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i. Valuation Event. For purposes of this Agreement, "VALUATION EVENT"
shall mean an event in which the Company at any time during a "Purchase Period"
takes any of the following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for dividends paid
with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for or
purchase Common Stock and the price per share for which
Common Stock may at any time thereafter be issuable
pursuant to such options or other rights shall be less than
the Bid Price in effect immediately prior to such issuance;
(iv) issues any securities convertible into or exchangeable for
Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(v) issues shares of Common Stock otherwise than as provided in
the foregoing subsections (i) through (iv), at a price per
share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or
without consideration;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend
in liquidation or by way of return of capital or other than
as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing
subsections (i) through (v); or
(vii) takes any action affecting the number of shares of Common
Stock outstanding, other than an action described in any of
the foregoing subsections (i) through (vi) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a
materially adverse effect upon the rights of Investor at
the time of a Put Notice is delivered to Investor.
j. If a Valuation Event occurs during a Purchase Period, the Investor,
at its sole option, may either (i) choose a new Purchase Period beginning on the
Trading Day immediately following the occurrence of such Valuation Event, (ii)
use the Purchase Period during which the Valuation Event occurred or (iii)
decline the Put Notice.
k. Registration Opinion. The Company shall cause its independent
counsel to deliver to the Investor, on each Registration Opinion Deadline, an
opinion, (the
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"REGISTRATION OPINION"), addressed to the Investor stating, inter alia, that no
facts ("MATERIAL FACTS") have come to such counsel's attention that have caused
it to believe that the Registration Statement is subject to an Ineffective
Period or to believe that the Registration Statement, any supplemental
Registration Statement (as each may be amended, if applicable), and any related
prospectuses, contain an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. If a Registration
Opinion cannot be delivered by the Company's independent counsel to the Investor
on the Registration Opinion Deadline due to the existence of Material Facts or
an Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Closing Date, the Company acquires knowledge of such Material
Facts or any Ineffective Period occurs, the Company shall promptly notify the
Investor and Investor, at Investor's sole option, shall be entitled to cancel
that entire Put Notice by facsimile notice to the Company on or before the
related Closing Period.
l. Procedure if Material Facts are Reasonably believed to be untrue or
are omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or (ii) if the Company disputes
the existence of any such material misstatement or omission, (x) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (y) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
m. Delisting; Suspension. If at any time during the Open Period or
within thirty (30) calendar days after the end of the Open Period, (i) the
Registration Statement, after it has been declared effective, shall not remain
effective and available for sale of all the Registrable Securities, (ii) the
Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
trading day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock, (iii) there shall have occurred a Major
Transaction (as defined in Section 2(f)) or the public announcement of a pending
Major
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Transaction which has not been abandoned or terminated, or (iv) the Registration
Statement is no longer effective or stale for a period of more than five (5)
Trading Days as a result of the Company to timely file its financials, the
Investor shall have the right (the "REPURCHASE OPTION"), as partial relief for
the damages to the Investor by reason of the occurrence of the events listed in
clauses (i), (ii), (iii) or (iv)above (which remedy shall not be exclusive of
any other remedies available at law or equity), in its sole discretion, which
right shall be exercised within thirty (30) calendar days of such event or
occurrence (a "REPURCHASE EVENT"), to sell to the Company, and the Company
agrees to buy, promptly upon the exercise of such right by the Investor, but in
any event within ten (10) calendar days of the exercise of such right, and
subject to the limitations imposed by applicable federal and state law, all or
any part of the Shares issued to the Investor within the sixty (60) Trading Days
preceding the Investor's exercise of the Repurchase Option and then held by the
Investor at a price per Share equal to the highest closing price during the
period beginning on the date of the Repurchase Event and ending on and including
the date on which the Investor exercises its Repurchase Option (the "PAYMENT
AMOUNT"). If the Company fails to pay to the Investor the full aggregate Payment
Amount within ten (10) calendar days of the Investor's exercise of the
Repurchase Option hereunder, the Company shall pay to the Investor, on the first
Trading Day following such tenth (10th) calendar day, in addition to and not in
lieu of the Payment Amount payable by the Company to the Investor upon exercise
of the Repurchase Option, an amount equal to 2% of the aggregate Payment Amount
then due and payable to the Investor, in cash by wire transfer, plus compounded
annual interest of 8% on such Payment Amount during the period, beginning on the
day following such tenth calendar day, during which such Payment Amount, or any
portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor and Yorkeville jointly and severally represent and warrant
to the Company that:
a. Investment Purpose. Each of the Investor and Yorkeville is acquiring
the Securities for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, the Investor does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status; Sophisticated Investor. Each of the
Investor and Yorkeville is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D under the 1933 Act. The Investor and Yorkeville have
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities.
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c. Reliance on Exemptions. The Investor and Yorkeville understand that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor's and Yorkeville's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor and Yorkeville set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor and
Yorkeville to acquire such Securities.
d. Information. Each of the Investor and Yorkeville and its advisors,
if any, have been furnished with or have had access to all materials relating to
the business, finances and operations of the Company and materials relating to
the offer and sale of the Securities which have been requested by the Investor
and Yorkeville. The Investor and Yorkeville and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by the Investor, Yorkeville
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor's or Yorkeville's right to rely on the Company's representations
and warranties contained in Section 4 below. The Investor and Yorkeville
understand that its investment in the Securities involves a high degree of risk.
The Investor and Yorkeville have sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. No Governmental Review. The Investor and Yorkeville understand that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Investor and Yorkeville understand that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered for resale thereunder and sold, assigned or transferred
in accordance with an effective registration statement, (B) the Investor or
Yorkeville, as the case may be, shall have delivered to the Company an opinion
of counsel, in a reasonably acceptable form, to the effect that such Securities
to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (C) the Investor or
Yorkeville, as the case may be, provides the Company with assurance reasonably
acceptable to the Company that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor
rule thereto) ("RULE 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
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<PAGE>
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Investor and Yorkeville agree that the sale of the
Securities will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of the
Principal Market, if applicable.
g. Legends. The Investor and Yorkeville understand that, until such
time as the Securities have been transferred to a person who may trade the
Shares without restriction under the 1933 Act as contemplated by the
Registration Rights Agreement, the certificates representing the Securities,
except as set forth below and in Section 8(r), shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with assurances reasonably acceptable
to the Company that such Securities can be sold pursuant to Rule 144 without any
restriction as to (A) the number of securities acquired as of a particular date
that can then be immediately sold or (B) manner of sale. Each of the Investor
and Yorkeville covenants that, in connection with any transfer of Securities by
it pursuant to an effective registration statement under the 1933 Act, it will
(i) comply with the applicable prospectus delivery requirements of the 1933 Act,
provided that copies of a current prospectus relating to such effective
registration statement are or have been supplied to the Investor and Yorkeville,
and (ii) comply with the "Plan of Distribution" section of the current
prospectus relating to such effective registration statement.
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h. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Section 9 of the 1934 Act. During the Open Period, the Investor and
Yorkeville will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the Common
Stock.
j. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation or the By-laws or (ii) conflict with,
or constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns a controlling interest) (a complete list of which
is set forth in Schedule 4(a)) are corporations duly organized and validly
existing in good standing under the laws of the State of Nevada, and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any,
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taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Shares pursuant to this Agreement, have been duly and validly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders, except for any approval required pursuant to the rules and
regulations of the AMEX (iii) the Transaction Documents have been duly and
validly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 54,523,810 shares of Common Stock, of which as of
the date hereof, 18,566,667 shares are issued and outstanding, 5,000,000 shares
of Preferred Stock, of which as of the date hereof 3,235,301 shares are issued
and outstanding, and 2,779,737 shares of Common Stock are issuable upon the
exercise of options, Warrants and conversion rights. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 4(c) or in SEC Documents (as
defined in Section 4(f) below), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, (ii) there are no outstanding
debt securities, (iii) there are no outstanding shares of capital stock,
options, Warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, Warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding
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securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement, (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (viii) there is no dispute as to the class of any
shares of the Company's capital stock. The Company has furnished to the
Investor, or the Investor has had access through EDGAR to, true and correct
copies of the Company's Articles of Incorporation, as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS `), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Shares. At least 16,000,000 Shares issuable pursuant to
this Agreement have been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement, subject to approval by the Company's stockholders.
Upon issuance in accordance with this Agreement, the Securities will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register
16,000,000 Shares, due to the remaining number of authorized shares of Common
Stock being insufficient, the Company will use its best efforts to register the
maximum number of shares it can based on the remaining balance of authorized
shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or
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