SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-22849
Visual Data Corporation.
------------------------
(Exact name of small business issuer as specified in its charter)
Florida
-------
(State or other jurisdiction of incorporation or organization)
65-0420146
----------
(IRS Employer Identification No.)
1291 SW 29 Avenue, Pompano Beach, Florida 33069
----------------------------------------- -----
(Address of principal executive offices)
954-917-6655
------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of February 10, 1999 the
registrant had issued and outstanding 5,681,818 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Page Number
Condensed Consolidated Balance Sheets at December 31, 1998
(Unaudited) and September 30, 1998
1
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 1998 and 1997 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1998 and 1997 (Unaudited) 3
Notes to the Unaudited Condensed Consolidated Financial Statements 4
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,314,635 $ 590,848
Restricted cash 120,000 20,000
Accounts receivable, net of allowance for
doubtful accounts of $43,349 and $57,941 at
December 31, 1998 and September 30, 1998, respectively 475,966 621,546
Prepaid expenses 762,654 347,888
Other current assets 319,767 168,109
------------ ------------
Total current assets 2,993,022 1,748,391
------------ ------------
Property, plant and equipment, net 3,334,512 3,535,205
------------ ------------
Excess of purchase price over net assets acquired 740,398 1,097,243
------------ ------------
Other 8,548 13,249
------------ ------------
Total assets $ 7,076,480 $ 6,394,088
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 624,590 $ 477,764
Accrued expenses 83,084 353,821
Deferred revenue 176,103 131,576
Current portion of obligations under capital leases 15,147 17,147
Mortgage note payable 958,370 967,023
Notes payable 40,500 240,500
------------ ------------
Total current liabilities 1,897,794 2,187,831
------------ ------------
Obligations under capital leases,
net of current portion 13,077 15,058
------------ ------------
Minority interest 583,356 306,506
------------ ------------
Stockholders' equity:
Preferred Stock, Par Value $.0001 Per Share:
Authorized 5,000,000 Shares:
Series A Convertible Preferred Stock, Designated, 300 Shares Issued and
Outstanding -0- and 150 at December 31, 1998
and September 30, 1998, respectively -- --
Series A-1 Convertible Preferred Stock, Designated 150 Shares
Issued and Outstanding -0- and 150 at December 31, 1998
and September 30, 1998, respectively -- --
Common Stock, Par Value $.0001 Per Share;
Authorized 20,000,000 Shares; 5,249,590 and 3,732,100
Issued and Outstanding at December 31, 1998 and
September 30, 1998, respectively 524 373
Additional paid - in capital 15,318,762 13,494,945
Accumulated deficit (10,737,033) (9,610,625)
------------ ------------
Total stockholders' equity 4,582,253 3,884,693
------------ ------------
Total liabilities and stockholders' equity $ 7,076,480 $ 6,394,088
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 1 -
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue $ 1,104,065 $ 105,756
----------- -----------
Operating Costs
Cost of sales 704,882 --
Selling, general
and administrative 798,605 239,274
Compensation and
related costs 421,341 286,839
Production 14,882 13,921
Occupancy 35,073 51,847
Professional and consulting fees 302,102 93,005
----------- -----------
Total operating costs 2,276,885 684,886
----------- -----------
Loss from operations (1,172,820) (579,130)
----------- ----------
Other Income (Expense)
Interest income 5,906 28,684
Rental income 19,592 17,764
Interest expense (23,300) (22,527)
Minority Interest 48,214 --
----------- -----------
Total other income (expense) 50,412 23,921
----------- -----------
Net loss before taxes (1,122,408) (555,209)
Income taxes 4,000 --
----------- -----------
Net loss $(1,126,408) $ (555,209)
=========== ===========
Weighted Average Shares of Common Stock Outstanding 4,280,376 3,057,781
=========== ===========
Loss per Share - Basic and diluted $ (0.26) $ (0.18)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows used in operating activities $ (112,020) $ (567,320)
Cash flows used in investing activities (33,500) (137,062)
Cash flows provided by (used in) financing activities 869,307 (5,028)
------- ------
Net increase (decrease) in cash 723,787 (709,410)
Cash:
Beginning of period 590,848 2,554,180
------- ---------
End of period $ 1,314,634 $ 1,844,770
=========== ===========
</TABLE>
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
- ------------------
Visual Data Corporation ("VDC" or "the Company") and its wholly owned
subsidiaries are in the business of producing, marketing and distributing video
information libraries intended for use by the general public through various
distribution channels, primarily in the United States. These distribution
channels include the Internet and Interactive television ("ITV"). The
information libraries contain short concise vignettes on various topics such as
travel, medicine, nursing homes, timeshare properties and business news. Through
September 30, 1997, the Company had been engaged primarily in the production and
sale of video vignettes to hotels and their distribution via laser disc players
installed in travel agencies throughout the United States. During the year ended
September 30, 1998, the primary distribution channel for all of VDC's libraries
was the Internet.
EDnet, Inc.("EDnet") a 51% owned subsidiary of VDC, develops and markets
integrated systems for the delivery, storage, and management of professional
quality digital communications for media-based applications, including audio and
video production for the U. S. entertainment industry. EDnet, through strategic
alliances with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers, has
established a worldwide network that enables the exchange of high quality audio,
video, multimedia, and data communications. It provides engineering services and
application-specific technical advice, audio, video, and networking hardware and
software as part of its business.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Visual Data Corporation and its wholly owned subsidiaries as well as its 51%
interest in EDnet, Inc. a publicly held company trading on the OTC BB. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Interim Financial Data
The accompanying financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The annual financial statements of the Company as of
September 30, 1998 should be read in conjunction with these statements. The
financial information included herein has not been audited. However, in the
opinion of management, the accompanying unaudited interim financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the consolidated financial position of VDC and
subsidiaries as of December 31, 1998 and the results of their operations and
cash flows for the three months ended December 31, 1998 and 1997. The results of
operations and cash flows for the period are not necessarily indicative of the
results of operations or cash flows for a full year.
<PAGE>
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment acquired under capital
leases, consists of:
<TABLE>
<CAPTION>
LIVES
(YEARS)
-------
<S> <C> <C>
Building $1,549,781 39
Furniture and Fixtures 205,939 7
Equipment 194,934 5
Editing and Production Equipment 533,952 3-10
Computer Equipment 225,852 3-5
Software 683,982 3-5
Network & related equipment 767,196 5
Internet Hardware & Software 346,413 3-5
Leasehold Improvements 26,183 7
------------
4,534,232
Less: Accumulated Depreciation
and Amortization (1,199,720)
------------
$3,344,512
============
</TABLE>
NOTE 3: LINE OF CREDIT
In December 1998 the Company negotiated a $250,000 line of credit for EDnet with
Union Bank of California. The credit line bears interest at the institution's
published reference rate plus 2.5% and has a stated maturity date of November 1,
1999.
NOTE 4: CONVERSION OF PREFERRED STOCK
In December 1998 the holders of VDC's Series A Convertible Preferred Stock and
Series A-1 Convertible Preferred Stock converted their shares into shares of the
Company's Common Stock pursuant to the designations, rights and preferences of
such securities. The 150 shares of Series A Convertible Preferred Stock and the
150 shares of the Series A-1 Convertible Preferred Stock, which represented 100%
of the issued and outstanding shares of those series of Preferred Stock, were
converted into an aggregate of 917,490 shares of Common Stock.
NOTE 5: PRIVATE PLACEMENT OF COMMON STOCK
In November and December the Company sold to twenty accredited investors a total
of 532,500 shares of its common stock for gross proceeds of $1,040,000. Of these
shares a total of 332,500 were granted piggyback registration rights.
<PAGE>
NOTE 6: SALE OF EDNET'S IBS SUBSIDIARY
In December 1998, EDnet sold substantially all of the assets and certain of the
liabilities of its wholly-owned subsidiary, Internet Business Solutions, Inc.
("IBS"), for a purchase price of $1,000,000. The assets sold included office and
computer equipment used by IBS in its business of web site development and
design, as well as receivables and certain other intangible assets. At closing,
EDnet received $900,000 of the purchase price, with the remaining $100,000
deposited into an interest bearing escrow account established for the benefit of
EDnet. Such amount will be released in full to EDnet in increments upon the
termination of the statute of limitations governing certain potential claims
against IBS or the buyer connected with the disposition of IBS's assets, or upon
the earlier agreement of the buyer. EDnet recognized a gain of approximately
$663,000 on the sale. The Company recorded its portion of the gain,
approximately $338,000 as a reduction of excess of purchase price over net
assets acquired.
NOTE 7: RESIGNATION OF EXECUTIVE
In October 1998 Mr. David E. Goodman, formerly the Company's Executive Vice
President and Chief Operating Officer, resigned his positions. Under the terms
of Mr.Goodman's severance, the Company agreed to continue his salary and
benefits for four months. Other employees of the Company, including Randy S.
Selman, VDC's Chief Executive Officer, have assumed Mr. Goodman's duties
NOTE 8: SUBSEQUENT EVENTS
In October 1998, the Company received notice that it had not been in compliance
with the net tangible asset requirement of the Nasdaq Stock Market ("the
Nasdaq") at June 30, 1998. While the Nasdaq noted that the Company provided
internal financial statements which demonstrated subsequent compliance with the
requirement, as a result of the Company's "burn rate", they concluded that the
Company would fall below the minimum requirement for continued listing after
November 1, 1998. The Company presented a definitive plan to a Nasdaq Listing
Qualifications Panel in December 1998 to demonstrate its ability to maintain
continued compliance with the Nasdaq net tangible asset requirement and in
January 1999 the Company was informed of the Nasdaq Amex Stock Market's decision
to continue the listing of the Company's securities on The Nasdaq SmallCap
Market.
In February 1999 the Company completed a private placement of its common stock
to institutional investors. Net proceeds of approximately $2,600,000 was
received in exchange for 333,334 shares. These investors were granted piggyback
registration rights. In connection with the offering, the placement agent
received 8,334 one year warrants with an exercise price of $14.063. Pursuant to
the terms contained in an investment banking agreement executed in November
1998, they also received a total of 105,000 five year warrants exercisable at
prices ranging from $2.00 to $3.00.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding the Company and its business and operations
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does not
have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by management of the Company over time means
that actual events are bearing out as estimated in such forward looking
statements.
PLAN OF OPERATION
The Company's current plan of operation includes continuing to expand the
marketing of its "View" libraries, the development of new products and to
continue to look for synergistic acquisition opportunities. During the first
quarter of fiscal 1999, the Company began offering a new service through its
Video News Wire division. By combining EDnet, Inc. ("EDnet") worldwide high
speed data networks and the Company's network of camera crews, the Company is
able to provide its clients with live audio and video event broadcast
capabilities via the Internet. This service is being marketed through the
Company's partnership with PR Newswire. The Company has announced its
MedicalView division that will create and distribute Internet-based video
programs for physicians, health care professionals and consumers.
As the Company continued with its integration of EDnet, it became apparent that
the web development resources at Internet Business Solutions, Inc. ("IBS"),
EDnet's wholly-owned subsidiary, duplicated existing facilities at Visual Data.
On December 11, 1998, EDnet completed the sale of substantially all of the
assets of IBS for a total of one million dollars, of which $100,000 was
deposited into an escrow account, to be released in full to EDnet in increments
upon the termination of the statute of limitations governing certain potential
claims against IBS or the buyer connected with the disposition of IBS's assets,
or upon the earlier agreement of the buyer. EDnet recognized a gain of
approximately $663,000 on the sale. The Company recorded its portion of the
gain, approximately $338,000 as a reduction of excess of purchase price over net
assets acquired.While the sale of IBS assets is expected to reduce budgeted
revenues, EDnet intends to offset this loss with the continued growth of its
core audio networking business and the aggressive introduction of its video
networking services in the Spring of 1999.
The Company recognized revenue of $1,104,065 during the first quarter of fiscal
1999, representing an increase of $989,309 over revenues of $105,756 for the
same period in fiscal 1998. Revenues from EDnet accounted for $1,027,558, with
the balance of the Company's revenue coming from HotelView's new and renewal
contracts, contracts signed by CareView, billings by the Company's internet
software development group and fees earned by Video News Wire. During the last
two quarters of the fiscal year ended September 1998, the Company revised its
contracts with clients in the CareView, HotelView and ResortView libraries.
These changes necessitate the recognition of revenue over a longer period of
time based on the client's membership term. This has resulted in a decrease in
amount of contract revenue recognized in the period when contracts are signed
but gives the Company a revenue stream to be recognized in future quarters.
<PAGE>
Selling, general and administrative expenses increased approximately $560,000
during the first quarter of fiscal 1999 as compared to the same period last
year. Approximately $416,000 of the increase was due to the inclusion of Ednet's
expense with the balance reflecting increased sales and marketing activities and
website development, as well as the rollout of the other libraries and related
websites.
Compared to the first quarter of last year, compensation and related costs
increased by approximately 47% due to growth in both sales and technical staff.
Professional fees increased primarily due to an increase in investment banking
fees and financial advisory services.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had working capital of $1,095, 228. This was
primarily a result of a private placement of 532,500 shares, at approximately
$2.00 per share to twenty accredited investors during November and December 1998
for which the Company received gross proceeds of $1,040,000. During February
1999, the Company received net proceeds of approximately $2,600,000 from the
sale of its common stock to institutional investors in a private placement,
selling a total of 333,334 shares. Registration Rights were granted to the
investors in both transactions.
The Company believes it has sufficient working capital to fund its current plan
of operations until its subsidiaries begin producing revenues sufficient to
sustain operations. However in the event management should determine to either
accelerate their business plan or seek additional acquisitions, the Company may
be required to raise additional capital. There are no assurances that such
capital will be available to the Company on terms and conditions it finds
acceptable.
In addition, the Company is considering alternatives regarding its current
mortgage, which is due on March 31, 1999, on its headquarters facility such as
selling the building with a lease back provision, refinancing, or negotiating
with the current lender for an extension of the current mortgage. In any event,
the Company does not anticipate having to use working capital to satisfy its
obligations.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 issue
relates to whether computer systems will properly recognize and process
information relating to dates in and after the year 2000. These systems could
fail or produce erroneous results if they cannot adequately process dates beyond
the year 1999 and are not corrected. Significant uncertainty exists in the
software industry concerning the potential consequences that may result from the
failure of software to adequately address the Year 2000 issue. The Company has
reviewed all software and hardware used internally by the Company in all support
systems to determine whether they are Year 2000 compliant. Most of the Company's
software has already been upgraded by the manufacturer or was recently purchased
and is Year 2000 compliant. The Company expects to have its remaining Year 2000
compliant systems in place by March 1999. The Company also intends to implement
and test these solutions prior to any anticipated impact of the Year 2000 issue
on its systems. The Company does not believe that the aggregate cost for the
Year 2000 issue will be material. The Company, however, cannot predict the
effect of the Year 2000 issue on entities with which the Company transacts
business, and there can be no assurance that the effect of the Year 2000 issue
on such entities will not have a material adverse effect on the Company's
business, financial condition or results of operations. The Company will be
formulating a contingency plan with respect to such entities with which it does
business.
<PAGE>
In addition, we utilize third-party equipment, software and content, including
non-information technology systems, such as our security system, building
equipment and non-capital IT systems embedded microcontrollers that may not be
Year 2000 compliant. We are in the process of developing a plan to assess
whether these third parties are adequately addressing the Year 2000 issue and
whether any of our non-IT systems have material Year 2000 compliance problems.
Failure of such third-party equipment, software, or content to operate properly
with regard to the Year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, results of operations, and financial condition.
Any new software, hardware or support systems implemented in the future will be
Year 2000 compliant or will have updates or upgrades or replacements available
before the Year 2000 to enable the system to be Year 2000 compliant. Management
is currently assessing the Year 2000 compliance expense and related potential
effect on the Company's earnings. To date, the Company has not incurred any
incremental expense directly related to Year 2000 compliance.
Internet Related Risks
The Company recognizes the current demand for the Internet may not continue to
grow at the current rate or it may change in the future as technology continues
to evolve. The Company produces and markets video content and currently uses the
Internet as the primary distribution network for its products. Changes in the
network infrastructure could also impact the short-term marketing of the
Company's products. The Company believes that its content is adaptable to
technology evolution and can be distributed via other media though there can be
no assurance how expediently the Company could respond if the change or increase
in distribution channels does not occur as part of the Company's internally
developed plans.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
In November and December 1998 the Company sold to twenty accredited
investors a total of 532,500 shares of its Common Stock for gross
proceeds of $1,040,000. Of these shares a total of 332,500 were granted
piggyback registration rights pursuant to an exemption under Rule 506
of Regulation D.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
Sale of Securities. On February 10, 1999, the Company concluded a
private placement of its common stock to institutional investors. A
total of 333,334 shares were sold for net proceeds of approximately
$2,600,000. These investors were granted piggyback registration rights.
In connection with the offering, the placement agent received 8,334 one
year warrants with an exercise price of $14.063. Pursuant to the terms
contained in an investment banking agreement executed in November 1998,
they also received a total of 105,000 five year warrants exercisable at
prices ranging from $2.00 to $3.00.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Exhibit Name
99.1 Securities Purchase Agreement dated February 8, 1999 between the
Company and Certain Scheduled Investors
99.2 Registration Rights Agreement dated February 8, 1999 between the
Company and Certain Scheduled Investors
99.3 Securities Purchase Agreement dated February 8, 1999 between the
Company and Certain Scheduled Investors
99.4 Registration Rights Agreement dated February 8, 1999 between the
Company and Certain Scheduled Investors
(b) Reports filed on Form 8-K
8-K/A filed on October 7, 1998 Item 7. Financial
Statements and Pro Forma Financial Statements and Exhibits
Audited Financial Statements of EDnet, Inc. and Unaudited Pro
Forma Financial Information
8-K/A filed on October 30, 1998 Item 5. Other
Information Updated Biographical
Information on Director Item 7. Audited Financial
Statements of EDnet, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Visual Data Corporation,
a Florida corporation
Date: February 17, 1999 /s/ Randy S. Selman
---------------------
Randy S. Selman,
President, Chief Executive Officer and
Acting Chief Financial Officer
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
February 9, 1999 (the "Closing Date"), is entered into by and among Visual Data
Corporation, a Florida corporation, with headquarters located at 1291 S.W. 29th
Avenue, Pompano Beach, Florida 33069 (the "Company"), and the investors listed
on Schedule 1 attached hereto (individually, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 111,112 shares of the Company's Common Stock,
par value $.0001 per share (the "Common Shares"), in the respective amounts set
forth opposite each Buyer's name on Schedule 1; and
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
a. Purchase of Common Shares. In connection with the offering
(the "Offering") by the Company of its common stock to certain purchasers,
including without limitation, the Buyers, and subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company the respective number of shares of Common Shares set forth opposite
such Buyer's name on Schedule 1 (the "Closing"). The purchase price (the
"Purchase Price") of the Common Shares at the Closing shall be $1,000,008.
b. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the Purchase Price to an escrow account with Gotham
<PAGE>
Bank of New York, c/o Mitch Lampert, located at 1412 Broadway, New York, New
York 10018, as escrow agent (the "Escrow Agent"), for the Common Shares to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to the Escrow Agent, on behalf of each Buyer,
stock certificates (in the denominations as such Buyer shall request) (the
"Common Share Certificates") representing such number of the Common Shares which
such Buyer is then purchasing (as indicated opposite such Buyer's name on
Schedule 1) hereunder, duly executed on behalf of the Company and registered in
the name of such Buyer or its designee. Upon the completion of the conditions
contained in Sections 6 and 7 of this Agreement, the Escrow Agent shall deliver
the certificates representing the Common Shares to the Buyers via overnight
courier and the Escrow Agent shall then wire the Purchase Price to the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer is acquiring the Common
Shares (the Common Shares may also be referred to herein as the "Securities"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a)(3) of
Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted
2
<PAGE>
by such Buyer or its advisors, if any, or its representatives shall modify,
amend or affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: the Common Shares have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company (and its counsel) an opinion of counsel, in a generally acceptable form,
to the effect that such Common Shares to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company (and its counsel) with reasonable
assurance that such Common Shares can be sold, assigned or transferred pursuant
to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule
thereto) ("Rule 144").
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Commons Shares, until such time as the sale
of the Common Shares has been registered under the 1933 Act as contemplated by
the Registration Rights Agreement, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO
RULE 144 UNDER SAID ACT.
3
<PAGE>
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act and the Securities are
being sold pursuant to a Registration Statement, (ii) in connection with a sale
transaction, such holder provides the Company (and its counsel) with an opinion
of counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or (iii) such holder provides the Company (and its counsel) with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
h. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country and
state specified in its address on Schedule 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a controlling position of capital
stock or holds a controlling position of an equity or similar interest) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results or operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability
4
<PAGE>
of the Company to perform its obligations under the Transaction
Documents (as defined below).
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions
(as defined in Section 5) and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Common Shares, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Issuance of Securities. The Common Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. Assuming the accuracy of
the representations, warranties and agreements of the Company and the Buyers
contained in this Agreement, the issuance by the Company of the Common Shares is
exempt from registration under the 1933 Act.
d. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the Company's issuance of the Common Shares) will not (i) result in a violation
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation") or the Company's By-laws,
as amended and as in effect on the date hereof (the "By-laws") or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except where such
default, termination, amendment, acceleration,
5
<PAGE>
cancellation, violation or conflict would not have a Material Adverse Effect.
Neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, or By-laws or their
organizational charter or by-laws, respectively. Neither the Company or any of
its Subsidiaries is in violation or any term of or in default under any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments which would not have a Material Adverse Effect. The business of the
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance, regulation of any governmental entity,
except for possible violations the sanctions for which either individually or in
the aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the 1933 Act, any
applicable state "Blue Sky" laws or the Principal Market (as defined below), the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is in compliance with the listing
requirements of the Principal Market (as defined below).
e. SEC Documents; Financial Statements. As of the Closing, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, knowingly contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the
6
<PAGE>
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). Neither the Company nor any of its Subsidiaries or any of
their officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information.
f. Absence of Certain Changes. Since the most recent filing by
the Company with the SEC, there has been no material adverse change in the
business, properties, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law.
g. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Company's common stock, the
Common Shares or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such
which would have a Material Adverse Effect.
h. [Reserved].
i. No Undisclosed Events, Liabilities, Developments or
Circumstances. To the Company's knowledge, no event, liability, development or
circumstance has occurred or exists, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its common stock and which
has not been publicly announced.
j. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. [Reserved].
l. Employee Relations. Neither the Company nor any of
its Subsidiaries is involved in any union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such
dispute threatened.
m. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions,
7
<PAGE>
licenses, approvals, governmental authorizations, trade secrets and rights
necessary to conduct their respective businesses as now conducted. None of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within one year from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others.
n. Environmental Laws. Except in such an event which would not
result in a Material Adverse Effect, the Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
o. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries or would not result in a Material Adverse Effect. Any
real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
p. [Reserved].
q. Regulatory Permits. Except in such an event which would not
result in a Material Adverse Effect, the Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Tax Status. Except in such an event which would not
result in a Material Adverse Effect, the Company and each of its
8
<PAGE>
Subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
current unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction.
s. Transactions With Affiliates. Except as set forth in the
SEC Documents filed at least ten days prior to the date hereof, none of the
officers, directors, or controlling shareholders of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
t. Current Public Information. The Company is currently
eligible to register the resale of the Common Shares on a registration statement
on Form S-3 under the 1933 Act.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date
which is one year after the date as of which the Investors (as that
9
<PAGE>
term is defined in the Registration Rights Agreement) may sell all of the Common
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto), or (ii) the date on which the Investors shall have
sold all the Common Shares (the "Registration Period"), the Company shall use
its best efforts to file all reports required to be filed with the SEC pursuant
to the 1934 Act.
d. Buyers' Sale of Common Shares. From the Closing Date,
through and including the date which is the earlier of (i) the ninetieth (90th)
calendar day following the Closing Date or (ii) the fifteenth (15th) calendar
day following the date (the "Registration Effectiveness Date" ) on which the
Registration Statement (as defined in the Registration Rights Agreement)
covering for resale the Common Shares is declared effective, the Buyers shall
not sell, transfer or dispose the Common Shares. From the date which is the
earlier of (i) the ninety-first (91st) calendar day following the Closing Date
or (ii) the sixteenth (16th) calendar day following the Registration
Effectiveness Date, through and including the date which is the earlier of (i)
the one hundred twentieth (120th) calendar day following the Closing Date or
(ii) the forty-fifth (45th) calendar day following the Registration
Effectiveness Date, each Buyer shall have the right to transfer, sell or
dispose, in any manner whatsoever, pursuant to a Registration Statement or
pursuant to an exemption from registration under the 1933 Act, fifty percent
(50%) of the Common Shares purchased by such Buyer. From the date which is the
earlier of (i) the one hundred twenty-first (121st) calendar day following the
Closing Date or (ii) the forty-sixth (46th) calendar day following the
Registration Effectiveness Date, each Buyer shall have the right to transfer,
sell or dispose, in any manner whatsoever, pursuant to a Registration Statement
or pursuant to an exemption from registration under the 1933 Act, one hundred
percent (100%) of the Common Shares then held by such Buyer.
e. Right of First Refusal. Subject to the exceptions described
below, the Company and its Subsidiaries shall not negotiate or contract with any
party for any equity financing (including any debt financing with an equity
component) or issue any equity securities of the Company or any Subsidiary or
securities convertible or exchangeable into or for equity securities of the
Company or any Subsidiary (including debt securities with an equity component)
in any form ("Future Offerings") during the period beginning on the date hereof
and ending on, and including, the date which is 90 days after the Closing Date,
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Buyer an option to purchase its Aggregate Percentage (as defined below) of the
securities to be issued in such Future Offering, as of the date of delivery of
the Future Offering Notice, in the Future Offering (the limitations referred to
in this sentence is referred to as the "Capital Raising Limitations"). For
purposes of this Section 4(e), "Aggregate Percentage" at any time with respect
10
<PAGE>
to any Buyer shall mean the percentage obtained by dividing (i) the aggregate
number of the Common Shares initially issued to such Buyer by (ii) the aggregate
number of the Company's restricted common stock sold to certain purchasers by
the Company in connection with the Offering and the offering of Company
restricted common stock to certain other investors pursuant to that other
securities purchase agreement of even date herewith. A Buyer can exercise its
option to participate in a Future Offering by delivering written notice thereof
to participate to the Company within five (5) business days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase (such amount
equaling such Buyer's Aggregate Percentage), and that number of securities it is
willing to purchase in excess of its Aggregate Percentage. In the event that one
or more investors participating in this Offering, including without limitation,
the other investors identified in that other securities purchase agreement of
even date herewith, fail to elect to purchase such investor's Aggregate
Percentage (each such investor, a "Rejecting Investor"), then the remaining
investor(s) willing to purchase a number of securities in such Future Offering
must either (A) additionally purchase the Rejecting Investor's Aggregate
Percentage of such Future Offering or (B) forfeit such investor's right of first
refusal with respect to such Future Offering (and such forfeit shall not affect
the Buyers' ability or rights to exercise their right of first refusal with
respect to later Future Offerings). In the event the Buyers fail to participate
in the Future Offering within the periods described in this Section 4(e), the
Company shall have 60 days thereafter to sell the securities of the Future
Offering, upon terms and conditions, no more favorable to the purchasers thereof
than specified in the Future Offering Notice. In the event the Company has not
sold such securities of the Future Offering within such 60 day period, the
Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(e). The Capital Raising Limitations shall not apply to (i) a loan from a
commercial bank which does not have any equity feature, (ii) any transaction
involving the Company's issuances of securities (A) as consideration in a merger
or consolidation, or (B) as consideration for the acquisition of a business,
product, license or other assets by the Company, (iii) the issuance of common
stock in a firm commitment, underwritten public offering, (iv) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (v) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors, (vi) the issuance of common
stock to the Placement Agent (as defined in Section 11(m) below) in connection
with the Placements Agent's role as placement agent in the Offering, and the
offering of Company restricted common stock to certain other investors pursuant
to that other securities purchase agreement of even date herewith or (vii) the
Company's issuance of securities pursuant to any investment or financing as a
result of which the Company receives in excess of
11
<PAGE>
$8,000,000.00 in cash or cash equivalents. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
f. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as that term is defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of the Company's common stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of common stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq Small-Cap Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc., as applicable (the "Principal Market").
Neither the Company nor any of its Subsidiaries shall take any action which
would be, in their good faith business judgment, reasonably expected to result
in the delisting or suspension of Company common stock on the Principal Market.
The Company shall promptly, and in no event later than the following business
day, provide to each Buyer copies of any notices it receives from the Principal
Market regarding the continued eligibility of Company common stock for listing
on such automated quotation system or securities exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(f).
g. [Reserved.]
h. Business Combination; Transfer Agent. Unless and until the
Common Shares have been registered pursuant to an effective Registration
Statement (as defined in the Registration Rights Agreement) or the Buyers have
provided their prior written consent, the Company shall not (i) enter into any
merger, sale of all or substantially all of the Company's assets or other
business combination or other corporate reorganization in which the Company is
not the surviving entity after such transaction(s) or (ii) select, appoint or
enter into any arrangement or agreement with a party other than Interwest
Transfer Company, Inc. (the "Transfer Agent") to serve as transfer agent for the
Company.
i. Limitation on Filing Registration Statements. The
--------------------------------------------
Company shall not file a registration statement (other than the
Registration Statement (as defined in the Registration Rights
Agreement) or a registration statement on Form S-8) covering the
sale or resale of shares of Company common stock with the SEC
during the period beginning on the date hereof and ending on the
date which is 30 days after the Registration Statement has been
declared effective by the SEC.
j. [Reserved].
12
<PAGE>
k. Corporate Existence and Taxes. Until all of the Common
Shares have been registered pursuant to an effective Registration Statement, the
Company shall maintain its corporate existence in good standing (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, has common stock listed for trading on the
Principal Market and shall pay all its taxes when due except for taxes which the
Company disputes).
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to the
Transfer Agent substantially in the form of Exhibit B hereto (the "Transfer
Agent Instructions"). Prior to registration of the Common Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof will be given by the
Company to its Transfer Agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company (and its counsel) with an opinion of counsel, in a generally acceptable
form, to the effect that a public sale, assignment or transfer of the Securities
may be made without registration under the 1933 Act or the Buyer provides the
Company (and its counsel) with reasonable assurances that the Securities can be
sold pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, promptly instruct its Transfer Agent to issue
one or more certificates in such name and in such denominations as specified by
such Buyer and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Common Shares to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the
13
<PAGE>
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Escrow Agent for
the transactions contemplated by this Agreement;
b. Such Buyer shall have delivered to the Escrow Agent the
Purchase Price for the Common Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company or the Escrow Agent;
c. The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date;
d. Such Buyer shall have delivered to the Escrow Agent such
other documents relating to the transactions contemplated by this Agreement as
the Escrow Agent or its counsel may reasonably request;
e. The Company and the Escrow Agent shall have entered into an
escrow agreement; and
f. The Company and the Placement Agent shall have entered into
the placement agent agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion by providing the Company with prior written notice thereof:
a. The Company shall have executed each of the
Transaction Documents and delivered the same to the Escrow Agent;
b. The Company's common stock shall be authorized for
quotation on the Principal Market and trading in Company common stock shall not
have been suspended by the SEC or the Principal Market;
14
<PAGE>
c. The representations and warranties of the Company shall be
true and correct, in all material respects, as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied, in all material respects, with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date;
d. The Company shall have delivered to the Escrow Agent the
opinion of the Company's counsel dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to such Buyer and in substantially the
form of Exhibit C attached hereto;
e. The Company shall have executed and delivered to the Escrow
Agent the certificates representing Common Shares (in such denominations as such
Buyer shall request) for the Common Shares being purchased by such Buyer at the
Closing;
f. The Transfer Agent Instructions, in the form of Exhibit B
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent and a copy of the executed Transfer Agent Instructions
shall have been delivered to the Escrow Agent;
g. The Company shall have made all filings, other than those
contemplated by the Registration Rights Agreement, under all applicable federal
and state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws;
h. The Company shall have delivered to the Escrow Agent such
other documents relating to the transactions contemplated by this Agreement as
the Escrow Agent or its counsel may reasonably request;
i. The Company and the Escrow Agent shall have entered into an
escrow agreement;
j. Subject to Section 11(l) below, at the Closing, the Company
shall reimburse the Buyers for the Buyers' attorneys' fees and expenses (in an
amount not to exceed $15,000.00) incurred by the Buyers concerning the due
diligence review of the contemplated transactions and the Company, and the
negotiation and preparation of the Transaction Documents and the consummation of
the transactions contemplated thereby; and
k. The Company and the Placement Agent shall have entered into
the placement agent agreement.
15
<PAGE>
8. INDEMNIFICATION.
a. Indemnification by Company. In consideration of each
Buyer's execution and delivery of the Transaction Documents and acquiring the
Securities thereunder and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless each Buyer and all of their stockholders, partners, officers,
directors, employees and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith and including reasonable attorneys' fees and disbursements
(the "Buyer Indemnified Liabilities"), incurred by any Buyer Indemnitee as a
result of, or arising out of, or relating to (a) any material misrepresentation
or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (b) any material breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Buyer
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Buyer Indemnified Liabilities which is permissible
under applicable law.
b. Indemnification by Buyers. In consideration of the
Company's execution and delivery of the Transaction Documents and the Company's
performance of the transactions contemplated thereunder, each Buyer shall
severally and not jointly defend, protect, indemnify and hold harmless the
Company, its officers and directors (collectively, the "Company Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith and including reasonable attorneys' fees and disbursements (the
"Company Indemnified Liabilities"), incurred by any Company Indemnitee as a
result of, or arising out of, or relating to (a) any material representation or
breach of any representation or warranty made by such Buyer in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, or (b) any material breach of any covenant, agreement or obligation
of such Buyer contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby; provided, however, that
any Buyer shall not be jointly liable for the indemnification
16
<PAGE>
obligations of any other Buyer or investor and the Buyer subject to an
indemnification obligation shall be liable under this Section 8(b) for only that
amount of Company Indemnified Liabilities as does not exceed the net proceeds to
such Buyer as a result of the sale of Common Shares held by such Buyer. To the
extent that the foregoing undertaking by a Buyer may be unenforceable for any
reason, such Buyer shall make the maximum contribution to the payment and
satisfaction of each of the Company Indemnified Liabilities which is permissible
under applicable law; provided, however, that any Buyer shall not be jointly
liable for the indemnification obligations of any other Buyer or investor and
the Buyer subject to an indemnification obligation shall be liable under this
Section 8(b) for only that amount of Company Indemnified Liabilities as does not
exceed the net proceeds to such Buyer as a result of the sale of Common Shares
held by such Buyer.
9. ANTI-DILUTION ADJUSTMENTS.
a. Issuance of Common Stock or Rights to Purchase Company
Common Stock Below Offering Price. Prior to the registration of the Common
Shares pursuant to an effective Registration Statement (as described in the
Registration Rights Agreement), if the Company shall, at any time or from time
to time, issue Company common stock or instruments convertible or exercisable
into Company common stock (other than Company common stock issued or issuable
pursuant to an employee stock option incentive plan or Company common stock
issued or issuable in connection with a merger or other business combination or
reorganization of the Company or Company common stock issuable in a firm
commitment, underwritten public offering or Company common stock issuable upon
the exercise or conversion of the Company's options, warrants or other
convertible securities currently outstanding as of the date hereof or Company
common stock issuable upon the consummation of a transaction with or an
investment by the entity disclosed by the Company to the Buyers in writing prior
to or at the Closing) at a price per common stock share, a conversion price per
common stock share or an exercise price per common stock share less than $9.00
per common stock share (such lesser price shall be deemed the "Differential
Price"), then the Company shall issue additional shares of Company common stock
to the Buyers equal to the Share Differential Amount. The Share Differential
Amount shall equal the sum of (i) the amount determined by dividing the
Differential Price into the Buyers' aggregate Purchase Price, less (ii) the
number of Common Shares purchased by the Buyer at the Closing. Any such
additional shares of common stock after issuance shall be deemed to be Common
Shares for purposes of this Agreement and shall have the registration rights set
forth in the Registration Rights Agreement.
10. [Reserved].
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The
corporate laws of the State of Florida shall govern all issues
17
<PAGE>
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
18
<PAGE>
If to the Company:
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Telephone: 954/917-6655
Facsimile: 954/917-6660
Attention: Randy S. Selman
With a copy to:
Atlas, Pearlman, Trop & Borkson
200 E. Las Olas Blvd., Suite 1900
Ft. Lauderdale, Florida 33301
Telephone: (954) 766-7816
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to the Transfer Agent:
Interwest Transfer Company, Inc.
1981 E. Murray Holladay Road, Ste. 100
Salt Lake City, Utah 84112
Telephone: 801/272-9294
Facsimile: 801-277-3147
Attention: Melinda Orth
If to a Buyer, to it at the address and facsimile number set forth on Schedule 1
with copies to such Buyer's representatives as set forth on Schedule 1, or at
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party five days prior to the effectiveness of such change.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Common Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Buyers. A Buyer may assign some or all of its rights
hereunder without the consent of the Company, provided, however, that any such
assignment shall not release such Buyer from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
11(l), the agreements and covenants set forth in Sections 4, 5 and 11, the
indemnification provisions set forth in Section 8
19
<PAGE>
and the anti-dilution adjustments and provisions set forth in Section 9 shall
survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. [Reserved].
k. Further Assurances. Each party shall do and 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.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 11(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 4(g) above.
m. Placement Agent. The Company acknowledges that it has
engaged Coleman & Company Securities, Inc. as placement agent (the "Placement
Agent") in connection with the sale of the Common Shares, which placement agent
may have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
n. 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.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
20
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
VISUAL DATA CORPORATION CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Incorporated,
the General Partner
By:--------------------------
Name:------------------------ By: /s/ Mitchell Kopin
Title:----------------------- ---------------------------
Name: Mitchell Kopin
Title: President
GILFORD PARTNERS, L.P.
By:
-------------------------------
the General Partner
By: /s/ H. Robert Holmes
---------------------------
Name: H. Robert Holmes
Title:
21
<PAGE>
SCHEDULE 1: LIST OF INVESTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of
Investor Address Common Investor's Legal Representatives'
Investor's Name and Facsimile Number Shares Address and Facsimile Number
- --------------------------------- -------------------------------------- ------------- ------------------------------------
Cranshire Capital, L.P. 770 Frontage Rd., Ste. 134 83,334 Katten Muchin & Zavis
Northfield, IL 60093 525 W. Monroe Street
Attn: Mitchell Kopin Chicago, Illinois 60661-3693
(p) 847/784-1544 Attention: Anthony J. Ribaudo, Esq.
(f) 847/784-1546 (p) 312/ 902-5521
(f) 312/ 577-8763
Gilford Partners, L.P. 2022 N. Mohawk 27,778 Cherry & Flynn
Chicago, IL 60614 30 N. LaSalle, Ste. 2300
Attn: Robert Holmes Chicago, IL 60602
(p) 312/786-2071 Attn: Mike Cherry
(f) 312/664-3581 (p) 312/372-2100
(f) 312/853-0279
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Transfer Agent Instructions
Exhibit C Form of Company Counsel Opinion
23
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 9, 1999, is entered into by and among Visual Data Corporation, a
Florida corporation, with headquarters located at 1291 S.W. 29th Avenue, Pompano
Beach, Florida 33069 (the "Company"), and the undersigned buyers (each, a
"Buyer" and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties dated as of February __, 1999 (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers 111,112 shares of
the Company's Common Stock, par value $.0001 per share (the "Common Shares");
and
B. To induce the Buyers to execute and deliver the Securities 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, the "1933 Act"), and
applicable state securities laws.
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
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
<PAGE>
d. "Registrable Securities" means the Common Shares purchased
pursuant to the Securities Purchase Agreement and any shares of capital stock
issued or issuable with respect to the Common Shares as a result of any stock
split, stock dividend, recapitalization, exchange, anti-dilution rights or
similar event or otherwise.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than thirty (30) days after the date
of issuance of the relevant Common Shares, file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 covering the
resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
The initial Registration Statement prepared pursuant hereto shall register for
resale that number of Company common stock shares equal to the number of
Registrable Securities as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than ninety (90) days after the issuance of the relevant
Common Shares.
b. [Reserved.]
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any Common Shares included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
shall have the right to select one legal counsel to review and oversee any
offering pursuant to this Section 2 ("Legal Counsel"), which shall be Katten
Muchin & Zavis or such other counsel as thereafter designated by the holders of
a majority of Registrable Securities. The Company shall reasonably cooperate
with Legal Counsel in performing the Company's obligations under this Agreement.
-2-
<PAGE>
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f. Rule 416. The Company and the Investors each acknowledge
that each Registration Statement prepared in accordance hereunder shall include
an indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of the
anti-dilution provisions contained in Section 9 of the Securities Purchase
Agreement in accordance with the terms thereof (collectively, the "Rule 416
Securities"). In this regard, the Company agrees to use all reasonable efforts
to ensure that the maximum number of Registrable Securities which may be
registered pursuant to Rule 416 under the 1933 Act are covered by each
Registration Statement and, absent guidance from the SEC or other definitive
authority to the contrary, the Company shall use all reasonable efforts to
affirmatively support and to not take any position adverse to the position that
each Registration Statement filed hereunder covers all of the Rule 416
Securities. If the Company determines that the Registration Statement filed
hereunder does not cover all of the Rule 416 Securities, the Company shall
immediately (i) provide to each Investor written evidence setting forth the
basis for the Company's position and the authority therefor and (ii) prepare and
file an amendment to such Registration Statement or a new Registration Statement
in accordance with Section 2(g).
g. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to Section
2(c), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover at least one hundred percent (100%) of such Registrable
Securities in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises. The Company shall use it
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of Registrable Securities is greater than
the number of shares of Company common stock available for resale under such
Registration Statement.
3. RELATED OBLIGATIONS.
Whenever the Company is obligated to file a Registration Statement with
the SEC pursuant to Section 2(a) or 2(g), the Company will use its best efforts
to effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
-3-
<PAGE>
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of any Common Shares for
the registration of Registrable Securities pursuant to Section 2(a)) and use its
best efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as possible after such filing (but in no
event later than ninety (90) days after the issuance of any Common Shares for
the registration of Registrable Securities pursuant to Section 2(a)), and keep
such Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which the
Investors shall have sold all the Registrable Securities (the "Registration
Period"), which Registration Statement (including any 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 light of the
circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.
c. The Company shall permit Legal Counsel to review and
comment upon a Registration Statement and all amendments and supplements thereto
at least three (3) days prior to their filing with the SEC, and not file any
document in a form to which Legal Counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which consent shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request)
-4-
<PAGE>
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (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 during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications 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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
-5-
<PAGE>
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration Statement
(i) if required by an underwriter, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that
-6-
<PAGE>
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each 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 and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq Small-Cap Market System. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. [Reserved]
n. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a shareholder or any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. [Reserved.]
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder and the Company shall use its best efforts to file with
the SEC in a timely manner all reports and documents required of the Company
under the 1933 Act and the 1934 Act (as defined in Section 6(a)).
s. Within three (3) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in
-7-
<PAGE>
such Registration Statement) confirmation that the Registration Statement has
been declared effective by the SEC in the form attached hereto as Exhibit A.
t. [Reserved.]
u. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
v. Notwithstanding anything to the contrary contained in this
Agreement, the Registration Statement shall register only the Registrable
Securities.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the anticipated filing
date of the Registration Statement under Sections 2(a) and 2(g), the Company
shall notify each Investor in writing of the information the Company requires
from each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. 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 a particular Investor that such Investor shall furnish to the
Company such information regarding itself and the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
b. Each Investor by such Investor'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 any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
Legal Counsel, shall be paid by the Company.
-8-
<PAGE>
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and any underwriter (as defined in the 1933 Act) for
the Investors, and the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys' fees,
amounts paid in settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject 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 in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state 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
effective 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 light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any material violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any 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): (i) shall not apply to a Claim by an Indemnified Person 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 such Indemnified Person
or underwriter for such 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(d); (ii) with respect to any preliminary prospectus, shall
not 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
-9-
<PAGE>
(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 timely corrected in the prospectus, as then amended or supplemented, and if
such prospectus was timely made available by the Company to the Indemnified
Person pursuant to Section 3(d); (iii) shall not be available to the extent such
Claim is based on a failure of the Investor to deliver or to cause to be
delivered the then current prospectus made available by the Company; and (iv)
shall not 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. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any Indemnified Party may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(d), such Investor will reimburse any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified
-10-
<PAGE>
Party 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 or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the 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 or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
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 or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. 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 and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
-11-
<PAGE>
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:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) 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.
8. LIQUIDATED DAMAGES.
The company agrees that the Buyers will suffer damages if the
Company fails to fulfill its obligations pursuant to Sections 2(a) (other than
the Company's obligations to prepare, and as soon as practicable, but in no
event later than thirty (30) days after the date of issuance of the relevant
Common Shares, file with the SEC a Registration Statement(s) on Form S-3
covering the resale of all of the Registrable Securities), 3(b), 3(e) and 3(h)
of this Agreement (a "Registration Default") and that it would not be possible
to ascertain the extent of such damages. Accordingly, in the event of such
failure by the Company to fulfill such obligations, the Company hereby agrees to
pay liquidated damages ("Liquidated Damages") to each Buyer (x) during the first
30-day period immediately following the occurrence of such Registration Default
in an amount determined by multiplying (i) $.09 per Common Share not covered by
an effective registration statement by (ii) the percentage derived by dividing
(A) the actual number of days elapsed from the day the Registration Default
occurred to the day such Registration Default has been completely cured by (B)
30 and (y) for every 30-day period thereafter in an amount determined by
multiplying (i) $.18 per Common Share not covered by an effective registration
statement by (ii) the percentage derived by dividing (A) the actual number of
days elapsed from the last day of the prior 30-day period to the day such
Registration Default has been completely cured by (B) 30, in cash, or at the
Buyer's option, in the number of shares of Company common stock, if such
issuance will not violate the rules of the Nasdaq Small-Cap Market, equal to the
quotient of (v) the dollar amount of the Liquidated Damages on the Payment Date
(as defined below) by (w) the closing bid price of the Company's common stock as
of the date of the Registration Default (as quoted in the Principal Market (as
defined in the Securities Purchase Agreement) or the market or exchange where
the Company's common stock is then traded); provided, however, that a
Registration Default under Sections 3(b), 3(e) and 3(h) shall not be deemed to
occur unless (i) the effective registration statement(s) covering the resale of
the Registrable Securities is not available for use by the Investors for ten
(10) consecutive trading days or (ii) the effective registration statement(s)
covering the resale of the Registrable Securities is not available for use by
the Investors for thirty (30) or more trading days in such calendar year. The
Liquidated Damages payable pursuant hereto shall be payable within five (5)
business days from the end of the calendar month commencing on the first
calendar month in which the Registration Default occurs (each, a "Payment
Date"). In the event the Buyer elects to receive the Liquidated Damages amount
in shares of Company common stock, such shares shall also be considered Common
Shares and shall have the registration rights set forth in the Registration
Rights Agreement.
-12-
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
provided, however, that the transferee or assignee may subsequently transfer or
assign all or any portion of the Registrable Securities if an exemption from
registration under the 1933 Act is applicable to such transfer or assignment;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 Investors party to this Agreement who then hold a majority of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons 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.
-13-
<PAGE>
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Telephone: 954/917-6655
Facsimile: 954/917-6660
Attention: Randy S. Selman
With a copy to:
Atlas, Pearlman, Trop & Borkson
200 E. Las Olas Blvd., Ste. 1900
Ft. Lauderdale, Florida 33301
Telephone: (954) 766-7816
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5521
Facsimile: 312-577-8763
Attention: Anthony J. Ribaudo
Cherry & Flynn
30 North LaSalle, Ste. 2300
Chicago, Illinois 60602
Telephone: 312/372-2100
Facsimile: 312/853-0279
Attention: Mike Cherry, Esq.
-14-
<PAGE>
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Florida shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical 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 facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and 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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities.
-15-
<PAGE>
k. 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.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[Intentionally Left Blank]
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
VISUAL DATA CORPORATION CRANSHIRE CAPITAL, L.P.
By:-------------------------- By: Downsview Capital, Incorporated,
the General Partner
Name:------------------------
Title:----------------------- By: /s/ Mitchell Kopin
------------------------------------
Name: Mitchell Kopin
Title: President
GILFORD PARTNERS, L.P.
By:
-------------------------------
the General Partner
By: /s/ H. Robert Holmes
---------------------------
Name: H. Robert Holmes
Title:
-17-
<PAGE>
SCHEDULE OF BUYERS
Investor's Address
Investor Name and Facsimile Number
Cranshire Capital, L.P. 770 Frontage Road, Ste. 134
Northfield, Illinois 60093
Attn: Mitchell Kopin
(p) 847/784-1544
(f) 847/784-1546
Gilford Partners, L.P. 2022 N. Mohawk
Chicago, IL 60614
Attn: Robert Holmes
(p) 312/786-2071
(f) 312/664-3581
-18-
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Interwest Transfer Company, Inc.
1981 E. Murray Holladay Road, Suite 100
Salt Lake City, Utah 84112
[TRANSFER AGENT]
Attn: Melinda Orth
Re: VISUAL DATA CORPORATION
Ladies and Gentlemen:
We are counsel to Visual Data Corporation, a Florida corporation
(the "Company"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "Purchase Agreement") entered into by
and among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Common Stock,
par value $.0001 per share, (the "Common Shares"). Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the "Registration Rights Agreement") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the Common Shares,
under the Securities Act of 1933, as amended (the "1933 Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on
____________ ___, 199_, the Company filed a Registration Statement on Form S-3
(File No. 333-_____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:-----------------------
- -----------------------------------
cc: [LIST NAMES OF HOLDERS]
-19-
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
February 8, 1999 (the "Closing Date"), is entered into by and among Visual Data
Corporation, a Florida corporation, with headquarters located at 1291 S.W. 29th
Avenue, Pompano Beach, Florida 33069 (the "Company"), and the investors listed
on Schedule 1 attached hereto (individually, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 222,222 shares of the Company's Common Stock,
par value $.0001 per share (the "Common Shares"), in the respective amounts set
forth opposite each Buyer's name on Schedule 1; and
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
a. Purchase of Common Shares. In connection with the offering
(the "Offering") by the Company of its common stock to certain purchasers,
including without limitation, the Buyers, and subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company the respective number of shares of Common Shares set forth opposite
such Buyer's name on Schedule 1 (the "Closing"). The purchase price (the
"Purchase Price") of the Common Shares at the Closing shall be $1,999,998.
b. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the Purchase Price to an escrow account with Gotham Bank of New York, c/o
Mitch Lampert, located at 1412 Broadway, New York, New York 10018, as escrow
agent (the "Escrow Agent"), for the Common Shares to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company's written wire
<PAGE>
instructions, and (ii) the Company shall deliver to the Escrow Agent, on behalf
of each Buyer, stock certificates (in the denominations as such Buyer shall
request) (the "Common Share Certificates") representing such number of the
Common Shares which such Buyer is then purchasing (as indicated opposite such
Buyer's name on Schedule 1) hereunder, duly executed on behalf of the Company
and registered in the name of such Buyer or its designee. Upon the completion of
the conditions contained in Sections 6 and 7 of this Agreement, the Escrow Agent
shall deliver the certificates representing the Common Shares to the Buyers via
overnight courier and the Escrow Agent shall then wire the Purchase Price to the
Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer is acquiring the Common
Shares (the Common Shares may also be referred to herein as the "Securities"),
for its own account for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
2
<PAGE>
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: the Common Shares have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company (and its counsel) an opinion of counsel, in a generally acceptable form,
to the effect that such Common Shares to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company (and its counsel) with reasonable
assurance that such Common Shares can be sold, assigned or transferred pursuant
to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule
thereto) ("Rule 144").
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Commons Shares, until such time as the sale
of the Common Shares has been registered under the 1933 Act as contemplated by
the Registration Rights Agreement, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO
RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act and the Securities are
being sold pursuant to a Registration Statement, (ii) in connection with a sale
transaction, such holder provides the Company (and its counsel) with an opinion
of counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or (iii) such holder provides the Company (and its counsel) with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
3
<PAGE>
h. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country and
state specified in its address on Schedule 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a controlling position of capital
stock or holds a controlling position of an equity or similar interest) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results or operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below).
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions
(as defined in Section 5) and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Common Shares, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by
4
<PAGE>
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Issuance of Securities. The Common Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. Assuming the accuracy of
the representations, warranties and agreements of the Company and the Buyers
contained in this Agreement, the issuance by the Company of the Common Shares is
exempt from registration under the 1933 Act.
d. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the Company's issuance of the Common Shares) will not (i) result in a violation
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation") or the Company's By-laws,
as amended and as in effect on the date hereof (the "By-laws") or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except where such
default, termination, amendment, acceleration, cancellation, violation or
conflict would not have a Material Adverse Effect. Neither the Company nor its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, or By-laws or their organizational charter or by-laws,
respectively. Neither the Company or any of its Subsidiaries is in violation or
any term of or in default under any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible conflicts, defaults, terminations, amendments which would not have a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance,
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, any applicable state "Blue Sky" laws or the
Principal Market (as defined below), the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have
5
<PAGE>
been obtained or effected on or prior to the date hereof. The Company is in
compliance with the listing requirements of the Principal Market (as defined
below).
e. SEC Documents; Financial Statements. As of the Closing, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, knowingly contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Buyers with any material, nonpublic information.
f. Absence of Certain Changes. Since the most recent filing by
the Company with the SEC, there has been no material adverse change in the
business, properties, operations, financial condition, results of operations or
prospects of the Company or its Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
g. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Company's common stock, the
Common Shares or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such
which would have a Material Adverse Effect.
h. [Reserved].
6
<PAGE>
i. No Undisclosed Events, Liabilities, Developments or
Circumstances. To the Company's knowledge, no event, liability, development or
circumstance has occurred or exists, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its common stock and which
has not been publicly announced.
j. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. [Reserved].
l. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. No executive
officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company.
m. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within one year from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others.
n. Environmental Laws. Except in such an event which would not
result in a Material Adverse Effect, the Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
7
<PAGE>
o. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the SEC Documents or
such as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries or would not result in a Material Adverse Effect. Any
real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
p. Insurance. Neither the Company nor any such Subsidiary has
been refused any insurance coverage sought or applied for.
q. Regulatory Permits. Except in such an event which would not
result in a Material Adverse Effect, the Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Tax Status. Except in such an event which would not result
in a Material Adverse Effect, the Company and each of its Subsidiaries has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no current unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction.
s. Transactions With Affiliates. Except as set forth in the
SEC Documents filed at least ten days prior to the date hereof, none of the
officers, directors, or controlling shareholders of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
8
<PAGE>
t. Current Public Information. The Company is currently
eligible to register the resale of the Common Shares on a registration statement
on Form S-3 under the 1933 Act.
u. Use of Proceeds. The net proceeds from the sale of the
Common Shares shall be used for working capital.
v. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 20,000,000 shares of Common Stock,
of which as of the date hereof, 5,348,484 shares were issued and outstanding,
and (ii) 5,000,000 shares of preferred stock, which as of the date hereof, none
were issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Common Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which the Investors shall have sold all the Common
Shares (the "Registration Period"), the Company shall use its best efforts to
file all reports required to be filed with the SEC pursuant to the 1934 Act.
d. Buyers' Sale of Common Shares. From the Closing Date,
through and including the date which is the earlier of 90th calendar day
following the Closing Date or the 15th calendar day after the effectiveness of
the Registration Statement (as defined in the Registration Rights Agreement) if
the Registration Statement is not reviewed by the SEC (the "Release Date"), the
Buyers shall not sell, transfer or dispose the Common Shares. From the date
which is the Release Date through and including the date which is the 45th
calendar day following the Release Date, each Buyer shall have the right to
transfer, sell or dispose, in any manner whatsoever, pursuant to a Registration
Statement (as defined in the Registration Rights Agreement) or pursuant to an
exemption from registration under the 1933 Act, fifty percent
9
<PAGE>
(50%) of the Common Shares purchased by such Buyer. From the date which is the
46th calendar day following the Release Date, each Buyer shall have the right to
transfer, sell or dispose, in any manner whatsoever, pursuant to a Registration
Statement (as defined in the Registration Rights Agreement) or pursuant to an
exemption from registration under the 1933 Act, one hundred percent (100%) of
the Common Shares then held by such Buyer. Notwithstanding the foregoing, in no
event shall any restriction extend beyond the 121st day following the Closing
Date.
e. Right of First Refusal. Subject to the exceptions described
below, the Company and its Subsidiaries shall not negotiate or contract with any
party for any equity financing (including any debt financing with an equity
component) or issue any equity securities of the Company or any Subsidiary or
securities convertible or exchangeable into or for equity securities of the
Company or any Subsidiary (including debt securities with an equity component)
in any form ("Future Offerings") during the period beginning on the date hereof
and ending on, and including, the date which is the later of (i) ninety (90)
days after the Closing Date or (ii) the date on which the Registration Statement
is declared effective, unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "Future Offering Notice")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase its Aggregate Percentage
(as defined below) of the securities to be issued in such Future Offering, as of
the date of delivery of the Future Offering Notice, in the Future Offering (the
limitations referred to in this sentence is referred to as the "Capital Raising
Limitations"). For purposes of this Section 4(e), "Aggregate Percentage" at any
time with respect to any Buyer shall mean the percentage obtained by dividing
(i) the aggregate number of the Common Shares initially issued to such Buyer by
(ii) the aggregate number of the Company's restricted common stock sold to
certain purchasers by the Company in connection with the Offering and the
Offering as defined therein) under the other Securities Purchase Agreement of
even date herewith. A Buyer can exercise its option to participate in a Future
Offering by delivering written notice thereof to participate to the Company
within five (5) business days after receipt of a Future Offering Notice, which
notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase (such amount equaling such Buyer's
Aggregate Percentage), and that number of securities it is willing to purchase
in excess of its Aggregate Percentage. In the event that one or more investors
participating in this Offering, and the investors in that other Securities
Purchase Agreement of even date hereof, fail to elect to purchase such
investor's Aggregate Percentage (each such investor, a "Rejecting Investor"),
then the remaining investor(s) willing to purchase a number of securities in
such Future Offering must either (A) additionally purchase the Rejecting
Investor's Aggregate Percentage of such Future Offering or (B) forfeit such
investor's right of first refusal with respect to such Future Offering (and such
forfeit shall not affect the Buyers' ability or rights to exercise their right
of first refusal with respect to later Future Offerings). In the event the
Buyers fail to participate in the Future Offering within the periods described
in this Section 4(e), the Company shall have 60 days thereafter to sell the
securities of the Future Offering, upon terms and conditions, no more favorable
to the purchasers thereof than specified in the Future Offering Notice. In the
event the Company has not sold such securities of the Future Offering within
such 60 day period, the Company shall not
10
<PAGE>
thereafter issue or sell such securities without first offering such securities
to the Buyers in the manner provided in this Section 4(e). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank which does not
have any equity feature, (ii) any transaction involving the Company's issuances
of securities (A) as consideration in a merger or consolidation, or (B) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (iii) the issuance of common stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors, (vi) the issuance of common stock to the
Placement Agent (as defined in Section 11(m) below) in connection with the
Placements Agent's role as placement agent in the Offering or the Offering under
the other Securities Purchase Agreement of even date herewith or (vii) the
Company's issuance of securities with any strategic partner as a result of which
the Company receives in excess of $8,000,000.00 in cash or cash equivalents. The
Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
f. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as that term is defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of the Company's common stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of common stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq Small-Cap Market, The NASDAQ National Market, The New
York Stock Exchange, Inc. or The American Stock Exchange, Inc., as applicable
(the "Principal Market"). Neither the Company nor any of its Subsidiaries shall
take any action which would be, in their good faith business judgment,
reasonably expected to result in the delisting or suspension of Company common
stock on the Principal Market. The Company shall promptly, and in no event later
than the following business day, provide to each Buyer copies of any notices it
receives from the Principal Market regarding the continued eligibility of
Company common stock for listing on such automated quotation system or
securities exchange. The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(f).
g. [Reserved.]
h. Business Combination; Transfer Agent. Unless and until the
Common Shares have been registered pursuant to an effective Registration
Statement (as defined in the Registration Rights Agreement) or the Buyers have
provided their prior written consent, the Company shall not (i) enter into any
merger, sale of all or substantially all of the Company's assets or other
business combination or other corporate reorganization in which the Company is
not the surviving entity after such transaction(s) or (ii) select, appoint or
enter into any
11
<PAGE>
arrangement or agreement with a party other than Interwest Transfer Company,
Inc. (the "Transfer Agent") to serve as transfer agent for the Company.
i. Limitation on Filing Registration Statements. The Company
shall not file a registration statement (other than the Registration Statement
(as defined in the Registration Rights Agreement) or a registration statement on
Form S-8) covering the sale or resale of shares of Company common stock with the
SEC during the period beginning on the date hereof and ending on the date which
is 30 days after the Registration Statement has been declared effective by the
SEC.
j. [Reserved].
k. Corporate Existence and Taxes. Until all of the Common
Shares have been registered pursuant to an effective Registration Statement, the
Company shall maintain its corporate existence in good standing (provided,
however, that the foregoing covenant shall not prevent the Company from entering
into any merger or corporate reorganization as long as the surviving entity in
such transaction, if not the Company, has common stock listed for trading on the
Principal Market and shall pay all its taxes when due except for taxes which the
Company disputes).
l. Lock-Up Waivers. From the date hereof through the date
which is 45 days after the Registration Statement is declared effective the
Company shall not release or waive any lock-up, restriction or limitation on any
person or entity on their right to sell or dispose of securities of the Company
outstanding on the date hereof without notifying the Buyer at least three (3)
business days prior to such release or waiver and the Company grants Buyer a
release from the transfer restrictions imposed under 4(d) herein.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to the
Transfer Agent substantially in the form of Exhibit B hereto (the "Transfer
Agent Instructions"). Prior to registration of the Common Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof will be given by the
Company to its Transfer Agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company (and its counsel) with an opinion of counsel, in a generally acceptable
form, to the effect that a public sale, assignment or transfer of the Securities
may be made without registration under the 1933 Act or the Buyer provides the
Company (and its counsel) with reasonable assurances that the Securities can be
sold pursuant to Rule 144 without any restriction as to the number of securities
12
<PAGE>
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, promptly instruct its Transfer Agent to issue
one or more certificates in such name and in such denominations as specified by
such Buyer and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Common Shares to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Escrow Agent for
the transactions contemplated by this Agreement;
b. Such Buyer shall have delivered to the Escrow Agent the
Purchase Price for the Common Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company or the Escrow Agent;
c. The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date;
d. Such Buyer shall have delivered to the Escrow Agent such
other documents relating to the transactions contemplated by this Agreement as
the Escrow Agent or its counsel may reasonably request;
e. The Company and the Escrow Agent shall have entered into an
escrow agreement; and
13
<PAGE>
f. The Company and the Placement Agent shall have entered into
a Placement Agent's Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common
Shares at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion by providing the Company with prior written notice thereof:
a. The Company shall have executed each of the
Transaction Documents and delivered the same to the Escrow Agent;
b. The Company's common stock shall be authorized for
quotation on the Principal Market and trading in Company common stock shall not
have been suspended by the SEC or the Principal Market;
c. The representations and warranties of the Company shall be
true and correct, in all material respects, as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied, in all material respects, with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date;
d. The Company shall have delivered to the Escrow Agent the
opinion of the Company's counsel dated as of the Closing Date, in form, scope
and substance reasonably satisfactory to such Buyer and in substantially the
form of Exhibit C attached hereto;
e. The Company shall have executed and delivered to the Escrow
Agent the certificates representing Common Shares (in such denominations as such
Buyer shall request) for the Common Shares being purchased by such Buyer at the
Closing;
f. The Transfer Agent Instructions, in the form of Exhibit B
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent and a copy of the executed Transfer Agent Instructions
shall have been delivered to the Escrow Agent;
g. The Company shall have made all filings, other than those
contemplated by the Registration Rights Agreement, under all applicable federal
and state securities laws necessary to consummate the issuance of the Securities
pursuant to this Agreement in compliance with such laws;
14
<PAGE>
h. The Company shall have delivered to the Escrow Agent such
other documents relating to the transactions contemplated by this Agreement as
the Escrow Agent or its counsel may reasonably request;
i. The Company and the Escrow Agent shall have entered into an
escrow agreement; and,
j. Subject to Section 11(l) below, at the Closing, the Company
shall reimburse the Buyers for the Buyers' attorneys' fees and expenses (in an
amount not to exceed $15,000.00) incurred by the Buyers concerning the due
diligence review of the contemplated transactions and the Company, and the
negotiation and preparation of the Transaction Documents and the consummation of
the transactions contemplated thereby.
8. INDEMNIFICATION.
a. Indemnification by Company. In consideration of each
Buyer's execution and delivery of the Transaction Documents and acquiring the
Securities thereunder and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless each Buyer and all of their stockholders, partners, officers,
directors, employees and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith and including reasonable attorneys' fees and disbursements
(the "Buyer Indemnified Liabilities"), incurred by any Buyer Indemnitee as a
result of, or arising out of, or relating to (a) any material misrepresentation
or breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (b) any material breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Buyer
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Buyer Indemnified Liabilities which is permissible
under applicable law.
b. Indemnification by Buyers. In consideration of the
Company's execution and delivery of the Transaction Documents and the Company's
performance of the transactions contemplated thereunder, each Buyer shall
severally and not jointly defend, protect, indemnify and hold harmless the
Company, its officers and directors (collectively, the "Company Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs,
15
<PAGE>
penalties, fees, liabilities and damages, and expenses in connection therewith
and including reasonable attorneys' fees and disbursements (the "Company
Indemnified Liabilities"), incurred by any Company Indemnitee as a result of, or
arising out of, or relating to (a) any material representation or breach of any
representation or warranty made by such Buyer in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(b) any material breach of any covenant, agreement or obligation of such Buyer
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby; provided, however, that any Buyer shall
not be jointly liable for the indemnification obligations of any other Buyer or
investor and the Buyer subject to an indemnification obligation shall be liable
under this Section 8(b) for only that amount of Company Indemnified Liabilities
as does not exceed the net proceeds to such Buyer as a result of the sale of
Common Shares held by such Buyer. To the extent that the foregoing undertaking
by a Buyer may be unenforceable for any reason, such Buyer shall make the
maximum contribution to the payment and satisfaction of each of the Company
Indemnified Liabilities which is permissible under applicable law; provided,
however, that any Buyer shall not be jointly liable for the indemnification
obligations of any other Buyer or investor and the Buyer subject to an
indemnification obligation shall be liable under this Section 8(b) for only that
amount of Company Indemnified Liabilities as does not exceed the net proceeds to
such Buyer as a result of the sale of Common Shares held by such Buyer.
9. ANTI-DILUTION ADJUSTMENTS.
a. Issuance of Common Stock or Rights to Purchase Company
Common Stock Below Offering Price. Prior to the registration of the Common
Shares pursuant to an effective Registration Statement (as described in the
Registration Rights Agreement), if the Company shall, at any time or from time
to time, issue Company common stock or instruments convertible or exercisable
into Company common stock (other than Company common stock issued or issuable
pursuant to an employee stock option incentive plan or Company common stock
issued or issuable in connection with a merger or other business combination or
reorganization of the Company or Company common stock issuable in a firm
commitment, underwritten public offering or Company common stock issuable upon
the exercise or conversion of the Company's options, warrants or other
convertible securities currently outstanding as of the date hereof or Company
common stock issuable upon the consummation of a transaction with or an
investment by the entity disclosed by the Company to the Buyers in writing prior
to or at the Closing) at a price per common stock share, a conversion price per
common stock share or an exercise price per common stock share less than $9.00
per common stock share (such lesser price shall be deemed the "Differential
Price"), then the Company shall issue additional shares of Company common stock
to the Buyers equal to the Share Differential Amount. The Share Differential
Amount shall equal the sum of (i) the amount determined by dividing the
Differential Price into the Buyers' aggregate Purchase Price, less (ii) the
number of Common Shares purchased by the Buyer at the Closing. Any such
additional shares of common stock after issuance shall be deemed to be Common
Shares for purposes of this Agreement and shall have the registration rights set
forth in the Registration Rights Agreement.
16
<PAGE>
10. [Reserved].
11. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws
of the State of Florida shall govern all issues concerning the relative rights
of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with a
17
<PAGE>
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Telephone: 954/917-6655
Facsimile: 954/917-6660
Attention: Randy S. Selman
With a copy to:
Atlas, Pearlman, Trop & Borkson
200 E. Las Olas Blvd., Suite 1900
Fort Lauderdale, Florida 33301
Telephone: (954) 766-7816
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to the Transfer Agent:
Interwest Transfer Company, Inc.
1981 E. Murray Holladay Road, Suite 100
Salt Lake City, Utah 84112
Telephone: 801/272-9294
Facsimile: 801-277-3147
Attention: Melinda Orth
If to a Buyer, to it at the address and facsimile number set forth on Schedule 1
with copies to such Buyer's representatives as set forth on Schedule 1, or at
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party five days prior to the effectiveness of such change.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Common Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Buyers. A Buyer may assign some or all of its rights
hereunder without the consent of the Company, provided, however, that any such
assignment shall not release such Buyer from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption.
18
<PAGE>
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
11(l), the agreements and covenants set forth in Sections 4, 5 and 11, the
indemnification provisions set forth in Section 8 and the anti-dilution
adjustments and provisions set forth in Section 9 shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. [Reserved].
k. Further Assurances. Each party shall do and 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.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 11(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 4(g) above.
m. Placement Agent. The Company acknowledges that it has
engaged Coleman & Company Securities, Inc. as placement agent (the "Placement
Agent") in connection with the sale of the Common Shares, which placement agent
may have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
n. 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.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the
19
<PAGE>
rights which such holders have under any law. Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
[Intentionally Left Blank]
20
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
VISUAL DATA CORPORATION OLIVE INVESTORS, LLC
By: WEC Asset Management LLC
Manager
By:--------------------------
Name: ----------------------- By: /s/ Danny Saks
Title: ---------------------- -----------------------------
Name: Danny Saks
Title: Managing Director
21
<PAGE>
SCHEDULE 1: LIST OF INVESTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of
Investor Address Common Investor's Legal Representatives'
Investor's Name and Facsimile Number Shares Address and Facsimile Number
- --------------------------------- -------------------------------------- ------------- ------------------------------------
Olive Investors LLC c/o WEC Asset Management LLC 222,222 Pryor Cashman Sherman &
One World Trade Center Flynn LLP
Suite 4563 410 Park Avenue, 10th Floor
New York, New York 10048 New York, New York 10022
Phone: (212) 775-9299 Phone: (212) 326-0140
Fax: (212) 775-9311 Fax: (212) 326-0806
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Transfer Agent Instructions
Exhibit C Form of Company Counsel Opinion
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 8, 1999, is entered into by and among Visual Data Corporation, a
Florida corporation, with headquarters located at 1291 S.W. 29th Avenue, Pompano
Beach, Florida 33069 (the "Company"), and the undersigned buyers (each, a
"Buyer" and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties dated as of February 8, 1999 (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers 222,222 shares of
the Company's Common Stock, par value $.0001 per share (the "Common Shares");
and
B. To induce the Buyers to execute and deliver the Securities 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, the "1933 Act"), and
applicable state securities laws.
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
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of
<PAGE>
effectiveness of such Registration Statement(s) by the United States Securities
and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Common Shares purchased
pursuant to the Securities Purchase Agreement and any shares of capital stock
issued or issuable with respect to the Common Shares as a result of any stock
split, stock dividend, recapitalization, exchange, anti-dilution rights or
similar event or otherwise.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than thirty (30) days after the date
of issuance of the relevant Common Shares, file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 covering the
resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
The initial Registration Statement prepared pursuant hereto shall register for
resale that number of Company common stock shares equal to the number of
Registrable Securities as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than ninety (90) days after the issuance of the relevant
Common Shares.
b. [Reserved.]
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any Common Shares included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors.
2
<PAGE>
d. Legal Counsel. Subject to Section 5 hereof, the Buyers
shall have the right to select one legal counsel to review and oversee any
offering pursuant to this Section 2 ("Legal Counsel"), which shall be designated
by the holders of a majority of Registrable Securities. The Company shall
reasonably cooperate with Legal Counsel in performing the Company's obligations
under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
f. Rule 416. The Company and the Investors each acknowledge
that each Registration Statement prepared in accordance hereunder shall include
an indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of the
anti-dilution provisions contained in Section 9 of the Securities Purchase
Agreement in accordance with the terms thereof (collectively, the "Rule 416
Securities"). In this regard, the Company agrees to use all reasonable efforts
to ensure that the maximum number of Registrable Securities which may be
registered pursuant to Rule 416 under the 1933 Act are covered by each
Registration Statement and, absent guidance from the SEC or other definitive
authority to the contrary, the Company shall use all reasonable efforts to
affirmatively support and to not take any position adverse to the position that
each Registration Statement filed hereunder covers all of the Rule 416
Securities. If the Company determines that the Registration Statement filed
hereunder does not cover all of the Rule 416 Securities, the Company shall
immediately (i) provide to each Investor written evidence setting forth the
basis for the Company's position and the authority therefor and (ii) prepare and
file an amendment to such Registration Statement or a new Registration Statement
in accordance with Section 2(g).
g. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to Section
2(c), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover at least one hundred percent (100%) of such Registrable
Securities in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises. The Company shall use it
best efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the number of
3
<PAGE>
Registrable Securities is greater than the number of shares of Company common
stock available for resale under such Registration Statement.
3. RELATED OBLIGATIONS.
Whenever the Company is obligated to file a Registration Statement with
the SEC pursuant to Section 2(a) or 2(g), the Company will use its best efforts
to effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of any Common Shares for
the registration of Registrable Securities pursuant to Section 2(a)). The
Company shall use its best efforts to cause such Registration Statement to
become effective within the earliest to occur of (i) ninety (90) days following
the Closing Date; (ii) if the SEC elects not to conduct a review of the
Registration Statement, the date which is five (5) business days after the date
upon which either the Company or its counsel is so notified, whether orally or
in writing; or (iii) if the Registration Statement is reviewed by the SEC, the
earlier of (x) one hundred twenty (120) days following the Closing Date or (y)
the date which is five (5) business days after the date upon which the Company
or its counsel is notified by the SEC, whether orally or in writing, that the
SEC has no further comments with respect to the Registration Statement, or that
the Registration Statement may be declared effective. The Company shall keep
such Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which the
Investors shall have sold all the Registrable Securities (the "Registration
Period"), which Registration Statement (including any 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 light of the
circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.
c. The Company shall permit Legal Counsel to review and
comment upon a Registration Statement and all amendments and supplements thereto
at least three (3) days prior
4
<PAGE>
to their filing with the SEC, and not file any document in a form to which Legal
Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (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 during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications 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 (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into
5
<PAGE>
and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration Statement
(i) if required by an underwriter, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
6
<PAGE>
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each 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 and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq Small-Cap Market System. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. [Reserved]
n. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
7
<PAGE>
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a shareholder or any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. [Reserved.]
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder and the Company shall use its best efforts to file with
the SEC in a timely manner all reports and documents required of the Company
under the 1933 Act and the 1934 Act (as defined in Section 6(a)).
s. Within three (3) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
t. [Reserved.]
u. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
v. Notwithstanding anything to the contrary contained in this
Agreement, the Registration Statement shall register only the Registrable
Securities.
8
<PAGE>
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the anticipated filing
date of the Registration Statement under Sections 2(a) and 2(g), the Company
shall notify each Investor in writing of the information the Company requires
from each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. 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 a particular Investor that such Investor shall furnish to the
Company such information regarding itself and the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
b. Each Investor by such Investor'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 any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of
9
<PAGE>
1934, as amended (the "1934 Act"), and any underwriter (as defined in the 1933
Act) for the Investors, and the directors and officers of, and each Person, if
any, who controls, any such underwriter within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, attorneys'
fees, amounts paid in settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject 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 in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state 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
effective 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 light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any material violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any 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): (i) shall not apply to a Claim by an Indemnified Person 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 such Indemnified Person
or underwriter for such 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(d); (ii) with respect to any preliminary prospectus, shall
not 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 timely
corrected in the prospectus, as then amended or supplemented, and if such
prospectus was timely made available by the Company to the Indemnified Person
pursuant to Section 3(d); (iii) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or to cause to be delivered the
then current prospectus made available by the Company; and (iv) shall
10
<PAGE>
not 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. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any Indemnified Party may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(d), such Investor will reimburse any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party 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
11
<PAGE>
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 or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the 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 or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
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 or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. 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 and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
12
<PAGE>
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:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) 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.
8. LIQUIDATED DAMAGES.
The company agrees that the Buyers will suffer damages if the
Company fails to fulfill its obligations pursuant to Section 2(a) (other than
the Company's obligations to prepare, and as soon as practicable, but in no
event later than thirty (30) days after the date of issuance of the relevant
Common Shares, file with the SEC a Registration Statement on Form S-3 covering
the resale of all of the Registrable Securities if the failure to make such
filing is as a result of the Company's responding to or awaiting comments from
the Securities and Exchange Commission with respect to its post-effective
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on January 29, 1998 and furthermore, that such filing has been made
within five (5) business days of the effectiveness of the foregoing described
Registration Statement) (if such five-day period is beyond such 30-day period),
3(b), 3(e) and 3(h) of this Agreement (a "Registration Default") and that it
would not be possible to ascertain the extent of such damages. Accordingly, in
the event of such failure by the Company to fulfill such obligations, the
Company hereby agrees to pay liquidated damages ("Liquidated Damages") to each
Buyer (x) during the 30-day period immediately following the occurrence of such
Registration Default and each subsequent 30-day period in an amount determined
by multiplying (i) $.18 per Common Share not covered by an effective
registration statement by (ii) the percentage derived by dividing (A) the actual
number of days elapsed from the day the Registration Default occurred to the day
such Registration Default has been completely cured by (B) 30, in cash, or at
the Buyer's option, in the number of shares of Company common stock equal to the
quotient of (v) the dollar amount of the Liquidated Damages on the Payment Date
(as defined below) by (w) the closing bid price of the Company's common stock as
of the date of the Registration Default (as quoted in the Principal Market) (as
defined in the Securities Purchase Agreement) or the market or exchange where
the Company's common stock is then traded) provided, however, that in no event
shall the Company be obligated to issue any shares of its Common Stock as a
result of a Registration Default if the issuance of such shares would result in
violation of the rules of the Nasdaq Stock Market. Further provided, that a
Registration Default under Sections 3(b), 3(e) and 3(h) shall not be deemed to
occur unless (i) the effective registration statement(s) covering the resale of
the Registrable Securities is not available for use by the Investors for ten
(10) consecutive trading days or (ii) the effective registration statement(s)
covering the resale of the Registrable Securities is not available for use by
the
13
<PAGE>
Investors for thirty (30) or more trading days in such calendar year. The
Liquidated Damages payable pursuant hereto shall be payable within five (5)
business days from the end of the calendar month commencing on the first
calendar month in which the Registration Default occurs (each, a "Payment
Date"). In the event the Buyer elects to receive the Liquidated Damages amount
in shares of Company common stock, such shares shall also be considered Common
Shares and shall have the registration rights set forth in the Registration
Rights Agreement.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
provided, however, that the transferee or assignee may subsequently transfer or
assign all or any portion of the Registrable Securities if an exemption from
registration under the 1933 Act is applicable to such transfer or assignment;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions 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 Investors party to this Agreement who then hold a majority of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons 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.
14
<PAGE>
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Visual Data Corporation
1291 S.W. 29th Avenue
Pompano Beach, Florida 33069
Telephone: 954/917-6655
Facsimile: 954/917-6660
Attention: Randy S. Selman
With a copy to:
Atlas, Pearlman, Trop & Borkson
200 E. Las Olas Blvd., Suite 1900
Fort Lauderdale, Florida 33301
Telephone: (954) 766-7816
Facsimile: (954) 766-7800
Attention: Joel D. Mayersohn, Esq.
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Florida shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.
15
<PAGE>
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical 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 facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and 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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities.
k. 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.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
VISUAL DATA CORPORATION OLIVE INVESTORS LLC
By: WEC Asset Management LLC
By:-------------------------- By: /s/ Danny Saks
Name:------------------------ -------------------------
Title:----------------------- Name: Danny Saks
Title: Managing Director
17
<PAGE>
SCHEDULE OF BUYERS
Investor's Address
Investor Name and Facsimile Number
------------- --------------------
Olive Investors LLC c/o WEC Asset Management LLC
One World Trade Center, Suite 4563
New York, New York 10048
Attention: Daniel J. Saks
Phone: (212) 775-9299
Fax: (212) 775-9311
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Interwest Transfer Company, Inc.
1981 E. Murray Holladay Road, Suite 100
Salt Lake City, Utah 84112
[TRANSFER AGENT]
Attn: Melinda Orth
Re: VISUAL DATA CORPORATION
-----------------------
Ladies and Gentlemen:
We are counsel to Visual Data Corporation, a Florida
corporation (the "Company"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "Purchase Agreement") entered
into by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders shares of its
Common Stock, par value $.0001 per share, (the "Common Shares"). Pursuant to the
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Holders (the "Registration Rights Agreement") pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
Common Shares, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 199_, the Company filed a Registration Statement
on Form S-3 (File No. 333-_____________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that
a member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:------------------------------------
- ------------------------------------
cc: [LIST NAMES OF HOLDERS]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Visual Data Corportion for the three months ended
December 31, 1998, and is qualified in its entitety by reference to such
financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Oct-1-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,314
<SECURITIES> 0
<RECEIVABLES> 519
<ALLOWANCES> 43
<INVENTORY> 0
<CURRENT-ASSETS> 2,993
<PP&E> 4,534
<DEPRECIATION> 1,199
<TOTAL-ASSETS> 7,076
<CURRENT-LIABILITIES> 1,898
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,319
<TOTAL-LIABILITY-AND-EQUITY> 7,076
<SALES> 1,104
<TOTAL-REVENUES> 1,104
<CGS> 705
<TOTAL-COSTS> 2,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (1,122)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,126)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
