As promptly as practicable after becoming aware of such event,
notify the Subscriber of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in
46
<PAGE>
the Registration Statement, as then in effect, includes any untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading ("Registration Default"), and uses
all diligent efforts to promptly prepare a supplement or amendment to the
Registration Statement or other appropriate filing with the SEC to correct such
untrue statement or omission, and any other necessary steps to cure the
Registration Default, and deliver a number of copies of such supplement or
amendment to the Subscriber as the Subscriber may reasonably request. Failure to
cure the Registration Default within ten (10) business days shall result in the
Company incurring a liquidated damage penalty of $1,000 per day for so long as
more than 10,000 shares of Common Stock are held by the Subscriber;
(h) As promptly as practicable after becoming aware of such event,
notify the Subscriber (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the SEC of any notice of effectiveness
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(i) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies Investor in writing of the existence of a Potential Material Event
("Blackout Notice"), Investor shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until Investor receives written notice from the Company
that such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; PROVIDED, HOWEVER, that (a) the
Company may not so suspend the right to such holders of Registrable Securities
for more than two fifteen (15) day periods in the aggregate during any 12- month
period ("Blackout Period") with at least a ten (10) Business Day interval
between such periods, during the periods the Registration Statement is required
to be in effect, or (b) that if such Blackout Period exceeds the permitted
fifteen (15) day periods, the Company shall pay damages of 1.5% of the cost of
all common stock then held by the Investor for each fifteen (15) day period or
portion thereof, beginning on the date of the suspension.
(j) Use its commercially reasonable efforts, if eligible, either to
(i) cause all the Registrable Securities covered by the Registration Statement
to be listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("Nasdaq") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC
47
<PAGE>
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Securities on the Nasdaq Small Cap Market; or
if, despite the Company's commercially reasonable efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in doing so, to secure
NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities; PROVIDED, HOWEVER, that the Subscriber
acknowledges that the Company does not currently meet the requirements for
listing on a national securities exchange or the Nasdaq Small Cap Market
pursuant to (i) or (ii) and that nothing in this section shall be construed to
require the Company to pursue such qualification until such time as the Company
satisfies such requirements for a period of not less than forty-five (45) days:
(k) Provide a transfer agent for the Registrable Securities not later
than the Subscription Date of the Registration Statement;
(l) Cooperate with the Subscriber to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Subscriber may reasonably request and registration in such names
as the Subscriber may request; and, within five (5) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Subscriber) an appropriate instruction and
opinion of such counsel, if so required by the Company's transfer agent; and
(m) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Subscriber of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE SUBSCRIBER. In connection with the registration of
the Registrable Securities, the Subscriber shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of the Subscriber that the Subscriber shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request.
48
<PAGE>
(b) The Subscriber by such Subscriber's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder; and
(c) The Subscriber agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
3(h) above, the Subscriber will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Subscriber receives the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or 3(h) and, if
so directed by the Company, the Subscriber shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Subscriber's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses incurred in
connection with Registrations, filings or qualifications pursuant to SECTION 3,
including, without limitation, all Registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for Investor of $4,500 for the
initial Registration Statement and $2,000 for each Additional Registration
Statement covering the Registrable Securities shall be borne by the Company; and
(b) Except as otherwise provided for in Schedule 5(b) attached
hereto, neither the Company nor any of its subsidiaries has, as of the date
hereof, and the Company shall not on or after the date of this Agreement, enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to Investor in this Agreement or otherwise conflicts with the
provisions hereof. Except as otherwise provided for in Schedule 5(b), the
Company has not previously entered into any agreement granting any registration
rights with respect to any of its securities to any person, and Investor has
consented to the registration of the stock issued only in items 1, 2, and 3 of
Schedule 5(b). Except as otherwise provided for in this Section 5, and without
limiting the generality of the foregoing, without the written consent of
Investor, the Company shall not grant to any person the right to request the
Company to Register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of Investor set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement and the other Transaction
Documents.
6. INDEMNIFICATION. After Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless, the Subscriber, the directors, if any, of such Subscriber, the
officers, if any, of such Subscriber, each person, if
49
<PAGE>
any, who controls the Subscriber within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the Subscription Date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in the light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being collectively referred to as
"Violations"). The Company shall reimburse the Subscriber, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(i) apply to any Claims arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (ii) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (iii) be available to the extent such Claim is
based on a failure of the Subscriber to deliver or cause to be delivered the
prospectus made available by the Company; or (iv) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. The
Subscriber will indemnify the Company, its officers, directors and agents
(including legal counsel) against any claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company,
50
<PAGE>
by or on behalf of such Subscriber, expressly for use in connection with the
preparation of the Registration Statement, subject to such limitations and
conditions set forth in the previous sentence. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person or Indemnified Party.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person, as
the case may be; PROVIDED, HOWEVER, that an Indemnified Person shall have the
right to retain its own counsel with the reasonable fees and expenses to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by such counsel in such proceeding. In such event, the Company
shall pay for only one separate legal counsel for the Subscriber selected by the
Subscriber. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person under
this Section 6, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; PROVIDED,
HOWEVER, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
51
<PAGE>
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Subscriber the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Subscriber to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(c) furnish to the Subscriber so long as the Subscriber owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Subscribers to sell such securities pursuant to Rule 144 without
registration.
9. MISCELLANEOUS.
(a) REGISTERED OWNERS. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) RIGHTS CUMULATIVE; WAIVERS. The rights of each of the parties
under this Agreement are cumulative. The rights of each of the parties hereunder
shall not be capable of being waived or varied other than by an express waiver
or variation in writing. Any failure to exercise or any delay in exercising any
of such rights shall not operate as a waiver or variation of that or any other
such right. Any defective or partial exercise of any of such rights shall not
preclude any other or further exercise of that or any other such right. No act
or course of conduct or negotiation on the part of any party shall in any way
preclude such party from exercising any such right or constitute a suspension or
any variation of any such right.
(c) BENEFIT; SUCCESSORS BOUND. This Agreement and the terms,
covenants, conditions, provisions, obligations, undertakings, rights, and
benefits hereof, shall be binding upon, and shall inure to the benefit of, the
undersigned parties and their heirs, executors, administrators, representatives,
successors, and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof.
52
<PAGE>
There are no promises, agreements, conditions, undertakings, understandings,
warranties, covenants or representations, oral or written, express or implied,
between them with respect to this Agreement or the matters described in this
Agreement, except as set forth in this Agreement and in the other documentation
relating to the transactions contemplated by this Agreement. Any such
negotiations, promises, or understandings shall not be used to interpret or
constitute this Agreement.
(e) ASSIGNMENT. The rights to have the Company register Registrable
Securities pursuant to this Agreement may be assigned by the Subscribers to any
transferee, only if: (a) the assignment relates to not less than one million
dollars ($1,000,000) of Registrable Securities and the Transferee is an
Institutional Accredited Investor under Regulation D; (b) the Company receives a
legal opinion in form and substance satisfactory to the Company that the
proposed transfer complies with federal and state securities laws and does not
adversely effect the validity of the transactions executed (or to be executed)
under this Agreement and the Purchase Agreement under federal and state
securities laws; (c) the assignment requires that the Transferee be bound by all
of the provisions contained in this Agreement, and Subscriber, the Company and
the transferee or assignee (the "Transferee") enter into a written agreement,
which shall be enforceable by the Company against the Transferee and by the
Transferee against the Company, to assign such rights; and (d) immediately
following such transfer or assignment the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act and
applicable state securities laws. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
(f) AMENDMENT. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Subscriber. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon the Company and any subsequent Transferees.
(g) SEVERABILITY. Each part of this Agreement is intended to be
severable. In the event that any provision of this Agreement is found by any
court or other authority of competent jurisdiction to be illegal or
unenforceable, such provision shall be severed or modified to the extent
necessary to render it enforceable and as so severed or modified, this Agreement
shall continue in full force and effect.
(h) NOTICES. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at its executive office and (ii)
53
<PAGE>
if to the Subscriber, at the address set forth under its name in the Purchase
Agreement, with a copy to its designated attorney, or at such other address as
each such party furnishes by notice given in accordance with this Section 9(a),
and shall be effective, when personally delivered, upon receipt and, when so
sent by certified mail, five (5) business days after deposit with the United
States Postal Service.
(i) GOVERNING LAW. This Agreement shall be governed by the
interpreted in accordance with the laws of the State of Delaware without
reference to its conflicts of laws rules or principles. Each of the parties
consents to the exclusive jurisdiction of the federal courts of the State of
Delaware in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non coveniens, to the bringing of any such proceeding
in such jurisdictions.
(j) CONSENTS. The person signing this Agreement on behalf of each
party hereby represents and warrants that he has the necessary power, consent
and authority to execute and deliver this Agreement on behalf of that party.
(k) FURTHER ASSURANCES. In addition to the instruments and documents
to be made, executed and delivered pursuant to this Agreement, the parties
hereto agree to make, execute and deliver or cause to be made, executed and
delivered, to the requesting party such other instruments and to take such other
actions as the requesting party may reasonably require to carry out the terms of
this Agreement and the transactions contemplated hereby.
(l) SECTION HEADINGS. The Section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(m) CONSTRUCTION. Unless the context otherwise requires, when used
herein, the singular shall be deemed to include the plural, the plural shall be
deemed to include each of the singular, and pronouns of one or no gender shall
be deemed to include the equivalent pronoun of the other or no gender.
(n) EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
54
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
CHEQUEMATE INTERNATIONAL, INC.
By: /s/ J. Michael Heil
------------------------------
Name: J. Michael Heil
----------------------------
Title: CEO
---------------------------
SUBSCRIBER:
PALADIN TRADING COMPANY LIMITED
By: /s/ Barry W. Herman
------------------------------
Name: Barry W. Herman
----------------------------
Title: President
---------------------------
55
<PAGE>
SCHEDULE 5(b)
1. Issuance to United Business Systems (for purchase of hotel pay-per-view
manufacturer & patents) of $940,000 worth of stock, at the market, to be
registered. Recently renegotiated to 200,000 shares to be registered, and
440,000 restricted shares.
2. Scott Applegate / CapitalPlus and Cinemaworks
$122,300 worth of stock, recently agreed to be 61,150 shares, to be registered,
for Scott Applegate, and $236,000 worth of stock, recently agreed to be 55,000
registered shares, and up to 40,000 restricted shares, for Cinema Internet
Networks, Inc., issued as part of a transaction to acquire service rights over
2650 free- to-guest rooms (less those rooms in hotels in Canada) in various
hotels.
3. Duchess Capital Partners
83,333 shares to be registered, for investment banking services.
4. Convertible line of credit promissory notes. $1,700,000 in debt is to be
converted to preferred stock, not convertible, after shareholder approval of
amendment to Articles to allow issuance of preferred stock.
5. Coast Communications (hotel movie business) Agreement to issue up to
230,500 shares, with registration rights, in satisfaction of $461,000 in debt.
6. Trimark Pictures
100,000 shares, to be registered, as part of a contract for motion picture
digitization and conversion from 2D to 3D.
7. Hawatmeh, Iehab
62,500 shares issued in settlement of claim for breach of contract, with shares
to be registered.
8. i-O Display Systems, LLC
105,263 shares (contract for $500,000 worth of viewing systems and 3D movies;
shares valued at $4.75).
9. Full Moon Universe
80,000 worth of common stock to be issued at the market.
10. James O'Brien / Optimum Source
2,728 shares with registration rights.
56
<PAGE>
11. Hudson Consulting Group
25,000 shares with registration rights. (amended fee due for consulting
services).
12. Academy Entertainment
$250,000 worth of restricted stock w/piggyback registration rights.
13. Hotel Movie Express (King Farms)
31,250 (post-split) shares with registration rights.
14. Issuance of S-8 stock under the Company's current Consultant Stock
Compensation Plan, as per past issuances and future issuances under the plan.
15. Stock options outstanding to ten key employees, plus directors and former
employees, for 1,534,334 shares, of which options for 910,000 shares will
require shareholder approval, together with registration rights.
57
