UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 23, 1999
LMKI INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation)
0-26578 33-0662114
(Commission File Number) (I.R.S. Employer Identification No.)
1720 East Garry, Suite 201, Santa Ana, California 92705
(Address of principal executive offices, including Zip Code)
(949) 475-4500
(Registrant's telephone number, including Area Code)
Item 5. Other Events.
We issued the following press release:
SANTA ANA, Calif., November 29, 1999 -- LMKI
LMKI Inc. Secures $5 Million Private Placement Commitment
LMKI Inc. (OTCBB: LMKI), a leading broadband communications solutions
provider, announced today that it has secured a $5 million private placement
agreement with WEC Asset Management, LLC, of New York, New York.
LMKI intends to use this funding for working capital, and to aggressively
pursue the acquisition of the existing DSL subscriber base of local and
regional Internet Service Providers partnered with Covad Communications
(NASDAQ:COVD) in order to integrate them into LMKI's revolutionary national
network. This funding bolsters LMKI's ability to accelerate its market
penetration in the rapidly growing business class broadband Internet
connectivity market.
This news release is published for informational purposes only and is not to
be deemed to offer any securities for sale. Any offering will be made only
by means of a prospectus.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: Except for historical information, the matters discussed in this news
release may be considered forward-looking statements could be subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected. These include uncertainties in the market,
competition, legal, success of marketing efforts and other risks detailed
from time to time in the company's SEC reports. The company assumes no
obligation to update the information in this release.
LMKI Inc., http://www.lmki.net; 949-475-4500.
Item 8. (c) Exhibits.
EXHIBIT 4.1 SECURITIES PURCHASE AGREEMENT
EXHIBIT 4.2 CERTIFICATE OF DESIGNATIONS OF SERIES A 6% CONVERTIBLE
PREFERRED STOCK OF LMKI INC.
EXHIBIT 4.3 WARRANT TO PURCHASE COMMON STOCK OF LMKI INC.
EXHIBIT 4.4 CONDITIONAL WARRANT TO PURCHASE 6% CONVERTIBLE SERIES A
PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK
EXHIBIT 4.5 REGISTRATION RIGHTS AGREEMENT
EXHIBIT 4.6 FORM OF LOCK-UP AGREEMENT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LMKI INC.
By:/s/_______________________________
William J. Kettle
Chairman and Chief Executive Officer
Dated: 12-03-99
8-K#5,8- 991123; LMKI; WEST END FINANCING
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 23, 1999
(this "Agreement"), is entered into by and between LMKI INC., a Nevada
corporation (the "Company"), and Mesora Investors LLC, a Delaware limited
liability company.
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and
delivering this Agreement in reliance upon the exemptions from registration
provided by Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act;
and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes
to issue and sell, upon the terms and conditions of this Agreement for an
aggregate purchase price of two million five hundred thousand dollars
($2,500,000), (i) two thousand five hundred (2,500) shares (the "Initial
Shares") of the Company's 6% Convertible Series A Preferred Stock, stated
value one thousand dollars ($1,000) per share, par value $.001 per share (the
"Preferred Stock") which shall be governed by the Certificate of Designations
attached hereto as Exhibit A (the "Certificate of Designations") and (ii)
warrants ("Stock Purchase Warrants") to purchase two hundred fifty thousand
(250,000) shares (the "Initial Warrants") of the Company's common stock, par
value $.001 per share (the "Common Stock"); and
WHEREAS, the Series A Preferred Stock shall be convertible into
shares of the Company's Common Stock on the terms set forth in the
Certificate of Designations, and the Stock Purchase Warrants (which shall be
in substantially the form attached as Exhibit B) may be exercised for the
purchase of Common Stock, on the terms set forth therein; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes
to issue and sell, upon the terms and subject to the conditions of this
Agreement for an aggregate purchase price of one hundred dollars ($100), a
warrant (the "Conditional Warrant"), to purchase for an aggregate purchase
price of up to two million five hundred thousand dollars ($2,500,000) up to
an additional two thousand five hundred (2,500) shares of Series A Preferred
Stock ("Additional Shares"), and Stock Purchase Warrants to purchase up to an
additional two hundred fifty thousand (250,000) shares of Common Stock
("Additional Warrants"), which Conditional Warrant shall be in substantially
the form attached as Exhibit C.
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 parties agree
as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
Purchase of Initial Shares and Warrants. Purchaser hereby agrees
to purchase from the Company, and the Company hereby agrees to issue and sell
to the Purchaser, the Initial Shares and the Initial Warrants for an
aggregate purchase price of two million five hundred thousand dollars
($2,500,000) which shall be payable on the Initial Closing Date (as defined
herein) in immediately available funds.
Purchase of Conditional Warrant. Purchaser hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchaser, the Conditional Warrant for a purchase price of one hundred
dollars ($100), which shall be payable on the Initial Closing Date in
immediately available funds.
Closings. The Initial Shares, the Initial Warrants and
Conditional Warrant to be purchased by Purchaser hereunder, in definitive
form, and in such denominations as Purchaser or its representative, if any,
may request upon at least twenty-four hours' prior notice to the Company,
shall be delivered by or on behalf of the Company for the account of
Purchaser, against payment by the Purchaser of the aggregate purchase price
of two million five hundred thousand one hundred dollars ($2,500,100)
therefor by wire transfer to an account of the Company, all at the offices of
Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York
10022, by 5:00 PM, New York time on the date hereof, or at such other time
and date as Purchaser or their representative, if any, and the Company may
agree upon in writing, such date being referred to herein as the "Initial
Closing Date." The Closing dates for the purchase of the Additional Shares
and the Additional Warrants are as set forth in the Conditional Warrant.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
a. The Purchaser is (i) experienced in making investments of the kind
described in this Agreement and the related documents, (ii) able, by reason
of the business and financial experience of its management, to protect its
own interests in connection with the transactions described in this Agreement
and the related documents, and (iii) able to afford the entire loss of its
investment in the Initial Shares, the Initial Warrants and the Conditional
Warrant.
b. All subsequent offers and sales of the Initial Shares, the Initial
Warrants and the Conditional Warrant, and, if the Conditional Warrant shall
be exercised, the Additional Shares and the Additional Warrants and the
Common Stock issuable upon conversion or exercise of, or in lieu of dividend
payments on the Initial Shares and the Initial Warrants and, if the
Conditional Warrant is exercised, the Additional Shares and the Additional
Warrants, it shall have purchased, shall be made pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration.
c. The Purchaser understands that the Initial Shares, the Initial
Warrants and the Conditional Warrant are being offered and sold to it in
reliance upon exemptions from the registration requirements of the United
States federal securities laws, and that the Company is relying upon the
truth and accuracy of the Purchaser's representations and warranties, and the
Purchaser's compliance with its agreements, each as set forth herein, in
order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Initial Shares, the Initial Warrants and the
Conditional Warrant.
d. The Purchaser: (A) has been provided with sufficient information
with respect to the business of the Company and such documents relating to
the Company as the Purchaser has requested and Purchaser has carefully
reviewed the same including, without limitation, the Company's Form 10-KSB
for the fiscal year ended December 31, 1998 filed with the Securities and
Exchange Commission (the "Commission"), (B) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney,
has requested, and (C) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company
and any questions that the Purchaser had with respect thereto have been
answered to the full satisfaction of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to
enter into this Agreement and the registration rights agreement, dated as of
the date hereof, between the Company and the Purchaser (the "Registration
Rights Agreement").
f. This Agreement and the Registration Rights Agreement and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser; and such agreements, when executed and delivered
by each of the Purchaser and the Company will each be a valid and binding
agreement of the Purchaser, enforceable in accordance with their respective
terms, except to the extent that enforcement of each such agreement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Each of the Company's subsidiaries, if any, is a corporation duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction. Each of the Company and its subsidiaries, if any, is duly
qualified as a foreign corporation in all jurisdictions in which the failure
to so qualify would have a material adverse effect on the Company and its
subsidiaries taken as a whole. Schedule 3(a) lists all subsidiaries of the
Company and, except as noted therein, all of the outstanding capital stock of
all such subsidiaries is owned of record and beneficially by the Company.
b. Capitalization. On the date hereof, the authorized capital of
the Company consists of 50,000,000 shares of Common Stock, par value $.001
per share, of which 36,115,666 shares are issued and outstanding; and
10,000,000 shares of Preferred Stock, par value $.001 per share, of which no
shares are issued and outstanding. Schedule 3(b) sets forth all of the
options, warrants and convertible securities of the Company, and any other
rights to acquire securities of the Company (collectively, the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion
or exercise rights held by the owners of such Derivative Securities and (vi)
any registration rights associated with such Derivative Securities or
outstanding Common Stock.
c. Concerning the Common Stock and the Warrants. The Initial
Shares, the Initial Warrants, and if the Conditional Warrant shall be
exercised, the Additional Shares and the Additional Warrants and Common Stock
issuable upon (i) conversion of, or in lieu of dividend payments on, the
Initial Shares, and upon exercise of the Initial Warrants, and (ii) if the
Conditional Warrant is exercised, conversion of, or in lieu of dividend
payments on, the Additional Shares, and upon exercise of the Additional
Warrants when issued, shall be duly and validly issued, fully paid and non-
assessable, will not be subject to preemptive rights and will not subject the
holder thereof to personal liability by reason of being such a holder. There
are currently no preemptive rights of any stockholder of the Company, as
such, to acquire the Initial Shares, the Initial Warrants or the Conditional
Warrant, or the Common Stock issuable to the Purchaser pursuant to the terms
of the Initial Shares, the Initial Warrants, and, if the Conditional Warrant
is exercised, the Additional Shares and the Additional Warrant.
d. Reporting Company Status. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has duly filed all materials and documents required to be
filed within the last twelve months pursuant to all reporting obligations
under either Section 13(a) or 15(d) of the Exchange Act, if any, prior to the
offer and sale of the Units. The Common Stock is listed and traded on the
OTC Bulletin Board, and the Company is not aware of any pending or
contemplated action or proceeding of any kind to suspend the trading of the
Common Stock.
e. Authorized Shares. The Company has available a sufficient number
of authorized and unissued shares of Common Stock as may be necessary to
effect (i) the conversion of the Initial Shares and the exercise of the
Initial Warrants, and (ii) if the Conditional Warrant is exercised, the
conversion of the Additional Shares and the exercise of the Additional
Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of shares of Common Stock upon the
(i) conversion of the Initial Shares and the exercise of the Initial
Warrants, and (ii) if the Conditional Warrant is exercised, the conversion of
the Additional Shares and the exercise of the Additional Warrants. The
Company further acknowledges that its obligation to issue shares of Common
Stock upon (i) conversion of the Initial Shares and upon exercise of the
Initial Warrants, and (ii) if the Conditional Warrant is exercised, the
conversion of the Additional Shares and the exercise of the Additional
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of
the Company and notwithstanding the commencement of any case under 11 U.S.C.
101 et seq. (the "Bankruptcy Code").
f. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement,
and to issue and deliver the Initial Shares, the Initial Warrants, the
Conditional Warrant and the Common Stock issuable upon conversion of, or in
lieu of dividend payments on, (i) the Initial Shares and the exercise of the
Initial Warrants, and (ii) if the Conditional Warrant is exercised, the
conversion of the Additional Shares and the Additional Warrants.
g. Transaction Agreements. This Agreement, the Registration Rights
Agreement, the Certificate of Designations, the Conditional Warrant and the
Stock Purchase Warrants (collectively, the "Primary Documents"), and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Company; this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the other Primary
Documents, when executed and delivered by the Company, will each be, a valid
and binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the
Primary Documents may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity.
h. Non-contravention. The execution and delivery of this Agreement
and each of the other Primary Documents, and the consummation by the Company
of the transactions contemplated by this Agreement and each of the other
Primary Documents, does not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under, the Articles of Incorporation or By-laws of the Company, or any
material indenture, mortgage, deed of trust or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which they
or any of their properties or assets are bound, or any existing applicable
law, rule, or regulation or any applicable decree, judgment or order of any
court or United States or foreign federal or state regulatory body,
administrative agency, or any other governmental body having jurisdiction
over the Company, its subsidiaries, or any of their properties or assets,
other than those which have been waived or satisfied on or prior to the
Initial Closing Date. Neither the filing of the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement nor the offering or sale of the Initial Shares, the Initial
Warrants or the Conditional Warrant as contemplated by this Agreement and if
the Conditional Warrant is exercised, the Additional Warrants and Additional
Shares, and the shares of Common Stock into which all such securities may be
converted or exercised, as applicable, gives rise to any rights, other than
those which have been waived or satisfied on or prior to the Initial Closing
Date, for or relating to the registration of any shares of the Common Stock.
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of this
Agreement and the other Primary Documents.
j. SEC Filings. None of the reports or documents filed by the
Company with the Commission (the "SEC Documents") contained, at the time they
were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein, or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
k. Stabilization. Neither the Company, nor any of its affiliates,
has taken or may take, directly or indirectly, any action designed to cause
or result in, or which has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of the shares
of Common Stock.
l. Absence of Certain Changes. Except as disclosed in the Company's
SEC Documents, since December 31, 1998, there has been no material adverse
change nor any material adverse development in the business, properties,
operations, financial condition, prospects, outstanding securities or results
of operations of the Company.
m. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser (i) that could reasonably be
expected to have a material adverse effect upon the condition (financial or
otherwise) or the earnings, business affairs, properties or assets of the
Company or (ii) that could reasonably be expected to materially and
adversely affect the ability of the Company to perform the obligations set
forth in the Primary Documents. The representations and warranties of the
Company set forth in this Agreement (and the schedules thereto) do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the
circumstances under which they were made, not misleading.
n. Title to Properties; Liens and Encumbrances. The Company has
good and marketable title to all of its material properties and assets, both
real and personal, and has good title to all its leasehold interests, in each
case subject only to mortgages, pledges, liens, security interests,
conditional sale agreements, encumbrances or charges created in the ordinary
course of business.
o. Patents and Other Proprietary Rights. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to
be conducted, and such business does not and would not conflict with or
constitute an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the
business or financial condition of the Company. The Company is not in
default in any respect under any of such franchises, permits, licenses or
similar authority.
q. Absence of Litigation. Except as disclosed in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries, in which an unfavorable decision, ruling
or finding would have a material adverse effect on the properties, business,
condition (financial or other) or results of operations of the Company and
its subsidiaries, taken as a whole, or the transactions contemplated by the
Primary Documents, or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, the Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in
default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. Transactions with Affiliates. Except as disclosed in the
Company's public filings with the Commission, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates that, had they existed on August 31, 1998,
would have been required to be disclosed in the Company's 1998 Annual Report
to stockholders.
t. Employment Matters. The Company is in compliance in all respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
u. Insurance. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards and the Company's historical claims experience. The
Company has not received notice from, and has no knowledge of any threat by,
any insurer (that has issued any insurance policy to the Company) that such
insurer intends to deny coverage under or cancel, discontinue or not renew
any insurance policy covering the Company or any of its Subsidiaries
presently in force.
v. Taxes. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been prepared and filed in
compliance with all applicable laws, or if not yet filed have been granted
extensions of the filing dates which extensions have not expired, and all
taxes, assessments, fees and other governmental charges upon the Company, its
subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company
or its subsidiaries to be due and payable have been paid, or adequate
reserves therefor have been set up if any of such taxes are being contested
in good faith; or if any of such tax returns have not been filed or if any
such taxes have not been paid or so reserved for, the failure to so file or
to pay would not in the aggregate have a material adverse effect on the
business or financial condition of the Company and its subsidiaries, taken as
a whole.
w. Foreign Corrupt Practices Act. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
bribe, rebate, payoff, influence payment, kickback or other similar payment
to any person.
x. Internal Controls. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
y. Investment Company Act. The Company is not conducting, and will
not conduct, its business in a manner which would cause it to become, an
"investment company," as defined in Section 3(a) of the Investment Company
Act of 1940, as amended.
z. Agent Fees. Other than 8% of the aggregate purchase price of the
Securities placed and a five year Warrant, with piggyback registration
rights, and anti-dilution provisions, to purchase a number of shares of
common stock equal to 8% of the amount placed divided by the five day average
closing bid price prior to closing, exercisable at an exercise price equal to
the five day average closing bid price prior to closing. payable to Dunwoody
Brokerage Services, Inc. d/b/a Swartz Institutional Finance, the Company has
not incurred any liability for any finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the transactions
contemplated by this Agreement.
aa. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Initial Shares, the Initial Warrants and the
Conditional Warrant, (ii) the issuance of Common Stock in lieu of dividend
payments on the Initial Shares, and if the Conditional Warrant is exercised,
the Additional Warrants, (iii) if the Conditional Warrant is exercised, the
issuance of the Additional Shares and the Additional Warrants, and (iv) the
conversion and/or exercise of such securities into shares of Common Stock,
each as contemplated by the Primary Documents are exempt from the
registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the
Preferred Stock, the Stock Purchase Warrants or the Conditional Warrant, or
any similar securities for issuance or sale, or solicit any offer to acquire
any of the same from anyone so as to render the issuance and sale of such
securities subject to the registration requirements of the Securities Act.
The Company has not offered or sold the Preferred Stock, the Stock Purchase
Warrants or the Conditional Warrant by any form of general solicitation or
general advertising, as such terms are used in Rule 502(c) under the
Securities Act.
bb. Year 2000 Processing. The computer systems used by the Company
and its subsidiaries (the "Systems"), both hardware and software, are in good
working order. The Company has taken steps that are reasonable to ensure
that the occurrence of the year 2000 will not materially and adversely affect
the Systems of the Company, its subsidiaries, or their business, and no
material expenditures in excess of currently budgeted items will be required
in order to cause such Systems to operate properly following the change of
the year 1999 to 2000. The Company and its subsidiaries have resolved or are
in the process of resolving any issues discovered as a result of year 2000
inquires or compliance testing or otherwise known to the Company, and the
Company is not aware of any fact that would lead one reasonably to conclude
that the Company will be unable to resolve any of such issues prior to
December 31, 1999.
cc. Environmental Matters. Neither the Company and its subsidiaries,
nor any predecessor in interest nor, to the Company's knowledge, after due
inquiry, any other person has ever caused or permitted any Hazardous Material
(as defined below) to be released, treated or disposed of on, at, under or
within any real property owned, leased or operated by the Company and its
subsidiaries or any predecessor in interest, and no such real property has
ever been used (either by the Company and its subsidiaries, any predecessor
in interest or, to the Company's knowledge, after due inquiry, by any other
person) as a treatment, storage or disposal site for any Hazardous Material.
The Company has no liabilities with respect to Hazardous Materials, and to
the knowledge of the Company, after due inquiry, no facts or circumstances
exist which could give rise to liabilities with respect to Hazardous
Materials, which could have any reasonable likelihood of having a material
adverse effect on the Company. For purposes of this Agreement "Hazardous
Materials" shall mean (a) any pollutants or contaminations, (b) any asbestos
or insulation or other material composed of or containing asbestos and (c)
any petroleum product and any hazardous, toxic or dangerous waste, substance
or material defined as such in, or for purposes of, the Comprehensive
Environmental Response, Compensation and Liability Act, any so-called
"Superfund" or "Superlien" law, or (d) any other applicable federal, state,
local or other statute, law, ordinance, code, rule, regulation, order or
decree concerning the protection of human health or the environment or
otherwise regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereafter in effect.
dd. Intellectual Property. Except as set forth in the SEC Documents,
to the best of the Company's knowledge, each of the Company and its
subsidiaries owns or possesses adequate rights to use all material patents,
patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names and copyrights which are described in the SEC Documents;
except as set forth in the SEC Documents, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business of
the Company and its subsidiaries, taken as a whole, as presently conducted;
and, except as set forth in the SEC Documents, the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
the asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
and copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect
on the condition (financial or otherwise), earnings, operations, or business
of the Company and its subsidiaries, taken as a whole, as presently
conducted.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
a. Transfer Restrictions. The Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, (1) neither (i) the Initial
Shares, the Initial Warrants, the Conditional Warrant or the Common Stock
issuable upon conversion of, or in lieu of dividend payments on, the Initial
Shares or upon exercise of the Initial Warrants, nor (ii) if the Conditional
Warrant is exercised, the Additional Shares, the Additional Warrants or the
Common Stock issuable upon conversion of, or in lieu of dividend payments on,
the Additional Shares or upon exercise of the Additional Warrants, have been,
or are being, registered under the Securities Act, and such securities may
not be transferred unless (A) subsequently registered thereunder or (B) they
are transferred pursuant to an exemption from such registration; and (2) any
sale of (i) the Initial Shares, the Initial Warrants, the Conditional Warrant
or the Common Stock issuable upon conversion or exchange thereof
(collectively, the "Initial Securities") or (ii) if the Conditional Warrant
is exercised, the Additional Shares, the Additional Warrants or the Common
Stock issuable upon conversion or exchange thereof, (the "Additional
Securities" and, collectively with the Initial Securities, the "Securities")
made in reliance upon Rule 144 under the Securities Act may be made only in
accordance with the terms of said Rule. The provisions of Section 4(a) and
4(b) hereof, together with the rights of the Purchaser under this Agreement
and the other Primary Documents, shall be binding upon any subsequent
transferee of the Preferred Stock and the Stock Purchase Warrants.
b. Restrictive Legend. The Purchaser acknowledges and agrees that,
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction
of the Company and its counsel that such registration shall no longer be
required, such Securities may be subject to a stop-transfer order placed
against the transfer of such Securities, and such Securities shall bear a
restrictive legend in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING
SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION SHALL NO LONGER BE REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the
Purchaser as required by United States laws and regulations, or by any
domestic securities exchange or trading market, and if applicable, the filing
of a notice on Form D (at such time and in such manner as required by the
Rules and Regulations of the Commission), and to provide copies thereof to
the Purchaser promptly after such filing or filings.
d. NASDAQ Listing. Within seventy-five (75) days of the date hereof,
the Company undertakes and agrees that it will file an application with the
NASDAQ market to list the Company's Common Stock (including, but not limited
to, all of the shares of Common Stock issuable upon conversion of, or in lieu
of dividend payments on, the Initial Shares and the Additional Shares and
upon exercise of the Initial Warrants and the Additional Warrants) on the
NASDAQ SmallCap Market. The Company further agrees and covenants that, once
the Company's Common Stock becomes listed on the NASDAQ SmallCap Market it
will not seek to have the trading of its Common Stock through the NASDAQ
SmallCap Market suspended or terminated, will use its best efforts to
maintain its eligibility for trading on the NASDAQ Small-Cap Market
(including, the filing of a listing application with NASDAQ to list all of
the shares of Common Stock issuable upon conversion of, or in lieu of
dividend payments on, the Initial Shares and upon the exercise of the Initial
Warrants, and if the Conditional Warrant is exercised, upon conversion of, or
in lieu of dividend payments on, the Additional Shares and upon exercise of
the Additional Warrants and, if such trading of its Common Stock is suspended
or terminated, will use its best efforts to requalify its Common Stock or
otherwise cause such trading to resume. The Company shall promptly provide to
the Purchaser copies of any notices it receives from the Nasdaq SmallCap
Market regarding the continued eligibility of the Common Stock for listing on
such automated quotation system. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(d).
e. Reporting Status. So long as the Purchaser beneficially owns any of
the Securities or any shares of Common Stock issuable upon conversion thereof
(collectively with the Securities, the "Collective Securities"), the Company
shall timely file all reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act and shall not terminate
its status as an issuer required to file reports under the Exchange Act even
if the Exchange Act or the rules and regulations thereunder would permit such
termination.
f State Securities Filings. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may reasonably request to qualify the Collective Securities for
offering and sale under the securities laws (other than United States federal
securities laws) of the jurisdictions in the United States as shall be so
identified to the Company, and to comply with such laws so as to permit the
continuance of sales therein, provided that in connection therewith, the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to the service of process in any jurisdiction.
g. Use of Proceeds. The Company will use all of the net proceeds from
the issuance of the Collective Securities for working capital and the
acquisition of DSL lines and shall not use the proceeds to repay any
indebtedness of the Company.
h. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Initial Shares
and the exercise of the Initial Warrants, if the Conditional Warrant is
exercised, for the conversion of the Additional Shares and the exercise of
the Additional Warrants. The Company will use its best efforts at all times
to maintain a number of shares of Common Stock so reserved for issuance that
is no less than the sum of (i) one and one half (1.5) times the sum of (x)
maximum number of shares of Common Stock that could be issuable upon the
conversion of the Initial Shares and (y) the maximum number that could be
issuable upon conversion of the Additional Shares and (ii) the sum of the
number of shares of Common Stock issuable upon exercise in full of the
Initial Warrants and the Additional Warrant, in each case without regard to
whether the Conditional Warrant shall have been exercised.
i. Sales of Additional Shares. The Company shall not, directly or
indirectly, without the prior written consent of the Purchaser, offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of its
capital stock or any security or other instrument convertible into or
exchangeable for shares of Common Stock, in each case for a period of two-
hundred and seventy (270) days after the later of (A) the Initial Closing
Date, (B) any Conditional Closing Date (as defined in the Conditional
Warrant) or (C) the date on which a registration statement relating to Common
Stock issuable upon conversion of any of the Initial Shares, the Initial
Warrants, the Additional Shares, or the Additional Warrants is declared
effective (the "Effective Date") by the Securities and Exchange Commission
(the "Lock-Up Period"), except that notwithstanding the foregoing (i) the
Company may issue securities for the aggregate consideration of at least ten
million dollars in connection with a bona fide, firm commitment, underwritten
public offering under the Securities Act, and(ii) the Company may issue
Common Stock at any time pursuant to the exercise of a Warrant to Purchase
490,000 Shares of Common Stock (the "Swartz Commitment Warrant") issued to
Swartz Private Equity, LLC ("Swartz") and (iii) the Company may issue
securities (other than those referred to in clause (ii) above) pursuant to an
Investment Agreement, between the Company and Swartz dated October 25, 1999
and associated documents (including a Registration Rights Agreement referred
to herein as the "Equity Line Agreement", anytime after, but no sooner than
the date (the "Equity Line Free Exercise Date") which is the earlier of (x)
the date which is the latter of (a) date that is one hundred twenty (120)
days after the Effective Date, provided, however, that such date shall be
extended by the number of days after the Effective Date when the Purchaser is
not permitted to utilize the prospectus or otherwise to resell Securities, or
(b) the date which is one hundred twenty (120) days after the date, if any,
of closing of any additional sale of shares of Series A Preferred Stock to
the Purchaser pursuant to the exercise of the Conditional Warrant (a
"Conditional Warrant Closing"), provided, however, that such date shall be
extended by the number of days after the Effective Date when the Purchaser is
not permitted to utilize the prospectus or otherwise to resell Securities; or
(y) the date that the Purchaser holds less than thirty percent (30%) of the
aggregate number of shares of Series A Preferred Stock purchased from the
Company. In addition, the Company agrees that it will not cause any shares
of its capital stock or that were issued in connection with any financing,
acquisition or other transaction that occurred prior to the date of this
Agreement to be covered by a registration statement that is to be filed or
declared effective by the Commission until the earlier to occur of (A) the
expiration of the Lock-Up Period or (B) the date that the registration
statement filed by the Company pursuant to its obligations under the
Registration Rights Agreement has been effective under the Securities Act for
a period of at least two-hundred and seventy (270) days, during which two
hundred seventy (270) day period the Company shall not have notified the
Purchaser that such registration statement or the prospectus included in such
registration statement includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided that, notwithstanding the above, the Company
may file a registration statement as required under the Equity Line Agreement
and the registration rights agreement attached thereto (the "Swartz
Registration Rights Agreement") anytime after, but no sooner than fifteen
(15) days after the Effective Date and may not have such registration
statement declared effective prior to the Equity Line Free Exercise Date.
Notwithstanding anything herein to the contrary in this Agreement or the
Conditional Warrant, the Company may not issue and sell any Series A
Preferred Stock pursuant to an exercise of the Conditional Warrant anytime
after the Company delivers an Advance Put Notice (as defined in the Equity
Line Agreement) to Swartz pursuant to the Equity Line Agreement. The Company
shall not deliver an Advance Put Notice to Swartz until the Equity Line Free
Exercise Date or any date thereafter.
j. Right of First Refusal. Subject to Section 4(i), if during the
eighteen (18) month period following the Lock-Up Period the Company shall
desire to sell, offer to sell, contract to sell or otherwise dispose of any
securities or any security or other instrument convertible into or
exchangeable for shares of Common Stock (collectively, the "Offered
Securities") to a prospective investor (the "Prospective Investor"), the
Company shall notify (the "Offer Notice") the Purchaser in accordance with
Section 10 hereof of the terms (the "Third Party Terms") on which the Company
proposes to sell, contract to sell or otherwise dispose of the Offered
Securities to the Prospective Investor. If, within the five (5) day period
following the Purchaser's receipt of the Offer Notice, the Purchaser delivers
a written notice (the "Acceptance Notice") to the Company stating its desire
to purchase all or any portion of the Offered Securities on the Third Party
Terms, the Company shall be required to sell the Offered Securities (or any
portion thereof so desired by the Purchaser) to the Purchaser at the price
and on the terms set forth in the Offer Notice and the Company shall not be
permitted to sell such Offered Securities to the Prospective Investor. If
the Purchaser does not deliver an Acceptance Notice to the Company in such
five (5) day period, then for a period of sixty (60) days following the date
of the Offer Notice the Company may sell the Offered Securities to the
Prospective Investor on the terms set forth in the Offer Notice.
Notwithstanding the terms of this Section 4(j), in the event that the Company
provides the Purchaser with twenty (20) days prior written notice of its
intent to sell or issue capital stock of the Company or deliver an Advance
Put Notice, the Company shall not be required to deliver an Offer Notice, and
the Purchaser shall have no rights of refusal with respect to any securities
offered or sold by the Company pursuant to the terms of the Equity Line
Agreement.
k. Additional Registration Statements. At any time during the period
ending on the first date that follows a period of one hundred eighty (180)
consecutive days following the effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement) during which there has been
no Blackout Event (as defined in the Registration Rights Agreement) relating
to such Registration Statement, the Company agrees that it will not neither
file nor cause any registration statement (other than (i) the Registration
Statement, (ii) any Registration Statement pursuant to the Equity Line
Agreement (provided that the registration statement covering the Initial
Shares Securities has been effective for fifteen (15) days, provided,
however, that such fifteen (15) day period shall be extended by the number of
days after the effective date of such registration statement when the
Purchaser is not permitted to utilize the prospectus or otherwise to resell
Securities), or (iii) any Registration Statement on Form S-8 with respect to
employee options (provided that such registration statement is for less than
350,000 shares of Common Stock) to be declared effective by the Commission.
l. Stockholder Approval. If required in accordance with Nasdaq Rule
4310 or 4460, the Company agrees to use its best efforts (including obtaining
any vote of its stockholders required by applicable law or Nasdaq rules) to
authorize and approve the issuance of the Common Stock issuable upon
conversion of the Initial Shares, the Additional Shares and upon exercise of
the Initial Warrants and the Additional Warrants, to the extent that such
conversion or issuance results in the issuance of 20% or more of the
Company's outstanding Common Stock; provided, however, that the failure to
obtain any such stockholder approval shall not limit any of Purchaser's
rights hereunder or pursuant to any Primary Document.
m. Ownership. At no time shall the Purchaser (including its officers,
directors and affiliates) maintain in the aggregate beneficial ownership (as
defined for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended) of shares of Common Stock in excess of 9.9% of the Company's
outstanding Common Stock unless the Purchaser gives the Company at least
sixty-one (61) days notice that it intends to increase its ownership
percentage.
n. Return of Certificates on Conversion and Stock Purchase Warrants on
Exercise. (i) Upon any conversion by Purchaser of less than all of the
Shares of Preferred Stock pursuant to the terms of the Certificate of
Designations, the Company shall issue and deliver to Purchaser within four
(4) days of the Series A Preferred Stock Conversion Date (as defined in the
Certificate of Designations), a new certificate or certificates for, as
applicable, the total number of shares of Preferred Stock, in each case,
which Purchaser has not yet elected to convert (with the number of and
denomination of such new certificate(s) designated by Purchaser).
(ii) Upon any partial exercise by Purchaser of Stock Purchase
Warrants, the Company shall issue and deliver to Purchaser within four (4)
days of the date on which such Stock Purchase Warrants are exercised, a new
Stock Purchase Warrant or Stock Purchase Warrants representing the number of
adjusted Shares covered thereby, in accordance with the terms thereof.
o. Replacement Certificates and Stock Purchase Warrants. (i) The
certificate(s) representing the shares of Preferred Stock, held by Purchaser
shall be exchangeable, at the option of Purchaser, at any time and from time
to time at the office of Company, for certificates with different
denominations representing, as applicable, an equal aggregate number of
shares of Preferred Stock, as requested by Purchaser upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
(ii) The Stock Purchase Warrants will be exchangeable, at the
option of Purchaser, at any time and from time to time at the office of the
Company, for other Stock Purchase Warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock as are purchasable under such Stock Purchase Warrants.
No service charge will be made for such transfer or exchange.
p. Dividends or Distributions; Purchases of Equity Securities. So long
as any portion of the Initial Shares, the Initial Warrants, the Conditional
Warrant, the Additional Shares, or the Additional Warrants remain
outstanding, the Company agrees that it shall not (a) declare or pay any
dividends or make any distributions to any holder or holders of Common Stock,
or (b) purchase or otherwise acquire for value, directly or indirectly, any
shares of Common Stock or equity security of the Company.
q. Bankruptcy Waiver. In the event the Company becomes a debtor under
the Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. 362 in respect
of (i) the conversion of the Initial Shares and the exercise of the Initial
Warrants, and (ii) if the Conditional Warrant is exercised, the conversion of
the Additional Shares and the exercise of the Additional Warrants. At the
direction of Purchaser, the Company agrees, without cost or expense to the
Purchaser, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. 362.
5. TRANSFER AGENT INSTRUCTIONS
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and
sale under the Securities Act of the Common Stock issuable upon conversion of
the Initial Shares, the Additional Shares or the shares of Common Stock
issuable upon exercise of the Initial Warrants or the Additional Warrants,
will be given by the Company to the transfer agent and that the shares of
Common Stock issuable upon (i) conversion of, or in lieu of dividend payments
on, the Initial Shares or upon exercise of the Initial Warrants, (ii) if the
Conditional Warrant is exercised, the conversion of, or in lieu of dividend
payments on the Additional Shares or upon exercise of the Additional
Warrants, shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement and applicable law. Nothing in this Section shall affect in
any way the Purchaser's obligations and agreement to comply with all
applicable securities laws upon resale of the Collective Securities. If the
Purchaser provides the Company with an opinion of counsel that registration
of a resale by the Purchaser of any of the Collective Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the Securities Act, the Company shall permit the transfer of
the Collective Securities and, in the case of the Common Stock, promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without legend in such names and in such denominations as
specified by the Purchaser.
b. Purchaser shall exercise its right to (i) convert the Initial Shares
or to exercise the Initial Warrants or (ii) if the Conditional Warrant is
exercised, to convert the Additional Shares or to exercise the Additional
Warrants, by faxing an executed and completed Notice of Conversion or Form of
Election to Purchase, as applicable, to the Company, and delivering within
four (4) business days thereafter, the original Notice of Conversion (and the
related certificates representing the shares of Preferred Stock, as
applicable) or Form of Election to Purchase (and the related original Stock
Purchase Warrants) to the Company by hand delivery or by express courier,
duly endorsed. Each date on which a Notice of Conversion or Form of Election
to Purchase is faxed in accordance with the provisions hereof shall be deemed
a "Conversion Date." The Company will transmit the certificates representing
the Common Stock issuable upon conversion of any shares of Preferred Stock or
upon exercise of any Stock Purchase Warrants (together with the shares of
Preferred Stock not so converted or the Stock Purchase Warrants not so
exercised) to the Purchaser via express courier as soon as practicable, but
in all events no later than four (4) business days after the Conversion Date
relating to shares of Preferred Stock or Stock Purchase Warrants (each such
delivery date, together with the Dividend Delivery Date referred to in
paragraph c below, is referred to herein as a "Delivery Date"). For purposes
of this Agreement, any conversion of the Initial Shares, the Additional
Shares or the exercise of the Initial Warrants or the Additional Warrants
shall be deemed to have been made immediately prior to the close of business
on the Conversion Date.
c. The Company will transmit the certificates representing the Common
Stock issuable in lieu of dividends payable on any shares of Preferred Stock
to the Purchaser via express courier as soon as practicable, but in all
events no later than four (4) business days after the dividend payment date
applicable to which such Common Stock is delivered (the "Dividend Delivery
Date").
d. In lieu of delivering physical certificates representing the Common
Stock issuable upon the conversion of, or in lieu of dividends on, the
Initial Shares, the Additional Shares or upon the exercise of the Initial
Warrants or the Additional Warrants, provided the Company's transfer agent is
participating in the Depositary Trust Company ("DTC") Fast Automated
Securities Transfer program, on the written request of the Purchaser, who
shall have previously instructed the Purchaser's prime broker to confirm such
request to the Company's transfer agent, the Company shall cause its transfer
agent to electronically transmit such Common Stock to the Purchaser by
crediting the account of the Purchaser's prime broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system no later than the
applicable Delivery Date.
e. The Company understands that a delay in the issuance of Common Stock
beyond the applicable Delivery Date could result in an economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company
agrees to pay to the Purchaser for late issuance of Common Stock upon
conversion of, or in lieu of dividend payments on, the Initial Shares or the
Additional Shares or upon exercise of the Initial Warrants or the Additional
Warrants, the sum of five thousand dollars ($5,000) per day for each (i) one
hundred thousand dollars ($100,000) of aggregate Stated Value (as defined in
the Certificate of Designations) amount of Initial Shares or Additional
Shares that are being converted, or (ii) twenty-five thousand (25,000) shares
of Common Stock purchased upon the exercise of Initial Warrants or Additional
Warrants. The Company shall pay any payments that are payable to the
Purchaser pursuant to this Section 5 in immediately available funds upon
demand. Nothing herein shall limit the Purchaser's right to pursue actual
damages for the Company's failure to so issue and deliver Common Stock to the
Purchaser. Furthermore, in addition to any other remedies which may be
available to the Purchaser, in the event that the Company fails for any
reason to effect delivery of such Common Stock within five (5) business days
after the relevant Delivery Date, the Purchaser will be entitled to revoke
the relevant Notice of Conversion or Form of Election to Purchase by
delivering a notice to such effect to the Company, whereupon the Company and
the Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Form of
Election to Purchase. For purposes of this Section 5, "business day" shall
mean any day in which the financial markets of New York are officially open
for the conduct of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE INITIAL SHARES, THE
INITIAL WARRANTS AND THE CONDITIONAL WARRANT
The Purchaser understands that the Company's obligation to issue
the Initial Shares, the Initial Warrants and the Conditional Warrant on the
Initial Closing Date to the Purchaser pursuant to this Agreement is
conditioned upon:
a. The accuracy on the Initial Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Initial Closing Date and the performance by the Purchaser on or before the
Initial Closing Date of all covenants and agreements of the Purchaser
required to be performed on or before the Initial Closing Date.
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE INITIAL
SHARES, THE INITIAL WARRANTS AND THE CONDITIONAL WARRANT
The Company understands that the Purchaser's obligation to
purchase the Initial Shares, the Initial Warrants and the Conditional Warrant
on the Initial Closing Date is conditioned upon:
a. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Nevada, and a copy thereof certified by
such Secretary of State shall have been delivered to the Purchaser.
b. The accuracy on the Initial Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Initial Closing Date, and the performance by the Company on or before the
Initial Closing Date of all covenants and agreements of the Company required
to be performed on or before the Initial Closing Date.
c. On the Initial Closing Date, the Purchaser shall have received an
opinion of counsel for the Company, dated the Initial Closing Date, in
substantially the form as attached in Exhibit E.
d. The Company shall have executed and delivered to the Purchaser (i) a
signed counterpart to the Registration Rights Agreement, (ii) the Initial
Shares, (iii) the Initial Warrants and (iv) the Conditional Warrant.
e. On the Initial Closing Date, the Purchaser shall have received a
certificate executed by the President or the Chairman of the Company and by
the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement are
accurate as of the Initial Closing Date and that the Company has performed
all of its covenants and agreements required to be performed under this
Agreement on or before the Initial Closing Date.
f. On the Initial Closing Date, the Purchaser shall have received from
the Company such other certificates and documents as it or its
representatives, if applicable, shall reasonably request, and all proceedings
taken by the Company in connection with the Primary Documents contemplated by
this Agreement and the other Primary Documents and all documents and papers
relating to such Primary Documents shall be satisfactory to the Purchaser.
g. On or prior to the Initial Closing Date, there shall not have
occurred any of the following: (i) a suspension or material limitation in the
trading of securities generally on the New York Stock Exchange, NASDAQ or the
NASDAQ Bulletin Board; (ii) a general moratorium on commercial banking
activities in New York declared by the applicable banking authorities;
(iii) the outbreak or escalation of hostilities involving the United States,
or the declaration by the United States of a national emergency or war; or
(iv) a change in international, political, financial or economic conditions,
if the effect of any such event, in the judgment of the Purchaser, makes it
impracticable or inadvisable to proceed with the purchase of the Initial
Securities on the terms and in the manner contemplated in this Agreement and
in the other Primary Documents.
h. The Company shall have delivered to the Purchaser reimbursement of
the Purchaser's out-of-pocket costs and expenses incurred in connection with
the transactions contemplated by this Agreement (including fees and
disbursements of the Purchaser's legal counsel).
i. On the Initial Closing Date, the Purchaser shall have received a six
month lock-up agreement, dated the Initial Closing Date, from each of the
officers and directors of the Company in substantially the form as attached
in Exhibit F.
8. EXPENSES
The Company covenants and agrees with the Purchaser that the
Company will pay or cause to be paid the following: (a) the fees,
disbursements and expenses of the Purchaser and Purchaser's counsel in
connection with the issuance of the Collective Securities payable on the
Initial Closing Date, (b) all expenses in connection with registration or
qualification of the Collective Securities for offering and sale under state
securities laws as provided in Section 4(f) hereof, and (c) all other costs
and expenses incident to the performance of its obligations hereunder which
are not otherwise specifically provided for in this Section 8, including the
fees and disbursements of the Company's counsel, accountants and other
professional advisors, if any. If the Company fails to satisfy its
obligations or to satisfy any condition set forth in this Agreement, as a
result of which the Collective Securities are not delivered to the Purchaser
on the terms and conditions set forth herein, the Company shall reimburse the
Purchaser for any out-of-pocket expenses reasonably incurred in making
preparations for the purchase, sale and delivery of the Collective Securities
not so delivered.
9. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to principles of
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
This Agreement may be signed in one or more counterparts, each of which shall
be deemed an original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of
this Agreement. This Agreement and each of the Primary Documents have been
entered into freely by each of the parties, following consultation with their
respective counsel, and shall be interpreted fairly in accordance with its
respective terms, without any construction in favor of or against either
party. 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 or the validity
or unenforceability of this Agreement in any other jurisdiction. This
Agreement shall inure to the benefit of, and be binding upon the successors
and assigns of each of the parties hereto, including any transferees of the
Initial Shares, the Initial Warrants, the Conditional Warrant, and, if the
Conditional Warrant shall be exercised, the Additional Shares and the
Additional Warrants. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
10. NOTICES
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation, postage prepaid by
certified mail, return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party
may designate by five days advance written notice to each of the other
parties hereto.
Company: LMKI Inc.
1720 East Garry, Suite #201
Santa Ana, California 92705
Attention: William J. Kettle
Phone: (949) 475-4500
Fax: (949) 475-4518
with a copy to:
Robert C. Weaver, Jr., Esq.
721 Devon Court
San Diego, California 92109
Phone: (858) 488-4433
Fax: (848) 488-2555
Purchaser: Mesora 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
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Attention: Mark Saks, Esq.
Phone: (212) 326-0140
Fax: (212) 326-0806
11. SURVIVAL
The agreements, covenants representations and warranties of the
Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder.
12. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each officer,
director, employee, agent, partner, stockholder, member and affiliate of the
Purchaser (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all
reasonable out-of-pocket costs and expenses of any and every kind, including,
without limitation, reasonable fees and disbursements of counsel for such
Indemnified Parties (all of which expenses periodically shall be reimbursed
as incurred), in each case, arising out of or suffered or incurred in
connection with any of the following: (a) any misrepresentation or any breach
of any warranty made by the Company herein or in any of the other Primary
Documents, (b) any breach or non-fulfillment of any covenant or agreement
made by the Company herein or in any of the other Primary Documents and (c)
any claim relating to or arising out of a violation of applicable federal or
state securities laws by the Company in connection with the sale or issuance
of the Initial Shares, Additional Shares, Initial Warrants, Additional
Warrants or Conditional Warrant by the Company to the Purchaser
(collectively, the "Indemnified Liabilities"). To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law.
[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Securities Purchase Agreement has been
duly executed by each of the undersigned.
LMKI INC.
By:
Name:
Title:
MESORA INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:
Name: Daniel J. Saks
Title: Managing Director
EXHIBIT INDEX
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS
EXHIBIT B
FORM OF STOCK PURCHASE WARRANT
EXHIBIT C
FORM OF CONDITIONAL WARRANT
EXHIBIT D
EXHIBIT E
EXHIBIT F
FORM OF REGISTRATION RIGHTS AGREEMENT
OPINION OF COUNSEL
FORM OF LOCK-UP AGREEMENT
SCHEDULE INDEX
SCHEDULE 3(a) LIST OF SUBSIDIARIES
SCHEDULE 3(b) CAPITALIZATION, DERIVATIVE
SECURITIES AND REGISTRATION RIGHTS
SCHEDULE 3(a)
LIST OF SUBSIDIARIES
Landmark Communications Inc., a Nevada corporation, doing business in
California as Landmark Long Distance Inc.
SCHEDULE 3(b)
CAPITALIZATION, DERIVATIVE SECURITIES AND REGISTRATION RIGHTS
Authorized capital of:
1. 50,000,000 shares of Common Stock, par value $.001 per share, of
which 36,115,666 shares are issued and outstanding; and
2. 10,000,000 shares of Preferred Stock, par value $.001 per share, of
which no shares are issued and outstanding.
Options Outstanding
Option granted on 12/28/97 for 4,000,000 common shares at $.01 per share to
William Kettle, presently unexercised.
Option granted on 12/28/98 for 4,000,000 common shares at $.01 per share to
William Kettle, partially assigned on September 6, 1999 as follows: option on
500,000 common shares to John Diehl and option on 500,000 common shares to
Robert C. Weaver, Jr.
Warrants Outstanding
490,000 warrants granted on October 25, 1999 at $_______ (average closing bid
price for the five business days prior to September 29, 1999) to Swartz
Private Equity, LLC per Equity Line Investment agreement.
Swartz will also receive warrants equal to 10% of the shares put to them in
the
future.
In addition Swartz will earn an agent fee in warrants as specified in Section
3z of the Securities Purchase Agreement..
Registration rights pursuant to Equity Line Agreement with Swartz
Institutional Finance, LLC
EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK OF
LMKI INC.
Pursuant to Section 78.1955 of the General
Corporation Law of the State of Nevada
The undersigned, __________ and _________, hereby certify that:
I. They are the duly elected and acting President and
Secretary, respectively, of LMKI Inc., a Nevada corporation (the
"Corporation").
II. The Certificate of Incorporation of the Corporation
authorizes five million (5,000,000) shares of preferred stock, $0.001 par
value per share.
III. The following is a true and correct copy of resolutions
duly adopted by the Board of Directors of the Corporation (the "Board of
Directors") on _____ __, 1999 pursuant to the Articles of Incorporation of
the Corporation and in accordance with the provisions of the General
Corporation Law of the State of Nevada.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for the
issuance of the shares of preferred stock, and by filing a certificate
pursuant to the applicable law of the State of Nevada, to establish and issue
preferred stock with such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and with such qualifications, limitations
or restrictions thereon as the Board of Directors may determine.
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
A. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Series A 6% Convertible Preferred Stock (the
"Series A Preferred Stock"), and the number of shares so designated shall be
five thousand (5,000) (which shall not be subject to increase or decrease).
Each share of Series A Preferred Stock shall have a par value of $0.001 per
share and a stated value (the "Stated Value") of the Liquidation Preference
(as hereinafter defined in Section C(1)).
B. Dividends.
(1) Holders of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at a
rate equal to 6% (the "Dividend Rate") of the Liquidation Preference per
share per annum (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting such shares), and no more, payable in accordance with the
provisions of this Certificate of Designations.
(2) At the election of the Corporation, each dividend on
Series A Preferred Stock shall be paid either in shares of Common Stock of
the Corporation, $.001 par value per share ("Common Stock") or in cash on the
Delivery Date (as defined in Subsection G(2)(a) of this Certificate of
Designations) with respect to any shares of Series A Preferred Stock which
are the subject of a Notice of Conversion (as defined in Subsection G(2) of
this Certificate of Designations). Dividends paid in shares of Common Stock
shall be paid (based on an assumed value of $1,000 per share) in full shares
only, with a cash payment equal to the value of any fractional shares. Each
dividend paid in cash shall be mailed to the holders of record of the Series
A Preferred Stock as their names and addresses appear on the share register
of the Corporation or at the office of the transfer agent on the
corresponding dividend payment date. Holders of Series A Preferred Stock
will receive written notification from the Corporation or the transfer agent
if a dividend is paid in kind, which notification will specify the number of
shares of Common Stock paid as a dividend and the recipient's aggregate
holdings of Common Stock as of that dividend payment date and after giving
effect to the dividend. All holders of shares of Common Stock issued as
dividends shall be entitled to all of the rights and benefits relating to
shares of Common Stock as set forth in the Corporation's Articles of
Incorporation, as amended, and By-laws.
(3) Holders of the Series A Preferred Stock shall be
entitled to payment of any dividends in preference and priority to any
payment of any cash dividend on Common Stock or any other class or series of
capital stock of the Corporation. Dividends on the Series A Preferred Stock
shall accrue with respect to each share of the Series A Preferred Stock from
the date on which such share is issued and outstanding and thereafter shall
be deemed to accrue from day to day whether or not earned or declared and
whether or not there exists profits, surplus or other funds legally available
for the payment of dividends, and shall be cumulative so that if such
dividends on the Series A Preferred Stock shall not have been paid, or
declared and set apart for payment, the deficiency shall be fully paid or
declared and set apart for payment before any dividend shall be paid or
declared or set apart for any Common Stock or other class or series of
capital stock ranking junior to the Series A Preferred Stock (such stock
being collectively referred to herein as the "Junior Stock") and before any
purchase or acquisition of any Junior Stock is made by the Corporation. At
the earlier of: (1) the redemption or conversion of the Series A Preferred
Stock or (2) the liquidation of the Corporation, any accrued but undeclared
dividends shall be paid to the holders of record of outstanding shares of the
Series A Preferred Stock in accordance with the provisions of this
Certificate of Designations. No accumulation of dividends on the Series A
Preferred Stock shall bear interest.
C. Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of the Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be
made to the holders of Junior Stock by reason of their ownership thereof, an
amount equal to one thousand dollars ($1,000) per share of Series A Preferred
Stock (the "Liquidation Preference") plus any accrued but unpaid dividends
(whether or not declared). If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay
the holders of shares of the Series A Preferred Stock the full amount to
which they shall be entitled, the holders of shares of the Series A Preferred
Stock shall share ratably in any distribution of the remaining assets and
funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were
paid in full.
D. Voting.
(1) Each holder of outstanding shares of Series A
Preferred Stock shall be entitled, at each meeting of stockholders of the
Corporation (and with respect to written consents of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders
of the Corporation for their action or consideration, to the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Series A Preferred Stock held by such holder are convertible (as adjusted
from time to time pursuant to Subsection I hereof) immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent. Except as provided by law, and by the
provisions of Section K below, holders of Series A Preferred Stock shall vote
together with the holders Common Stock as a single class.
(2) The holders of the Series A Preferred Stock shall not
be entitled to any rights of cumulative voting with respect to their shares.
E. Other Securities. Subject to any limitations contained in
this Certificate of Designations, the Corporation's Articles of Incorporation
and/or the Primary Documents (as defined in the Securities Purchase
Agreement, dated as of November 23, 1999, hereinafter the "Securities
Purchase Agreement"), the Board of Directors of the Corporation reserves the
right to establish additional classes and/or series of capital stock of the
Corporation and to designate the preferences, limitations and relative rights
of any such classes and/or series; provided, however, that no such class
and/or series may have preferences, limitations and relative rights which are
superior to or senior to the preferences, limitations and relative rights
granted to the holders of the Series A Preferred Stock.
F. Capital Reorganization. If the Corporation shall at any
time hereafter subdivide or combine its outstanding shares of Common Stock,
declare a dividend payable in Common Stock, or in case of any capital
reorganization or reclassification of the shares of Common Stock of the
Corporation, the number of shares of the Series A Preferred Stock and the
Stated Value of the Series A Preferred Stock shall be adjusted appropriately
to allow the holders of the Series A Preferred Stock, as nearly as reasonably
possible, to maintain (i) the aggregate Stated Value of the Series A
Preferred Stock and (ii) their pro rata interest in the Corporation and in
the Common Stock upon conversion of the Series A Preferred Stock, that each
holder had prior to any such subdivision, combination, stock dividend,
reorganization or reclassification.
G. Conversion.
(1) The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Series A Preferred Stock Conversion
Rights"):
(a) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $1,000, plus the amount of
any accrued and unpaid dividends the Corporation elects to pay in
Common Stock, by the Conversion Price (as defined below) in effect at
the time of conversion. The Conversion Price at which shares of Common
Stock shall be deliverable upon conversion of Series A Preferred Stock
without the payment of additional consideration by the holder thereof
(the "Conversion Price") shall be the lower of (i) 110% of the average
Closing Bid Price of the shares of Common Stock for the five (5)
trading days prior to and including November 12, 1999 (as defined in
the Securities Purchase Agreement) or (ii) 80% of the average of the
three lowest Closing Bid Prices of the shares of Common Stock for the
twenty-five (25) trading days immediately preceding the Series A
Preferred Stock Conversion Date (as hereinafter defined). For purposes
of these Articles of Amendment, the term "Closing Bid Price" means, for
any security as of any date, the closing bid price on the principal
securities exchange or trading market where the Common Stock is listed
or traded as reported by Bloomberg, L.P. ("Bloomberg") or, if
applicable, the closing bid price of the Common Stock in the over-the-
counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for the
Common Stock by Bloomberg, then the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price of the Common
Stock can not be calculated on such date on any of the foregoing bases,
the Closing Bid Price of the Common Stock on such date shall be the
fair market value as determined by the holders of a majority of the
outstanding shares of Series A Preferred Stock being converted for
which the calculation of the Closing Bid Price is required in order to
determine the Conversion Price of such shares. "Trading day" shall
mean any day on which the Corporation's Common Stock is traded for any
period on the principal securities exchange or other securities market
on which the Common Stock is then being traded. If, during any period
following November 23, 1999 (the "Original Issue Date"), as a result of
the occurrence of any of the events set forth in Section 3(f) or 3(g)
of the Registration Rights Agreement, dated as of November 23, 1999, by
and between the Corporation and the Purchaser set forth therein (the
"Registration Rights Agreement"), the Purchasers set forth therein are
not able to sell shares of Common Stock issuable upon conversion of, or
in lieu of dividends on, shares of Series A Preferred Stock pursuant to
a registration statement filed pursuant to such agreement, the holders
of shares of Series A Preferred Stock shall have the right, for any
purpose during such period and thereafter, to designate as the
Conversion Price any Conversion Price that would have been applicable
during such period had such Series A Preferred Stock shareholder
delivered a Notice of Conversion with respect to any such Series A
Preferred Stock.
(b) In the event that the Corporation's stock is
listed on the Nasdaq SmallCap or National Market, at any time that the
number of shares of Common Stock issued (A) upon conversion of the
Series A Preferred Stock and (B) in lieu of dividend payments on the
Series A Preferred Stock, shall equal 20% or more of the Corporation's
outstanding Common Stock (a "Common Stock Redemption Event"), the
Corporation shall (x) redeem, at a price per share equal to (A) the
quotient of (i) the Liquidation Preference per share of Series A
Preferred Stock plus all accrued but unpaid dividends on such shares of
Series A Preferred Stock and (ii) the Conversion Price as if the Series
A Preferred Stock had been converted on the Series A Preferred Stock
Redemption Date multiplied by (B) the average Closing Bid Price of
shares of Common Stock for the five (5) trading days immediately
preceding the Series A Preferred Stock Redemption Date, all of the
outstanding Series A Preferred Stock or (y) call a special meeting of
its stockholders for the purpose of approving the transactions
contemplated by the Securities Purchase Agreement, including the
issuance of the Series A Preferred Stock on the terms set forth
therein, together with any other approvals that shall be required so as
to cause the transactions contemplated by the Securities Purchase
Agreement to remain in compliance with the Rules and Regulations of The
Nasdaq Stock Market (including Rules 4300 and 4310 of Nasdaq's Non-
Qualitative Designation Criteria in connection with conversions of
Series A Preferred Stock; such approvals are referred to herein as the
"Required Approvals"). The Corporation shall determine within five (5)
business days following the receipt of a Notice of Conversion which of
such actions it shall take, and shall promptly furnish notice to each
of the holders of Series A Preferred Stock as to such determination,
including, if applicable, a notice of redemption. In no event shall
the Corporation issue shares of Common Stock upon conversion of, or in
lieu of dividend payments on, the Series A Preferred Stock, after the
occurrence of a Common Stock Redemption Event until the Required
Approvals, if any, are obtained.
(c) If the Corporation elects to call a special
meeting of its stockholders pursuant to Subsection G(1)(b) of this
Certificate of Designations to obtain the Required Approvals, the
Corporation shall use its best efforts to obtain such Required
Approvals within thirty (30) days of the Initial Closing Date (such
thirty (30) day period is referred to herein as an "Approval Period").
If the Corporation does not obtain the Required Approvals within the
Approval Period and the Corporation receives a Notice of Conversion
after the termination of the Approval Period, the Corporation must
redeem, in accordance with this Subsection G of this Certificate of
Designations, any shares of Series A Preferred Stock outstanding after
the Corporation has issued in excess of 7,223,133 shares of Common
Stock in connection with conversions of the Series A Preferred Stock.
(d) If the Corporation elects, pursuant to this
Subsection G, to redeem the Series A Preferred Stock on the occurrence
of a Common Stock Redemption Event, it shall redeem such Series A
Preferred Stock at the price determined in accordance with Subsection
G(1)(b) of this Certificate of Designations. If the Corporation shall
have elected, pursuant to this Subsection G(1), to obtain the Required
Approvals but shall not have done so by the later of the occurrence of
the Common Stock Redemption Event or the expiration of the Approval
Period, it shall furnish a redemption notice to the Purchaser within
three (3) business days after the expiration of the Approval Period.
(2) The Series A Preferred Stock Conversion Rights shall
be exercised as follows:
(a) The Corporation will permit each holder
of Series A Preferred Stock to exercise its right to convert the Series
A Preferred Stock by faxing an executed and completed notice of
conversion (the "Notice of Conversion") to the Corporation, and
delivering within four (4) business days thereafter, the original
Notice of Conversion (and the certificates representing the related
shares of Series A Preferred Stock) to the Corporation by hand delivery
or by express courier, duly endorsed. Each date on which a Notice of
Conversion is faxed in accordance with the provisions hereof shall be
deemed a "Series A Preferred Stock Conversion Date." The Corporation
will transmit the certificates representing the Common Stock issuable
upon conversion of the Series A Preferred Stock (together with
certificates representing the related shares of Series A Preferred
Stock not so converted and, if applicable, a check representing any
fraction of a share not converted) to such holder via express courier
as soon as practicable, but in all events no later than (the "Delivery
Date") four (4) business days after the Series A Preferred Stock
Conversion Date. For purposes of this Certificate of Designations,
such conversion of the Series A Preferred Stock shall be deemed to have
been made immediately prior to the close of business on the Series A
Preferred Stock Conversion Date.
(b) In lieu of delivering physical
certificates representing the Common Stock issuable upon the conversion
of the Series A Preferred Stock, provided that the Corporation's
transfer agent is participating in the Depository Trust Corporation
("DTC") Fast Automated Securities Transfer program, on the written
request of a holder of Series A Preferred Stock who shall have
previously instructed such holder's prime broker to confirm such
request to the Corporation's transfer agent, the Corporation shall use
its best efforts to cause its transfer agent to electronically transmit
such Common Stock to such holder by crediting the account of the
holder's prime broker with DTC through its Deposit Withdrawal Agent
Commission system no later than the applicable Delivery Date.
(c) The Corporation will at all times have
authorized and reserved for the purpose of issuance a sufficient number
of shares of Common Stock to provide for the conversion of the Series A
Preferred Stock. The Corporation will use its best efforts at all
times to maintain a number of shares of Common Stock so reserved for
issuance that is no less than the sum of (i) one and one-half (1.5)
times the number that would then actually be issuable upon the
conversion of five thousand (5,000) shares of Series A Preferred Stock
and (ii) the exercise of the Initial Warrants and the Additional
Warrants (each as defined in the Securities Purchase Agreement).
Before taking any action which would cause an adjustment reducing the
Conversion Price below the established par value of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation shall take any corporate action which may, in the
opinion of its counsel or in the opinion of counsel to holders of the
Series A Preferred Stock, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
(3) In the event of a liquidation of the Corporation, the
Series A Preferred Stock Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of
any amounts distributable on liquidation to the holders of the Series A
Preferred Stock.
(4) If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Series A Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock until immediately prior to the
closing of the sale of securities.
(5) At no time shall any holder of the Series A Preferred
Stock convert such amount of Series A Preferred Stock as shall result in such
Purchaser's ownership, after such conversion, exceeding 9.9% of the
Corporation's outstanding Common Stock.
(6) No fractional shares of Common Stock shall be issued
upon conversion of the Preferred Stock. In lieu of fractional shares, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective and applicable Conversion Price.
(7) The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Certificate of
Designations by the Corporation, but will at all times in good faith assist
in the carrying out of all the provisions of this Certificate of Designations
and in the taking of all such action as may be necessary or appropriate in
order to protect the Series A Preferred Stock Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(8) In the event (a) that the Corporation declares a
dividend (or any other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation, (b) that the Corporation
subdivides or combines its outstanding shares of Common Stock, (c) of any
reclassification of the Common Stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock or a
stock dividend or stock distribution thereon), (d) of any consolidation or
merger of the Corporation into or with another corporation, (e) of the sale
of all or substantially all of the assets of the Corporation, or (f) of the
involuntary or voluntary dissolution, liquidation or winding up of the
Corporation, then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series A Preferred
Stock, and shall cause to be mailed to each holder of the Series A Preferred
Stock at their last address as shown on the records of the Corporation or
such transfer agent, at least ten (10) days prior to the record date
specified in (i) below or twenty (20) days before the date specified in (ii)
below, a notice stating
(i) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or combination are
to be determined, or
(ii) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
dissolution or winding up.
H. Sinking Fund. There shall be no sinking fund for the
payment of dividends, or liquidation preferences on the Series A Preferred
Stock or the redemption of any shares thereof.
I. Redemption Events. In case one or more of the following
events, each a redemption event, shall have occurred:
(a) If the Corporation fails to have a registration
statement effective within one hundred eighty (180) days of the date of
the Stock Purchase Agreement, at the option of the Purchaser, the
Corporation shall redeem the outstanding shares of Series A Preferred
Stock at a redemption price of one hundred twenty-five percent (125%)
of the Stated Value per share plus accrued and unpaid dividends
thereon, if any; or
(b) failure to deliver the shares of Common Stock
required to be delivered upon conversion of the shares of Series A
Preferred Stock in the manner and at the time required by Section 5 of
the Securities Purchase Agreement; or
(c) failure of the Corporation to have authorized
the number of shares of Common Stock issuable upon conversion of the
shares of Series A Preferred Stock or exercise of the Stock Purchase
Warrants (as defined in the Securities Purchase Agreement), including
conversion of any shares of Series A Preferred Stock or exercise of any
Stock Purchase Warrants, issuable upon conversion of the Conditional
Warrant (as defined in the Securities Purchase Agreement); or
(d) failure on the part of the Corporation to duly
observe or perform any of the provisions of this Certificate of
Designations or any of its other covenants or agreements contained in
the Securities Purchase Agreement, or to cure any material breach in a
material representation or covenant contained in the Securities
Purchase Agreement or the Registration Rights Agreement for a period of
ten (10) days after the date on which written notice of such failure or
breach requiring the same to be remedied has been given by a registered
holder of shares of Series A Preferred Stock to the Corporation; or
(e) a decree or order by a court having
jurisdiction has been entered adjudging the Corporation (or any
Material Subsidiary) a bankrupt or insolvent, or approving a petition
seeking reorganization of the Corporation (or any Material Subsidiary)
under any applicable bankruptcy law and such decree or order has
continued undischarged or unstayed for a period of sixty (60) days; or
a decree or order of a court having jurisdiction for the appointment of
a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Corporation (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation
of its affairs, has been entered, and has remained in force
undischarged or unstayed for a period of sixty (60) days; or
(f) the Corporation (or any Material Subsidiary)
institutes proceedings to be adjudicated a voluntary bankrupt, or
consents to the filing of a bankruptcy proceeding against it, or files
a petition or answer or consent seeking reorganization under applicable
law, or consents to the filing of any such petition or to the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they
become due; or if the Corporation (or any Material Subsidiary) shall
suffer any writ of attachment or execution or any similar process to be
issued or levied against it or any significant part of its property
which is not released, stayed, bonded or vacated within sixty (60) days
after its issue or levy; or if the Corporation (or any Material
Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) If any default shall occur under any indenture,
mortgage, agreement, instrument or commitment evidencing or under which
there is at the time outstanding any indebtedness of the Corporation
(or a Material Subsidiary, as hereinafter defined), in excess of
$50,000, or which results in such indebtedness, in an aggregate amount
(with other defaulted indebtedness) in excess of $50,000 becoming due
and payable prior to its due date and if such indenture or instrument
so requires, the holder or holders thereof (or a trustee on their
behalf) shall have declared such indebtedness due and payable; or
(h) If any of the Corporation or its subsidiaries
shall default in the observance or performance of any material term or
provision of a material agreement to which it is a party or by which it
is bound, and such default is not waived or cured within the applicable
grace period; or
(i) If a final judgment which, either alone or
together with other outstanding final judgments against the Corporation
and its subsidiaries, exceeds an aggregate of $50,000 shall be rendered
against the Corporation (or any Material Subsidiary) and such judgment
shall have continued undischarged or unstayed for thirty (30) days
after entry thereof; or
(j) If there shall occur a Change in Control of the
Corporation (as defined below). Nothing in this subsection shall limit
the right of a holder of Series A Preferred Stock to convert their
shares of Series A Preferred Stock on or prior to such Change in
Control. For purposes hereof, a "Change in Control" shall be deemed to
have occurred if (A) any person or group (as defined for purposes of
Regulation 13D of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall have become the beneficial owner or owners of
more than 50% of the outstanding voting stock of the Corporation; (B)
there shall have occurred a merger or consolidation in which the
Corporation or an affiliate of the Corporation is not the survivor or
in which holders of the Common Stock of the Corporation shall have
become entitled to receive cash, securities of the Corporation other
than voting common stock or securities of any other person; (C) at any
time persons constituting the Existing Board of Directors cease for any
reason whatsoever to constitute at least a majority of the members of
the Board of Directors of the Corporation; or (D) there shall have
occurred a sale of all or substantially all the assets of the
Corporation. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors
of the Corporation on the date hereof, together with each new director
whose election, or nomination for election by the Corporation's
stockholders is approved by a vote of the majority of the members of
the Existing Board of Directors who are in office immediately prior to
the election or nomination of such director.
then, and in each and every such case, so long as
such redemption event has not been remedied, the holders of not less
than fifty-one percent (51%) of the shares of Series A Preferred Stock
then outstanding, by notice in writing to the Corporation (the date of
such notice the "Redemption Notice Date"), may demand that the
Corporation redeem, and the Corporation shall redeem, each share of
Series A Preferred Stock then outstanding at a price per share equal to
one hundred twenty-five percent (125%) of the sum of (x) the Stated
Value and (y) the aggregate accrued and unpaid dividends on such
Redemption Notice Date
For purposes of this Section I "Material Subsidiary" means any
subsidiary with respect to which the Corporation has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate
amount exceeding fifteen percent (15% ) of the Corporation's gross assets, or
the Corporation's proportionate share of the assets or net income of which
(based on the subsidiary's most recent financial statements) exceed fifteen
percent (15%) of the Corporation's gross assets or net income, respectively,
or the gross revenues of which exceed fifteen percent (15%) of the gross
revenues of the Corporation based upon the most recent financial statements
of such subsidiary and the Corporation.
J. Amendment. This Certificate of Designations constitutes an
agreement between the Corporation and the holders of the Series A Preferred
Stock. The Corporation shall not amend this Certificate of Designations or
alter or repeal the preferences, rights, powers or other terms of the Series
A Preferred Stock so as to affect adversely the Series A Preferred Stock,
without the written consent or affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
IN WITNESS WHEREOF, LMKI Inc., has caused its corporate seal to
be hereunto affixed and this certificate to be signed by __________, its
President, and attested by ___________, its Secretary, this _____ day of
November, 1999.
LMKI INC.
By: ______________________________
Name:
Title:
Attest:
By:
Name:
Title:
EXHIBIT B
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 250,000
WARRANT
To Purchase Common Stock of
LMKI INC.
THIS IS TO CERTIFY THAT Mesora Investors LLC, a Delaware limited
liability company, or its registered assigns, is entitled, at any time from
the Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from LMKI Inc., a Nevada corporation (the
"Company"), two hundred fifty thousand (250,000) shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole
or in part, including fractional parts, at a purchase price per share equal
to $_______ [exercise price will be 110% of average closing bid price for
five trading days prior to the Closing Date] (subject to any adjustments made
to such amount pursuant to Section 4 hereto) on the terms and conditions and
pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Book Value" shall mean, in respect of any share of Common Stock
on any date herein specified, the consolidated book value of the Company as
of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by a firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
the Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated
by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Warrant Price" shall mean, [$____] subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect from time to
time.
"Exercise Period" shall mean the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean November 23, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference
to Common Stock, at any date as of which the number of shares thereof is to
be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on
such date, and other options or warrants to purchase, or securities
convertible into, including without limitation the shares of Common Stock
outstanding on such date which would be deemed outstanding in accordance with
GAAP for purposes of determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Market Price" per Common Share means the average of the closing
bid prices of the Common Shares as reported on the National Association of
Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the over-the-
counter market on the day in question as reported by the National Association
of Security Dealers, Inc., or a similar generally accepted reporting service,
as the case may be, for the five (5) trading days immediately preceding the
date of determination.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or
held by or for the account of the Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated a date even herewith by and between the Company and
Mesora Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement dated as of a date even herewith by and between the
Company and Mesora Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrant Issuance Date" shall mean any date on which Warrants are
issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date
of such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased
by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance
Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder
may exercise this Warrant, on any Business Day, for all or any part of the
number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased, (ii) payment by cash, check or bank draft
payable to the Company of the Warrant Price in cash or by wire transfer or
cashier's check drawn on a United States bank or by the Holder's surrender of
Warrant Stock (or the right to receive such number of shares) having an
aggregate Market Price equal to the Warrant Price for all shares then being
purchased and (iii) this Warrant. Such notice shall be substantially in the
form of the subscription form appearing at the end of this Warrant as Exhibit
A, duly executed by Holder or its agent or attorney. Upon receipt of the
items referred to in clauses (i), (ii) and (iii) above, the Company shall, as
promptly as practicable, and in any event within five (5) Business Days
thereafter, execute or cause to be executed and deliver or cause to be
delivered to Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share, as hereinafter provided. The
stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in
the notice and shall be registered in the name of Holder or, subject to
Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the Warrant Price. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. 362 in respect of the
Holder's exercise right. The Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. 362 in respect
of the exercise of the Warrant. The Company agrees, without cost or expense
to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall
be validly issued, fully paid and nonassessable, and without any preemptive
rights. The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue
or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of any Warrant. As to
any fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the Market
Price per share of Common Stock on the relevant exercise date.
2.4. Continued Validity. A holder of shares of Common Stock
issued upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold
pursuant to a Registration Statement under the Securities Act or sold
pursuant to Rule 144 thereunder), shall continue to be entitled with respect
to such shares to all rights to which it would have been entitled as Holder
under Sections 9, 10 and 14 of this Warrant. The Company will, at the time
of exercise of this Warrant, in whole or in part, upon the request of Holder,
acknowledge in writing, in form reasonably satisfactory to Holder, its
continuing obligation to afford Holder all such rights; provided, however,
that if Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to Holder all such
rights.
2.5. Right to Convert Warrant. The Holder shall have the right
to convert, in whole or in part, this Warrant (the "Conversion Right") at any
time prior to the expiration of the Exercise Period, into shares of Common
Stock in accordance with this Section 2.5. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder
of the Warrant Price) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the value of the portion of this Warrant
being converted at the time the Conversion Right is exercised (determined by
subtracting the Warrant Price for the portion of this Warrant being converted
(in effect immediately prior to the exercise of the Conversion Right) from
the amount obtained by multiplying the number of shares of Common Stock
issuable upon the whole or partial exercise of this Warrant, as the case may
be, by the Market Price immediately prior to the exercise of the Conversion
Right) by (y) the Market Price of one share of Common Stock immediately prior
to the exercise of the Conversion Right.
The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company, exercising the Conversion Right and specifying (i)
the total number of shares of Common Stock the Holder will purchase pursuant
to the conversion and (ii) a place and date not less than two (2) nor more
than twenty (20) Business Days from the date of the Subscription Notice for
the closing of such purchase.
At any closing under this Section 2.5, (i) the Holder will
surrender this Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. If this Warrant shall have been converted only in
part, the Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights of
the Holder to purchase the remaining shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be identical to
this Warrant, or, at the request of the Holder, appropriate notation may be
made on this Warrant and the same returned to the Holder. The Company shall
pay all expenses, taxes and other charges payable in connection with the
preparation, issue and delivery of such stock certificates and new Warrants,
except that, in case such stock certificates and/or new Warrants shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes that are payable upon the issuance
of such stock certificates or new Warrants shall be paid by the Holder at the
time of delivering the notice of exercise mentioned above.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Sections 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose,
upon surrender of this Warrant at the principal office of the Company
referred to in Section 2.1 or the office or agency designated by the Company
pursuant to Section 12, together with a written assignment of this Warrant
substantially in the form of Exhibit B hereto duly executed by Holder or its
agent or attorney. Upon such surrender, the Company shall, subject to
Section 9, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned in compliance with Section 9, may
be exercised by a new Holder for the purchase of shares of Common Stock
without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office or agency of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued, signed by Holder or its agent or attorney. Subject to
compliance with Section 3.1 and with Section 9, as to any transfer which may
be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense the new Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at
its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set
forth in this Section 4. The Company shall give Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at
the time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant Price multi-
plied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such
adjustment.
4.2. Certain Other Distributions.
(a) If at any time prior to the Expiration Date the
Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any
shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible Securi-
ties or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe
for or purchase any evidences of its indebtedness, any
shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from
no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock
within the meaning of this Section 4.2 and, if the outstanding shares of
Common Stock shall be changed into a larger or smaller number of shares of
Common Stock as a part of such reclassification, such change shall be deemed
a subdivision or combination, as the case may be, of the outstanding shares
of Common Stock within the meaning of Section 4.1.
(b) In case the Company shall issue any Common Stock or
any rights, options or warrants to all holders of record of its Common Stock
entitling all holders to subscribe for or purchase shares of Common Stock at
a price per share less than the Market Price per share of the Common Stock on
the date fixed for such issue, the Current Warrant Price in effect
immediately prior to the close of business on the date fixed for such
determination shall be reduced to the amount determined by multiplying such
Current Warrant Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the close
of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or purchase
would purchase at such Market Price and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to the close
of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduced
amount to become effective immediately after the close of business on the
date fixed for such determination. For the purposes of this clause (b), (i)
the number of shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company and (ii) in the case of
any rights, options or warrants which expire by their terms not more than 60
days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Current Warrant Price shall be made until the expiration or
exercise of all rights, options or warrants, whereupon such adjustment shall
be made in the manner provided in this clause (b), but only with respect to
the shares of Common Stock actually issued pursuant thereto. Such adjustment
shall be made successively whenever any event specified above shall occur.
In the event that any or all rights, options or warrants covered by this
clause (b) are not so issued or expire or terminate before being exercised,
the Current Warrant Price then in effect shall be appropriately readjusted.
4.3. Other Provisions Applicable to Adjustments under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(f) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(g) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(h) When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(i) Challenge to Good Faith Determination. Whenever the
Board of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any dispute
shall be resolved by an investment banking firm of recognized national
standing selected by the Holder and reasonably acceptable to the Company.
4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
there is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then Holder shall
have the right thereafter to receive, upon exercise of the Warrant, the
number of shares of common stock of the successor or acquiring corporation or
of the Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a holder of the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such event. In case of any such reorganization, reclassification,
merger, consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate, subject to the Holder's consent, in order to provide
for adjustments of shares of Common Stock for which this Warrant is exercis-
able which shall be as nearly equivalent as practicable to the adjustments
provided for in this Section 4. For purposes of this Section 4.4, "common
stock of the successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock. The foregoing provisions of this Section 4.4
shall similarly apply to successive reorganizations, reclassifications,
mergers, consolidations or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time
or from time to time the Company shall take any action in respect of its
Common Stock, other than any action taken in the ordinary course of the
Company's business or any action described in this Section 4, which would
have a material adverse effect upon the rights of the Holder, the number of
shares of Common Stock and/or the purchase price thereof shall be adjusted in
such manner as may be equitable in the circumstances, as determined in good
faith by an investment bank selected by Holder.
4.6. Certain Limitations. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to
be less than the par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its
Holder to any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by an executive officer of the
Company setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated, specifying
the number of shares of Common Stock for which this Warrant is exercisable
and (if such adjustment was made pursuant to Section 4.4 or 4.5) describing
the number and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any change in the purchase price or prices
thereof, after giving effect to such adjustment or change. The Company shall
promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its office
or agency designated pursuant to Section 12 copies of all such certificates
and cause the same to be available for inspection at said office during
normal business hours by the Holder, its representatives, or any prospective
purchaser of a Warrant designated by the Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property,
assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder
(i) at least thirty (30) Business Days' prior written notice of the date on
which a record date shall be selected for such dividend, distribution or
right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, and (ii) in the case of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least
thirty (30) Business Days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also
shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the
holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character thereof, and (ii) the date on which
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is to take
place and the time, if any such time is to be fixed, as of which the holders
of Common Stock shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant
and the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Warrant and payment therefor in accordance with the terms of such
Warrant, shall be duly and validly issued and fully paid and nonassessable,
and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any
provision of Section 4 refers to the taking of a record of such holders, the
Company will in each such case take such a record as of the close of business
on a Business Day. The Company will not at any time close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant
or any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be
bound by the provisions of this Section 9.
9.1. Restrictive Legend. The Holder by accepting this
Warrant and any Warrant Stock agrees that this Warrant and the Warrant Stock
issuable upon exercise hereof may not be assigned or otherwise transferred
unless and until (i) the Company has received an opinion of counsel for the
Holder that such securities may be sold pursuant to an exemption from
registration under the Securities Act or (ii) a registration statement
relating to such securities has been filed by the Company and declared
effective by the Commission.
(a) Each certificate for Warrant Stock issuable hereunder shall
bear a legend substantially worded as follows unless such securities have
been sold pursuant to an effective registration statement under the
Securities Act:
"The securities represented by this
certificate have not been registered under the
Securities Act of 1933, as amended (the "Act")
or any state securities laws. The securities
may not be offered for sale, sold, assigned,
offered, transferred or otherwise distributed
for value except (i) pursuant to an effective
registration statement under the Act or any
state securities laws or (ii) pursuant to an
exemption from registration or prospectus
delivery requirements under the Act or any
state securities laws in respect of which the
Company has received an opinion of counsel
satisfactory to the Company to such effect.
Copies of the agreement covering both the
purchase of the securities and restricting
their transfer may be obtained at no cost by
written request made by the holder of record of
this certificate to the Secretary of the
Company at the principal executive offices of
the Company."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities
represented hereby have not been registered
under the Securities Act of 1933, as amended,
or any state securities laws and may not be
transferred in violation of such Act, the rules
and regulations thereunder or any state
securities laws or the provisions of this
Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock,
the Holder shall give five (5) days' prior written notice (a "Transfer
Notice") to the Company of Holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and obtain
from counsel to Holder an opinion that the proposed Transfer of such Warrants
or such Restricted Common Stock may be effected without registration under
the Securities Act or state securities laws. After the Company's receipt of
the Transfer Notice and opinion, such Holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with
the terms of the Transfer Notice. Each certificate, if any, evidencing such
shares of Restricted Common Stock issued upon such Transfer and the Warrant
issued upon such Transfer shall bear the restrictive legends set forth in
Section 9.1, unless in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act.
9.3. Required Registration. Pursuant to the terms and
conditions set forth in the Registration Rights Agreement, the Company shall
prepare and file with the Commission not later than the thirtieth (30th) day
after the Closing Date, a Registration Statement relating to the offer and
sale of the Common Stock issuable upon exercise of the Warrants and shall use
its best efforts to cause the Commission to declare such Registration
Statement effective in accordance with the terms set forth in Section 2(a) of
the Registration Rights Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) when and so long as such
security shall have been effectively registered under the Securities Act and
applicable state securities laws and disposed of pursuant thereto or
(ii) when the Company shall have received an opinion of counsel that such
shares may be transferred without registration thereof under the Securities
Act and applicable state securities laws. Whenever the restrictions imposed
by Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company upon written
request of the Holder, at the expense of the Company, a new Warrant bearing
the following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABIL-
ITY OF THE WITHIN WARRANT CONTAINED IN SECTION
9 HEREOF TERMINATED ON ________, 19__, AND ARE
OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive
legends set forth in Section 9.1.
9.5. Listing on Securities Exchange. If the Company shall list
any shares of Common Stock on any securities exchange, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing
of, all shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed during the
Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file
any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like
tenor to Holder; provided, in the case of mutilation, no indemnity shall be
required if this Warrant in identifiable form is surrendered to the Company
for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this
Warrant, such office to be initially located at 1720 East Garry, Suite #201,
Santa Ana, California 92705, fax: (949) 475-4518, provided, however, that
the Company shall provide prior written notice to Holder of a change in
address no less than thirty (30) days prior to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Expiration Date. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to Holder such amounts as shall be sufficient
to cover any direct and indirect losses, damages, costs and expenses
including, but not limited to, reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.
14.2. Notice Generally. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight
courier service, and shall be deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after the date of
deposit in the United States mails, as follows:
(a) if to the Company, to: LMKI Inc.
1720 East Garry, Suite #201
Santa Ana, California 92705
Attention: William J. Kettle
Phone: (949) 475-4500
Fax: (949) 475-4518
with a copy to: Robert C. Weaver, Jr., Esq.
721 Devon Court
San Diego, California 92109
Phone: (858) 488-4433
Fax: (848) 488-2555
(b) if to the Purchaser to: Mesora Investor 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
with a copy to: Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Phone: (212) 326-0140
Fax: (212) 326-0806
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind which may be imposed upon,
incurred by or asserted against Holder in any manner relating to or arising
out of any failure by the Company to perform or observe in any respect any of
its covenants, agreements, undertakings or obligations set forth in this
Warrant.
14.4. Remedies. Holder in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
14.5. Successors and Assigns. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this
Warrant and, with respect to Section 9 hereof, holders of Warrant Stock, and
shall be enforceable by any such Holder or holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived only with the prior
written consent of the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Warrant.
14.8. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws
of the State of New York, without regard to the provisions thereof relating
to conflict of laws. The Company consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Warrant or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
[Remainder of page intentionally blank, signature page follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary
or an Assistant Secretary.
Dated: November 23, 1999
LMKI INC.
By:___________________________
Name:
Title:
Attest:
By:______________________
Name:
Title:
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of LMKI Inc., and
herewith makes payment therefor in cash or by check or bank draft made
payable to the Company, all at the price and on the terms and conditions
specified in this Warrant and requests that certificates for the shares of
Common Stock hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to _____________
whose address is _________________ and, if such shares of Common Stock shall
not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the
shares of Common Stock issuable hereunder be delivered to the undersigned.
_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the
number of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of LMKI Inc.,
maintained for the purpose, with full power of substitution in the premises.
Dated:__________________ Print
Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
EXHIBIT C
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER HEREOF TO THE COMPANY OF AN OPINION OF COUNSEL STATING
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS THEN AVAILABLE.
LMKI INC.
CONDITIONAL WARRANT TO PURCHASE 6%
CONVERTIBLE SERIES A PREFERRED STOCK
AND WARRANTS TO PURCHASE COMMON STOCK
The Transferability of this Conditional Warrant
Is Restricted as Provided in Section 2.
Void after November 23, 2000 Right to Purchase 2,500 Shares of
Convertible Series A Preferred Stock and
Warrants to
Purchase 250,000 Shares of Common Stock
PREAMBLE
LMKI Inc. (the "Company"), a Nevada corporation, hereby certifies that,
for value received, Mesora Investors LLC, whose address is One World Trade
Center, Suite 4563, New York, New York 10048, or its registered assigns
(hereinafter, the "Registered Holder"), is, subject to the terms set forth
herein, entitled to purchase from the Company at any time or from time to
time before 5:00 P.M. New York time, on the date one (1) year from the date
hereof (such time, the "Expiration Time"), up to (i) two thousand five
hundred (2,500) fully paid and non-assessable shares of the Company's
Convertible Series A Preferred Stock with such terms as set forth in the
Certificate of Designations substantially in the form of Exhibit A to the
Securities Purchase Agreement (as defined below), par value $.001 per share,
stated value one thousand dollars ($1,000) per share (the "Series A Preferred
Stock") at the purchase price per share of one thousand ($1,000) and (ii)
warrants (the "Stock Purchase Warrants") to purchase fifty thousand shares of
common stock, par value $.001 per share (the "Common Stock") for each five
hundred (500) shares of Series A Preferred Stock purchased hereunder. For
purposes of this Conditional Warrant the aggregate price paid by the
Registered Holder for the Series A Preferred Stock and the Warrants, as
applicable, is referred to herein as the "Purchase Price".
Subject to the terms set forth herein, at the election of the Company
on not less than seven (7) business days nor more than twenty (20) business
days prior written notice (such notice being referred to as the "Conditional
Exercise Notice" and the closing date specified in such notice being referred
to as the "Conditional Closing Date"), the Registered Holder shall at any
time or from time to time after the date which is seventy-five (75) days
after the Registration Statement is declared effective and before the
Expiration Time, which time may be shortened by mutual consent of the
parties, be required to exercise this Warrant and purchase up to two thousand
five hundred (2,500) shares of Series A Preferred Stock and Stock Purchase
Warrants to purchase up to two hundred fifty thousand (250,000) shares of
Common Stock (minus any such shares of Series A Preferred Stock and Stock
Purchase Warrants previously purchased hereunder), at the Purchase Price;
provided, that, the Registered Holder shall not be required to exercise and
purchase any such shares if at any time from and after the delivery to the
Registered Holder of the Conditional Exercise Notice through the Conditional
Closing Date (the "Interim Period") any of the Closing Conditions (as defined
below) shall not have been satisfied.
This Warrant is the Conditional Warrant (the "Conditional Warrant") to
purchase up to two thousand five hundred (2,500) shares of Series A Preferred
Stock and Stock Purchase Warrants to purchase up to two hundred fifty
thousand (250,000) shares of Common Stock issued pursuant to the Securities
Purchase Agreement (the "Securities Purchase Agreement"), dated as of
November 23, 1999, by and between the Company and Mesora Investors LLC. The
Securities Purchase Agreement contains certain additional terms that are
binding upon the Company and each Registered Holder of this Conditional
Warrant. A copy of the Securities Purchase Agreement, including the Exhibits
thereto, may be obtained by any Registered Holder of the Conditional Warrant
from the Company upon written request. Capitalized terms used but not
defined herein shall have the meanings set forth in the Securities Purchase
Agreement, including the Exhibits thereto.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all shares of any class or
classes (however designated) of the Company, authorized on or after the date
hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily be
entitled to vote for the election of directors of the Company (even though
the right so to vote has been suspended by the happening of a contingency).
c. (c) The term "Major
Transaction" shall be deemed to have occurred
at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another
person (other than (A) pursuant to migratory
merger effected solely for the purpose of
changing the jurisdiction of incorporation of
the Company, or (B) a consolidation, merger or
other business combination in which the Company
is the surviving entity and holders of the
Company's voting power immediately prior to the
transaction continue after the transaction to
hold, directly or indirectly, the voting power
necessary to elect a majority of the members of
the board of directors of the Company); (ii)
the sale or transfer of all or substantially
all of the Company's assets; or (iii)
consummation of a purchase, tender or exchange
offer made to the holders of more than thirty
percent (30%) of the outstanding shares of
Common Stock.
(d) The term "Material Adverse Change" means any change, event,
result or happening involving, directly or indirectly, the Company or any of
its subsidiaries resulting in a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(e) The term "Other Securities" refers to any class of shares
(other than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Conditional Warrant
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Conditional Warrant, in lieu of or in addition to the shares
of Series A Preferred Stock and Stock Purchase Warrants, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement
of the Series A Preferred Stock or Stock Purchase Warrants or Other
Securities.
(f) The term "Triggering Event" shall be deemed to have occurred at
such time as any of the following events: (i) the failure of the Initial
Registration Statement to be declared effective by the Securities and
Exchange Commission on or prior to the Effectiveness Deadline; (ii) while the
Initial Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness
of the Initial Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
holder of the Series A Preferred Stock for sale of the Registrable Securities
(as defined in the Registration Rights Agreement) in accordance with the
terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) consecutive trading days, provided that
the cause of such lapse or unavailability is not due to factors solely within
the control of such holders of Registrable Securities; (iii) the suspension
from listing or the failure of the Common Stock to be listed on the OTC
Bulletin Board, the Nasdaq SmallCap Market, the Nasdaq National Market, The
New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a
period of five (5) consecutive days; (iv) the Company's notice to any holder
of Series A Preferred Stock, including by way of public announcement, at any
time, of its intention not to comply with proper requests for conversion of
Series A Preferred Stock into shares of Common Stock; (v) if the Closing Bid
Price (as defined in Section G of Exhibit A to the Securities Purchase
Agreement) for the Common Stock shall be less than [insert closing bid price
on the Closing Date] [_____] dollars ($_____) per share at any time during
the Interim Period and; (vi) the Company's stockholders shall not have
authorized and approved the transactions contemplated by the Securities
Purchase Agreement and this Warrant in accordance with applicable law;
(vi)(vii) a material breach by the Company of any representation, warranty,
covenant or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Conditional Warrant or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby or hereby; or (vii)(viii) if the
average daily trading volume of the Common Stock on the OTC Bulletin Board,
the Nasdaq SmallCap Market, the Nasdaq National Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc., as applicable, is less
than thirty thousand (30,000) shares per day during the thirty (30) trading
days prior to the Conditional Closing Date.
1. Registration Rights.
The rights of the holder of this Conditional Warrant to register the
shares of Common Stock issuable upon conversion of the shares of Series A
Preferred Stock purchasable hereunder and the shares of Common Stock issuable
upon exercise of the Stock Purchase Warrants purchasable hereunder shall be
as stated in the Registration Rights Agreement, which agreement is Exhibit D
to the Securities Purchase Agreement.
2. Restricted Stock.
If, at the time of any transfer or exchange of this Conditional Warrant
or any shares of Series A Preferred Stock or Stock Purchase Warrants issuable
upon exercise of this Conditional Warrant (other than a transfer or exchange
not involving a change in the beneficial ownership of this Conditional
Warrant or any shares of Series A Preferred Stock or Stock Purchase Warrants,
as applicable), such Conditional Warrant, such shares of Series A Preferred
Stock or such Stock Purchase Warrants shall not be registered under the
Securities Act, and the Company's obligation to transfer such Conditional
Warrant, such shares of Series A Preferred Stock or such Stock Purchase
Warrants shall be subject to the provisions of Section 4 of the Securities
Purchase Agreement.
3. Exercise of Warrant and Issuance of Shares of Series A Preferred Stock
and Stock Purchase Warrants.
3.1. Exercise in Full. The holder of this Conditional Warrant shall
on the Conditional Closing Date, provided the Conditional Exercise Notice is
given and the Closing Conditions are satisfied as required below, exercise
this Conditional Warrant in full by surrendering this Conditional Warrant,
with the form of Election to Purchase at the end hereof duly executed by such
holder, to the Company in the manner set forth in Section 5 of the Securities
Purchase Agreement; provided, that, in no event shall this Conditional
Warrant be exercised after the Expiration Time. The surrendered Conditional
Warrant shall be accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in the amount equal to two
million five hundred dollars ($2,500,000).
3.2. Partial Exercise. This Warrant shall on the Conditional Closing
Date provided, the Conditional Exercise Notice is given and the Closing
Conditions are satisfied as required above, be exercised in part by surrender
of this Conditional Warrant in the manner provided in Subsection 3.1, except
that the exercise price shall be calculated by multiplying (a) the number of
shares of Series A Preferred Stock as shall be designated by the holder or
the Company, as applicable, in the subscription at the end hereof by (b) one
thousand dollars ($1,000) per share of Series A Preferred Stock and,
provided, that, in no event shall this Conditional Warrant be exercised after
the Expiration Time. On any such partial exercise, subject to the provisions
of Section 2 hereof, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the Registered Holder hereof a new
Conditional Warrant or Conditional Warrants of like tenor, in the name of the
Registered Holder hereof or as such Registered Holder may request, calling in
the aggregate on the face or faces thereof for the number shares of Series A
Preferred Stock and Stock Purchase Warrants equal to the number of shares of
Series A Preferred Stock and Stock Purchase Warrants called for on the face
of this Conditional Warrant minus the number of such shares designated by the
Registered Holder in the applicable Election to Purchase.
3.3. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Conditional Warrant, upon the request
of the Registered Holder hereof, acknowledge in writing its continuing
obligation to afford to such Registered Holder or transferee any rights
(including, without limitation, any right to registration of the Company's
shares of Common Stock) to which such Registered Holder or transferee shall
continue to be entitled after such exercise, exchange or transfer in
accordance with the provisions of this Conditional Warrant, provided that if
the Registered Holder of this Conditional Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford to such Registered Holder or transferee any such rights.
3.4. Conditional Warrant to Purchase Common Stock. Within five (5)
Business Days of any exercise of this Conditional Warrant, the Company shall
issue to the Registered Holder a Stock Purchase Warrant substantially in the
form of Exhibit B to the Securities Purchase Agreement to purchase such
number of shares of Common Stock as shall equal the product of (x) .05 and
(y) the Purchase Price paid by the Registered Holder pursuant to any exercise
of this Conditional Warrant.
4. Delivery of Share Certificates upon Exercise. Following the exercise
of this Conditional Warrant in full or in part, within the time periods and
in the manner provided by Section 5(b) of the Securities Purchase Agreement,
the Company, at its expense (including the payment by it of any applicable
issue taxes), will cause to be issued in the name of and delivered to the
Registered Holder hereof, or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct, a certificate
or certificates for the number of fully paid and nonassessable shares of
Series A Preferred Stock to which such Registered Holder shall be entitled on
such exercise.
5. Closing Conditions. Notwithstanding anything herein to the contrary,
the Company shall not be permitted to deliver a Conditional Exercise Notice,
nor shall the Registered Holder be required to exercise and purchase on a
Conditional Closing Date any shares of Series A Preferred Stock and Stock
Purchase Warrants unless in either case each of the following conditions is
satisfied: (i) the Initial Registration Statement shall have been declared
effective and shall remain effective for a period of at least seventy-five
(75) days and at all times during the applicable Interim Period; (ii) the
Closing Bid Price (as defined in Section G of Exhibit A to the Securities
Purchase Agreement) for the Common Stock shall not be less than [insert the
closing bid price on the Closing Date] [______] dollars ($______) per share;
(iii) during the period beginning on the original issue date of this
Conditional Warrant and ending on and including the applicable Conditional
Closing Date, there shall not have occurred (A) a public announcement of a
Major Corporate Event which has not been abandoned or terminated, (B) a
Triggering Event or (C) a Material Adverse Change; (iv) at all times during
the period beginning on the original issue date of this Conditional Warrant
and ending on and including the applicable Conditional Closing Date, the
Common Stock shall have been designated on the NASDAQ OTC Bulletin Board, the
Nasdaq SmallCap Market or National Market System and shall not have been
suspended from trading thereon and the Company shall not have been notified
of any pending or threatened proceeding or other action to delist or suspend
the Common Stock from so trading; (v) the Company's Articles of Incorporation
as amended pursuant to the Articles of Amendment filed pursuant to the
Securities Purchase Agreement shall be in full force and effect and shall not
have been amended since the original issue date of this Conditional Warrant;
(vi) the representations and warranties of the Company in the Securities
Purchase Agreement shall be true and correct as of the date when made and as
of the applicable Conditional Closing Date as though made at that time
(except for representations and Conditional Warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Primary
Documents to be performed, satisfied or complied with by the Company at or
prior to the applicable Conditional Closing Date (and the Registered Holder
of this Conditional Warrant shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the applicable
Conditional Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such holder); and (vii) as of the
applicable Conditional Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, the sum of (i) one and one-half
(1.5) times the sum of (x) maximum number of shares of Common Stock that
could be issuable upon the conversion of the Initial Shares and (y) the
maximum number that could be issuable upon conversion of the Additional
Shares and (ii) the sum of the number of shares of Common Stock issuable upon
exercise in full of the Initial Warrants and the Additional Warrant, in each
case without regard to whether the Conditional Warrant shall have been
exercised solely for the purpose of effecting the conversion of Series A
Preferred Stock and Exercise of the Stock Purchase Warrants, as applicable.
6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-laws, or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Conditional Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Conditional Warrants, as specified
herein and in the Securities Purchase Agreement, against dilution or other
impairment. Without limiting the generality of the foregoing, the Company
(a) will not increase the par value of any Shares receivable on the exercise
of the Conditional Warrant above the amount payable therefor on such
exercise, and (b) will not effect a subdivision or split up of shares or
similar transaction with respect to any class of the Common Stock without
effecting an equivalent transaction with respect to all other classes of
Common Stock.
7. Notice of Record Date. In case of
(a) any taking by the Company of a record of the holders of any
class of its securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder
of a Conditional Warrant a notice specifying (i) the date on which any record
is to be taken for the purpose of any such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding up is to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their Common Stock (or Other Securities) for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding up, and (iii) the amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued
or granted, the date of such proposed issue or grant and the persons or class
of persons to whom such proposed issue or grant is to be offered or made.
Such notice shall be mailed at least thirty (30) days prior to the date
specified in such notice on which any such action is to be taken.
8. Exchange of Conditional Warrants. On surrender for exchange of any
Conditional Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on the order of
the holder thereof a new Conditional Warrant or Conditional Warrants of like
tenor, in the name of such holder or as such holder may direct, calling in
the aggregate on the face or faces thereof for the number of Series A
Preferred Stock and Stock Purchase Warrants called for on the face or faces
of the Conditional Warrant or Conditional Warrants so surrendered.
9. Replacement of Conditional Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Conditional Warrant and, in the case of any such loss, theft or
destruction of any Conditional Warrant, on delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company or, in
the case of any such mutilation, on surrender and cancellation of such
Conditional Warrant, the Company, at its expense, will execute and deliver,
in lieu thereof, a new Conditional Warrant of like tenor.
10. Conditional Warrant Agent. The Company may, by written notice to each
holder of a Conditional Warrant, appoint an agent having an office in New
York, New York, for the purpose of issuing Series A Preferred Stock and Stock
Purchase Warrants on the exercise of the Conditional Warrants pursuant to
Section 3, exchanging Conditional Warrants pursuant to Section 8, and
replacing Conditional Warrants pursuant to Section 9, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
11. Remedies. The Company stipulates that the remedies at law of the
holder of this Conditional Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the
terms of this Conditional Warrant are not and will not be adequate, and that
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
12. Negotiability, Etc. This Conditional Warrant is issued upon the
following terms, to all of which each Registered Holder or owner hereof by
the taking hereof consents and agrees:
(a) subject to the terms of Section 4 of the Securities
Purchase Agreement and approval of the Company, which shall not be
unreasonably withheld, title to this Conditional Warrant may be transferred
by endorsement (by the Registered Holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as in the case
of a negotiable instrument transferable by endorsement and delivery;
(b) any person in possession of this Conditional Warrant
properly endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior taker
or owner waives and renounces all of his equities or rights in this
Conditional Warrant in favor of each such bona fide purchaser, and each such
bona fide purchaser shall acquire absolute title hereto and to all rights
represented hereby; and
(c) until this Conditional Warrant is transferred on the books
of the Company, the Company may treat the Registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices. All notices and other communications from the Company to the
Registered Holder of this Conditional Warrant shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation postage prepaid by
certified mail return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed, to such address as may have been
furnished to the Company in writing by such Registered Holder or, until any
such Registered Holder furnishes to the Company an address, then to, and at
the address of, the last Registered Holder of this Conditional Warrant who
has so furnished an address to the Company.
14. Miscellaneous. This Conditional Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Conditional Warrant is being
delivered in the State of New York and, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Nevada, shall be construed and enforced in
accordance with and governed by the laws of the State of New York, without
regard to principles of conflict of laws. The headings in this Conditional
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. All nouns and pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter, as the identity of the
person or persons to whom reference is made herein may require.
[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned have executed this Conditional
Warrant as of November 23, 1999.
LMKI INC.
By:
Name:
Title:
ACKNOWLEDGED AND AGREED:
MESORA INVESTORS LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By:
Name: Daniel J. Saks
Title: Managing Director
Annex A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Conditional Warrant, to purchase [_____] shares of Series
A Preferred Stock and Stock Purchase Warrants to purchase [____] shares of
Common Stock and herewith tenders in payment for such securities a certified
or official bank check payable in New York Clearing House Funds to the order
of LMKI INC., in the amount of [$________], all in accordance with the terms
hereof. The undersigned requests that a certificate for such shares of
Series A Preferred Stock and Stock Purchase Warrants be registered in the
name of _________________________, whose address is
_________________________________ and that such stock certificates and
warrants be delivered to ___________________________,whose address is
______________________
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Conditional Warrant.)
(Insert Social Security or Other
Identifying Number of Holder)
Annex B
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder desires to transfer
the Conditional Warrant.)
FOR VALUE RECEIVED, ____________________
hereby sells, assigns and transfers unto
___________________________________
(Please print name and address of transferee)
this Conditional Warrant, together with all right, title and interest
therein, and does so hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Conditional Warrant on
the books of the within-named Company, with full power of substitution.
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Conditional Warrant.)
(Insert Social Security or Other
Identifying Number of Assignee)
Annex C
CONDITIONAL EXERCISE NOTICE
TO THE CONDITIONAL WARRANT TO PURCHASE
6% CONVERTIBLE SERIES A PREFERRED STOCK AND
WARRANTS TO PURCHASE COMMON STOCK
LMKI INC. (the "Company"), subject and pursuant to the Conditional Warrant To
Purchase 6% Convertible Series A Preferred Stock And Warrants To Purchase
Common Stock dated November ___, 1999, hereby requires that the Registered
Holder thereof to exercise said Warrant and purchase _______________ shares
(up to two thousand five hundred (2,500) shares) of Series A Preferred Stock
and Stock Purchase Warrants to purchase ________________ shares (up to two
hundred fifty thousand (250,000) shares of Common Stock) (minus any such
shares of Series A Preferred Stock and Stock Purchase Warrants previously
purchased hereunder), at the Purchase Price.
The Registration Statement filed with the Securities Exchange Commission
pertaining to this Warrant was declared effective on __________________. If
Conditional Closing Date is less than seventy-five (75) days after the
Registration Statement was declared effective the Registered Holder must
consent to this Conditional Exercise Notice by signing below to make it
effective.
Date of Conditional Exercise Notice: ___________________
Conditional Closing Date :___________________________
Required Exercise Amount: _________________________
Number of Preferred Shares ________________________
LMKI INC.
By:
William J. Kettle, Chief Executive Officer
We hereby consent to this consent to this Conditional Exercise Notice and
deem it effective.
MESORA INVESTORS LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By:
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 23, 1999 (this
"Agreement"), is made by and between LMKI INC., a Nevada corporation (the
"Company") and Mesora Investors LLC, a Delaware limited liability company
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of the
date hereof among the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser, (i)
two thousand five hundred (2,500) shares (the "Initial Shares") of the
Company's 6% Convertible Series A Preferred Stock, stated value $1,000 per
share (the "Preferred Stock"), (ii) a warrant (the "Initial Warrant") to
purchase two hundred fifty thousand (250,000) shares of the common stock par
value $.001 per share of the Company (the "Common Stock") and (iii) a
Conditional Warrant to purchase up to an additional two thousand five hundred
(2,500) shares of Preferred Stock (the "Additional Shares" and together with
the Initial Shares, collectively, the "Preferred Shares") and warrants to
purchase up to two hundred fifty thousand (250,000) shares of Common Stock
(the "Additional Warrant" and together with the Initial Warrant,
collectively, the "Warrants");
WHEREAS, pursuant to the terms of the Preferred Shares and the
Warrants, (i) upon the conversion of the Preferred Shares, (ii) in lieu of
dividend payments on the Preferred Shares and (iii) upon exercise of the
Warrants, the Company will issue to the Purchaser shares of Common Stock
(such shares are referred to herein as the "Shares"); and
WHEREAS, to induce the Purchaser 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 (the "Securities 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
Purchaser hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Effectiveness Deadline" shall have the meaning set
forth in section 2(a)(i) hereof.
(ii) "Filing Deadline" shall have the meaning set forth in
Section 2(a)(i) hereof.
(iii) "Initial Registration Statement" means a registration
statement or registration statements of the Company filed under the
Securities Act covering Registrable Securities relating to the Initial Shares
and the Additional Shares and, if applicable, the Series A Preferred Stock.
(iv) "Purchase Price" means the aggregate purchase price
paid by the Purchaser for the Initial Shares, the Additional Shares, the
Conditional Warrant and the Warrants.
(v) "Register," "Registered," and "Registration" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "Commission").
(vi) "Registrable Securities" means the Shares and the
Warrants.
(vii) "Registration Statement" means the Initial
Registration Statement and the Warrant Registration Statement.
(viii) "Warrant Registration Statement" means a
registration statement or registration statements of the Company filed under
the Securities Act covering Registrable Securities relating to the Warrants.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set-forth in the Securities Purchase Agreement.
2. Registration.
(a) Mandatory Registrations.
(i) Initial Registration Statement. The Company shall prepare, and, as soon
as practicable but in no event later than thirty (30) days after the Initial
Closing Date (as defined in the Securities Purchase Agreement) (the "Filing
Deadline"), file with the Commission an Initial Registration Statement or
Initial Registration Statements (as necessary) on Form S-1, covering the
resale of all of the Registrable Securities. In the event that Form S-1 is
unavailable for such a registration, the Company shall use such other form as
is available for such a registration. Any Initial Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the product of (x) two and, (y) the sum of
(i) the maximum number of Shares that are issuable upon conversion of the
Initial Shares and the Additional Shares on the date of filing, and (ii) the
maximum number of Shares issuable upon exercise of the Warrants, in each
case, without regard to any limitation on any holder's ability to convert any
of the Warrants or the Preferred Shares and without regard to whether any or
all of such Preferred Shares or Warrants have been issued to Purchaser (on
the date calculated, the "Minimum Conversion Amount"). Such Registration
Statement shall state that, in accordance with Rule 416 under the Securities
Act, it also covers such indeterminate number of additional Shares as may
become issuable upon conversion of such Preferred Shares or exercise of such
Warrants (i) resulting from any adjustment in the applicable Conversion Price
of such Preferred Shares or the Exercise Price of such Warrants or (ii) to
prevent dilution resulting from stock splits or stock dividends. If at any
time the Minimum Conversion Amount exceeds the total number of Shares so
registered, the Company shall, within five (5) business days after receipt of
a written notice from the Purchaser, either (i) amend the Registration
Statement or Registration Statements filed by the Company pursuant to the
preceding sentence, if such Registration Statement has not been declared
effective by the Commission at that time, to register all of the Shares into
which the Initial Shares, the Additional Shares and the Warrants may be
converted or exercised, as applicable, or (ii) if such Registration Statement
has been declared effective by the Commission at that time, file with the
Commission an additional Registration Statement on Form S-1, or such other
appropriate form, to register the number of shares of Common Stock into which
the Initial Shares, Additional Shares, and Warrants may be converted or
exercised, as applicable, that exceed the number of Shares already
registered. The Company shall use its best efforts to have the Initial
Registration Statement declared effective within the earliest to occur of
(i) ninety (90) days following the Initial Closing Date (ii) if the
Commission elects not to conduct a review of the Initial Registration
Statement, the date which is three (3) 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 Initial Registration Statement is reviewed by the
Commission, the date which is three (3) business days after the date upon
which the Company or its counsel is notified by the Commission, whether
orally or in writing, that the Commission has no further comments with
respect to the Initial Registration Statement or that the Initial
Registration Statement may be declared effective. The earliest of such dates
is referred to herein as the "Required Effective Date." Notwithstanding the
use of the terms "Required Filing Date" and "Required Effective Date" herein,
the Company shall at all times use its best efforts to file each required
Registration Statement or amendment to a Registration Statement as soon as
possible after the Closing Date or after the date the Company becomes
obligated to file such Registration Statement or amendment, as the case may
be, and to cause each such Registration Statement or amendment to become
effective as soon as possible thereafter. No securities of the Company other
than the Registrable Securities shall be included in any such Registration
Statement.
(ii) The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier
of (i) the date on which all of the Registrable Securities have been sold,
(ii) the date on which the Registrable Securities (in the opinion of counsel
to the Purchaser) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the Securities Act and (iii) the date which is twenty four (24) months
following the date on which the Registration Statement was declared effective
(the "Registration Period").
(b) Payments by the Company.
(i) (A) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the Commission on or
prior to the Filing Deadline, (B) if the Registration Statement covering the
Registrable Securities is not effective on or prior to the Effectiveness
Deadline, (C) if the number of Shares listed for trading on the OTC Bulletin
Board or the NASDAQ SmallCap Stock Market, as applicable, or reserved by the
Company for issuance shall be insufficient, for any period of five (5)
consecutive days at any time after the Effectiveness Deadline, for issuance
upon the conversion of the Initial Shares, the Additional Shares and the
exercise of the Warrants, or (D) upon the occurrence of a Blackout Event (as
described in Section 3(f) or Section 3(g) below), for any period of five (5)
consecutive days at any time after the Effectiveness Deadline (each of the
events described in clauses (A) through (D) of this paragraph are referred to
herein as a "Registration Default"), the Company will make payments to the
Purchaser in such amounts and at such times as shall be determined pursuant
to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the
Company to the Purchaser as of each thirty (30) day period during which a
Registration Default shall be in effect (each such period, a "Default
Period") shall be equal to (x) with respect to any Registration Default
described in Section 2(b)(i) clause (A) or (B), two percent (2%) of the
Purchase Price paid by the Purchaser and (y) with respect to any Registration
Default described in Section 2(b)(i) clause (C) or (D), two percent (2%) of
the Purchase Price paid by the Purchaser of any securities affected by such
event as described in Section 2(b)(i) clause (C) or (D); provided that, with
respect to any Default Period during which the relevant Registration Defaults
shall have been cured, the Periodic Amount shall be pro rated for the number
of days during such period during which the Registration Defaults were
pending; and provided, however, that the payment of such Periodic Amounts
shall not relieve the Company from its continuing obligations to register the
Warrants and Shares pursuant to Section 2(a).
(iii) Each Periodic Amount shall be payable by the Company
in cash or other immediately available funds to the Purchaser monthly,
without demand therefor by the Purchaser.
(iv) The parties acknowledge that the damages which may be
incurred by the Purchaser if the Registration Statement is not filed by the
Filing Deadline, if the Registration Statement has not been declared
effective by the Effectiveness Deadline, or if the provisions of Section 3(e)
or 3(f) become applicable, may be difficult to ascertain. The parties agree
that the Periodic Amount represents a reasonable estimate on the part of the
parties, as of the date of this Agreement, of the amount of such damages.
(c) Piggyback Registration. (i) If at any time or from time to
time, the Company shall determine to register any of its securities, for its
own account or the account of any of its shareholders, other than a
Registration relating solely to employee share option plans or pursuant to an
acquisition transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice thereof
as soon as practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in
any underwriting involved therein, all of the Registrable Securities
specified in a written request by the Purchaser made within fifteen (15) days
after receipt of such written notice from the Company.
(ii) If the Registration is for a registered public offering involving
an underwriting, the Company shall so advise the Purchaser as a part of the
written notice given pursuant to this Section. In such event, the rights of
the Purchaser hereunder shall include participation in such underwriting and
the inclusion of the Registrable Securities in the underwriting to the extent
provided herein. To the extent that the Purchaser proposes to distribute its
securities through such underwriting, the Purchaser shall (together with the
Company and any other security holders of the Company distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section, if the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be offered
in connection with such underwriting, the managing underwriter may limit the
number of Registrable Securities to be included in the Registration and
underwriting (provided, however, (a) the Registrable Securities shall not be
excluded from such underwritten offering prior to any securities held by
officers and directors of the Company or their affiliates, (b) the
Registrable Securities shall be entitled to at least the same priority in an
underwritten offering as any of the Company's existing security holders, and
(c) the Company shall not enter into any agreement that would provide any
security holder with priority in connection with an underwritten offering
greater than the priority granted to the Purchaser hereunder). The Company
shall so advise any of its other security holders who are distributing their
securities through such underwriting pursuant to their respective piggyback
registration rights, and the number of shares of Registrable Securities and
other securities that may be included in the registration and underwriting
shall be allocated among the Purchaser and all other security holders of the
Company in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by the Purchaser and such other security holders
at the time of the filing of the registration statement. If the Purchaser
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company. Any Registrable Securities so
excluded or withdrawn from such underwriting shall be withdrawn from such
Registration.
(d) Eligibility for Form S-1. The Company represents and
warrants that it meets all of the requirements for the use of Form S-1 for
the Registration, of the sale by the Purchaser of the Registrable Securities
and any transferee who purchases the Registrable Securities, and the Company
shall file all reports required to be filed by the Company with the
Commission in a timely manner, and shall take such other actions as may be
necessary to maintain such eligibility for the use of Form S-1.
(e) Priority in filing. From the date hereof until one hundred
eighty (180) days following the effective date of the Initial Registration
Statement pursuant to Section 2(a) of this Agreement, provided, however, that
such one hundred eighty day period shall be extended by the number of days
after the effective date of such Initial Registration Statement when the
Purchaser is not permitted to utilize the prospectus or otherwise to resell
Registrable Securities, the Company shall not permit the registration of any
of its securities under the Securities Act to be filed or to become
effective, other than those covered by this Agreement, without the prior
written approval of the Purchaser. The foregoing notwithstanding, the
Company may permit a registration statement to become effective during the
foregoing period provided that (i) such registration statement relates to a
firm commitment underwritten offering of the Company's securities that
provides the Company with at least ten million dollars ($10,000,000), or (ii)
ninety (90) such registration statement was filed at least fifteen (15) days
have passed after the Initial Registration Statement has been effective, and
shall not become effective until the Equity Line Free Exercise Date (as
defined in Section 4i of the Securities Purchase Agreement) or thereafter,
and such registration statement relates to the issuance of securities to
Swartz Private Equity, LLC pursuant to an Investment Agreement, a
Registration Rights Agreement, Warrant to Purchase 490,000 Shares of Common
Stock and the associated documents.
3. Obligations of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
(a) Prepare and file with the Commission the Registration
Statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectuses used in connection with the Registration
Statement, each in such form as to which the Purchaser and its counsel shall
not have objected, as may be necessary to keep the Registration effective at
all times during the Registration Period, and, during the Registration
Period, comply with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities and all of the Warrants of
the Company covered by the Registration Statement until such time as all of
such Registrable Securities and all of such Warrants have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(b) Furnish to the Purchaser, if the Registrable Securities of
the Purchaser are included in the Registration Statement, and its legal
counsel identified to the Company, promptly after the same is prepared and
publicly distributed, filed with the Commission, or received by the Company,
a copy of the Registration Statement, each preliminary prospectus, each final
prospectus, and all amendments and supplements thereto and such other
documents, as the Purchaser may reasonably request in order to facilitate the
disposition of its Registrable Securities and Warrants;
(c) Furnish to the Purchaser and its counsel copies of any
correspondence between the Company and the Commission with respect to any
registration statement or amendment or supplement thereto filed pursuant to
this Agreement;
(d) Use all best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period and (iv)
take all other actions necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions, provided that in connection
therewith, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to the service of process in any
jurisdiction;
(e) List such securities on the OTC Bulletin Board and all the
other national securities exchanges on which any securities of the Company
are then listed, and file any filings required by the OTC Bulletin Board
and/or such other exchanges.
(f) As promptly as practicable after becoming aware of such
event, notify each Purchaser of the occurrence of any event of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and to use its best efforts to promptly
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the Commission to correct such untrue statement of
omission, and to deliver a number of copies of such supplement or amendment
to the Purchaser as the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Warrants or Registrable Securities
being sold (or, in the event of an underwritten offering, the underwriters)
of the issuance by the Commission or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible
time, and to use its best efforts to promptly obtain the withdrawal of such
stop order or other suspension of effectiveness;
(h) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Registrable Securities being sold (or,
in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time,
and to use its best efforts to promptly obtain the withdrawal of such stop
order or other suspension of effectiveness (the occurrence of any of the
events described in paragraphs (f) and (g) of this Section 3 is referred to
herein as a "Blackout Event");
(i) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above, or (ii) the entry
of a stop order or other suspension of effectiveness of the Registration
Statement described in Section 3(g) above, and ending at such time as (y) the
Company shall have completed the applicable filings (and if applicable, such
filings shall have been declared effective) and shall have delivered to the
Purchaser the documents required pursuant to Section 3(f) above, or (z), such
stop order or other suspension of the effectiveness of the Registration
Statement shall have been removed, the Company shall be liable to remit the
payments required to be paid pursuant to Section 2(b) above;
(j) If the offering is underwritten, at the request of a
Purchaser, to furnish on the date that Registrable Securities are delivered
to the underwriters for sale pursuant to such registration: (i) an opinion
dated such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting, stating that
such registration statement has become effective under the Securities Act and
that (A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Securities Act
and (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements or other financial data contained
therein) and (ii) a letter dated such date from the Company's independent
public accountants addressed to the underwriters and to the Purchaser,
stating that they are independent public accountants within the meaning of
the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act, and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five (5)
business days prior to the date of such letter) with respect to such
registration as such underwriters may reasonably request; and
(k) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and to enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as the Purchaser may reasonably request, and
registered in such names as the Purchaser may request; and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the Commission, the Company shall deliver,
and shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the Purchaser)
an appropriate instruction and opinion of such counsel.
4. Obligations of the Purchaser. In connection with the
registration of the Registrable Securities, the Purchaser shall have the
following obligations:
(a) Take all other reasonable actions necessary to expedite and
facilitate the disposition by the Purchaser of the Warrants and the
Registrable Securities pursuant to the Registration Statement.
(b) Furnish to the Company such information regarding itself,
the Warrants and Registrable Securities held by it, and the intended method
of disposition of the Warrants and the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Warrants and
such Registrable Securities, and the Purchaser shall execute such documents
in connection with such registration as the Company may reasonably request.
At least five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify the Purchaser of the
information the Company included in the Registration Statement.
(c) The Purchaser, by its acceptance of the Warrants or
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.
(d) The Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(f) or 3(g) above, it will immediately discontinue disposition of its
Warrants or Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) shall be furnished to
the Purchaser.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers
and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualification
fees, printing and accounting fees, and the fees and disbursements of counsel
for the Company, and the fees of one counsel to the Purchaser with respect to
each Registration Statement filed pursuant hereto, shall be borne by the
Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) The Company will indemnify and hold harmless the Purchaser,
each of its officers, directors, shareholders and members, and each person,
if any, who controls the Purchaser within the meaning of the Securities Act
or the Exchange Act (each, an "Indemnified Person"), against any losses,
claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they
were made, 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 Commission) or the omission
to state therein any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state or foreign securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state or
foreign securities law (the matters in foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall, subject to the
provisions of Section 6(b) below, reimburse the Purchaser, promptly as such
expenses are incurred and are due and payable, for any legal and other costs,
expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise, including without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating, preparing
or defending any such action, suit, proceeding or investigation (whether or
not in connection with litigation in which the Purchaser is a party),
incurred by it in connection with the investigation or defense of any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply
to any Claim arising out of or based upon a modification which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended
or supplemented, if such final prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (iii) be available to the extent
that such Claim is based upon a failure of the Purchaser to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(b)
hereof; or (iv) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. 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 Purchaser pursuant to Section 9. The Purchaser
will indemnify the Company and its officers and directors against any Claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on
behalf of the Purchaser, expressly for use in connection with the preparation
of the Registration Statement, subject to such limitations and conditions as
are applicable to the Indemnification provided by the Company in this Section
6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in,
and to the extent that the indemnifying party so desires, jointly with any
other indemnifying party similarly notified, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the
Indemnified Person, provided, however, that an Indemnified Person shall have
the right to retain its own counsel with the reasonable fees and expenses to
be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person and
any other party represented by such counsel in such proceeding. In such
event, the Company shall pay for only one separate legal counsel for the
Purchaser, and such legal counsel shall be selected by the Purchaser. The
failure to deliver written notice to an indemnifying party within a
reasonable time after the commencement of any such action shall not relieve
such indemnifying party of any liability to the Indemnified Person under this
Section 6, except to the extent that the indemnifying party is materially
prejudiced in its ability to such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as such expense, loss,
damage or liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements entered into among the Company, the underwriters and
the Purchaser in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in such underwriting
agreements shall be controlling as to the Registrable Securities included in
the public offering; provided, however, that if, as a result of this Section
6(d), the Purchaser, its officers, directors, shareholders, members or any
person controlling the Purchaser is or are held liable with respect to any
Claim for which they would be entitled to indemnification hereunder but for
this Section 6(d) in an amount which exceeds the aggregate proceeds received
by the Purchaser from the sale of Registrable Securities included in a
registration pursuant to such underwriting agreement (the "Excess
Liability"), the Company shall reimburse the Purchaser for such Excess
Liability.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited under applicable law, the
indemnifying party agrees to contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and the Indemnified Person on the
other hand in connection with the statements or omissions which resulted in
such Claim, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and the Indemnified Person shall be
determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact on which such
Claim is based relates to information supplied by the indemnifying party or
by the Indemnified Person, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the forgoing, (a) no contribution shall be made
under circumstances where the payor would not have been liable for
indemnification under the fault standards set forth in Section 6, (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was not guilty
of such fraudulent misrepresentation and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net proceeds
received by such seller from the sale of such Registrable Securities. The
Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro-rata
allocation (even if the Purchaser and any other party were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in this Section.
8. Reports Under Exchange Act.
With a view to making available to the Purchaser the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to
sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(iii) furnish to the Purchaser so long as the Purchaser
owns Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
periodic report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably
requested to permit the Purchaser to sell such securities pursuant to Rule
144 without registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Warrants or Registrable Securities pursuant to this
Agreement shall be automatically assigned by Purchaser to any transferee of
all or any portion of the Initial Shares, Additional Shares, Warrants or the
underlying Common Stock held by Purchaser if: (a) Purchaser 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; (b) the Company is, within a reasonable time after such transfer
or assignment, furnished with written notice of (i) the name and address of
such transferee or assignee and (ii) the Securities with respect to which
such registration rights are being transferred or assigned; (c) at or before
the time the Company receives the written notice contemplated by clause (b)
of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (d) the
transfer of the relevant Securities complies with the restrictions set forth
in Section 4 of the Securities Purchase Agreement.
10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Purchaser. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon Purchaser and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Warrants or
Registrable Securities whenever such person or entity owns of record such
Warrants or Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Warrants or Registrable Securities, the Company shall act
upon the basis of the instructions, notice or election received from the
registered owner of such Warrants or Registrable Securities.
(b) Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission and mailing a copy of such confirmation postage prepaid by
certified mail, return receipt requested) or two business days following
deposit of such notice with an internationally recognized courier service,
with postage prepaid and addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party
may designate by ten (10) days advance written notice to each of the other
parties hereto.
COMPANY: LMKI Inc.
1720 East Garry, Suite #201
Santa Ana, California 92705
Attention: William J. Kettle
Phone: (949) 475-4500
Fax: (949) 475-4518
With a copy to:
Robert C. Weaver, Jr., Esq.
721 Devon Court
San Diego, California 92109
Phone: (858) 488-4433
Fax: (848) 488-2555
PURCHASER: Mesora 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
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Attention: Mark Saks, Esq.
Phone: (212) 326-0140
Fax: (212) 326-0806
(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) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, except for provisions with
respect to internal corporate matters of the Company which shall be governed
by the corporate laws of the State of Nevada. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state courts of the State of New York sitting
in the City of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such validity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. Subject to the
provisions of Section 10 hereof, this Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement.
This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure for the benefit of and be binding upon the successors
and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
(h) The Company acknowledges that any failure by the Company to
perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that,
in addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused
by any such failure or delay. Nothing herein shall limit the Purchaser's
right to pursue any claim seeking such direct damages.
[REMAINDER OF PAGE INTENTIONALLY BLANK, SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"COMPANY"
LMKI INC.
By:
Name:
Title:
"PURCHASER"
MESORA INVESTORS LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By:
Name: Daniel J. Saks
Title: Managing Director
EXHIBIT E
[FORM OF OPINION OF COUNSEL]
EXHIBIT F
FORM OF LOCK-UP AGREEMENT
William T. Kettle
c/o LMKI Inc.
1729 East Garry, Suite #201
Santa Ana, California 92705
November 23, 1999
Mesora Investors LLC
c/o WEC Asset Management LLC
One World Trade Center, Suite 4563
New York, New York 100048
Re: Sale of Up to $5,000,000 of securities of LMKI, Inc. to Mesora
Investors LLC
Ladies & Gentlemen:
In connection with the offering (the "Offering") of 6% Convertible
Series A Preferred Stock, par value $.001 per share (the "Preferred Stock"),
warrants to purchase shares of common stock, par value $.001 per share (the
"Common Stock"), and a conditional warrant to purchase additional shares of
Preferred Stock and Common Stock of LMKI, Inc. (the "Company") to Mesora
Investors LLC. (the "Investor"), a Delaware limited liability company. The
undersigned understands that the Company will be filing a registration
statement on Form S-1 with the Securities and Exchange Commission to register
the Common Stock underlying the securities purchased by the Investor in the
Offering. The undersigned further understands the Investor is contemplating
entering into a Securities Purchase Agreement with the Company in connection
with the Offering.
In order to induce the Investor to enter into the Securities Purchase
Agreement and to proceed with the Offering, the undersigned hereby agrees,
for the benefit of the Investor, that should the Offering be effected, the
undersigned will not, without the prior written consent of the Investors,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of an option to
purchase or other sale or disposition) of any his shares of Common Stock or
other capital stock of the Company or any securities convertible into, or
exchangeable or exercisable for Common Stock or other capital stock of the
Company, including any such securities beneficially owned (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the
undersigned on the date hereof for a period of six months subsequent to the
date of the consummation of the Offering.
The undersigned acknowledges and agrees that you and the Company will
rely upon the representations set forth in this agreement in proceeding with
the Offering. This agreement shall be binding on the undersigned and his
respective successors, heirs, personal representatives and assigns.
This agreement may be executed in any number of counterparts.
Each counterpart shall be deemed to be an original and all such counterparts
shall together constitute one instrument.
Very truly yours,
________________________
William T. Kettle
The foregoing is accepted and agreed to
as of the date first above written:
MESORA INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:_____________________
Name: Daniel J. Saks
Title: Managing Director
