Private Equity Credit Agreement - Netgateway Inc. and King William LLC
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
NETGATEWAY, INC.,
a Delaware corporation
AND
KING WILLIAM, LLC,
a Cayman Islands limited liability company
Dated as of August 2, 2000
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This PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 2nd day of
August 2000 (this "AGREEMENT"), by and between KING WILLIAM, LLC, a Cayman
Islands limited liability company ("INVESTOR"), and NETGATEWAY, INC., a Delaware
corporation (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company may issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, shares of the
Common Stock (as defined below) with an aggregate purchase price not to exceed
$10,000,000; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("SECTION 4(2)") of the Securities Act of 1933 and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings specified or indicated (such meanings to be
equally applicable to both the singular and plural forms of the terms defined).
"AFFILIATE" shall mean, with respect to the Person referred to any
officer, director, or employee of the Person, and any Person who controls that
Person within the meaning of Section 20 of the Exchange Act and Section 15 of
the Securities Act.
"AGREEMENT" shall have the meaning specified in the preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common Stock on
the Principal Market.
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"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLAIM NOTICE" shall have the meaning specified in Section 9.3(a).
"CLOSING" shall mean one of the closings of a purchase and sale of
shares of Common Stock pursuant to Section 2.3.
"CLOSING DATE" shall mean, with respect to a Closing, the eleventh
(11th) Trading Day following the Put Date related to such Closing, or such
earlier date as the Company and Investor shall agree, provided all conditions to
such Closing have been satisfied on or before such Trading Day.
"COMMITMENT PERIOD" shall mean the period commencing on the earlier to
occur of (a) the Effective Date, or (b) such earlier date as the Company and
Investor shall agree in writing, and expiring on the earlier to occur of (i) the
date on which Investor shall have purchased Common Stock for an aggregate
purchase price of $10,000,000, (ii) the date this Agreement is terminated
pursuant to Section 2.6 or 2.9 hereof, or Section 2(c) of the Registration
Rights Agreement, or (iii) the date occurring one (1) year from the date of
commencement of the Commitment Period.
"COMMON STOCK" shall mean the Company's common stock, par value $.001
per share, and any shares of any other class of common stock whether now or
hereafter authorized, having the right to participate in the distribution of
dividends (as and when declared) and assets (upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in
Section 7.2.
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"DAMAGES" shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
"DISCOUNT" shall mean twelve and one-half percent (12 1/2%).
"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).
"DTC" shall the meaning specified in Section 2.3.
"DWAC" shall the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which the SEC first declares
effective a Registration Statement registering resale of the Registrable
Securities as set forth in Section 7.2(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder.
"FAST" shall the meaning specified in Section 2.3.
"INDEMNIFIED PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNIFYING PARTY" shall have the meaning specified in Section
9.3(a).
"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).
"INITIAL REGISTRATION STATEMENT" shall have the meaning specified in
the Registration Rights Agreement.
"INVESTMENT AMOUNT" shall mean the dollar amount (within the range
specified in Section 2.2) to be invested by Investor to purchase Put Shares with
respect to any Put Date as notified by the parties in accordance with Section
2.2 and 2.5.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
"MARKET PRICE" on any given date shall mean the average of the three
(3) lowest Bid Prices (not necessarily consecutive) during the ten (10) Trading
Day period immediately following the Put Date.
"MINIMUM COMMITMENT AMOUNT" shall mean Three Million Seven
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Hundred Fifty Thousand Dollars ($3,750,000) Dollars.
"MAXIMUM COMMITMENT AMOUNT" shall mean Ten Million Dollars
($10,000,000) Shares of Common Stock, subject to increase as agreed to by the
Company and Investor.
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to enter into and perform
its obligations under either of (a) this Agreement and (b) the Registration
Rights Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, the lesser
of (a) One Million Dollars ($1,000,000) Dollars, or (b) one hundred fifty (150%)
percent of the Weighted Average Volume for the twenty (20) trading days prior to
the Put Date, subject to adjustment as agreed by the Company and the Investor.
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, One Hundred
Thousand Dollars ($100,000), subject to decrease as agreed to by the Company and
Investor.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NEW BID PRICE" shall have the meaning specified in Section 2.7.
"OLD BID PRICE" shall have the meaning specified in Section 2.7.
"OUTSTANDING" shall mean, with respect to the Common Stock, at any
date as of which the number of shares of Common Stock is to be determined, all
issued and outstanding shares of Common Stock, including all shares of Common
Stock issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock; provided, however, that
Outstanding shall not include any shares of Common Stock then directly or
indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq
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SmallCap Market, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
"PURCHASE PRICE" shall mean, with respect to a Put, the Market Price
on the applicable Put Date less the product of the Discount and the Market
Price.
"PUT" shall mean each occasion that the Company elects to exercise its
right to tender a Put Notice requiring Investor to purchase shares of Common
Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment Period
that a Put Notice is deemed delivered pursuant to Section 2.1(b).
"PUT NOTICE" shall mean a written notice, substantially in the form of
Exhibit B hereto, to Investor setting forth the Investment Amount with respect
to which the Company intends to require Investor to purchase shares of Common
Stock pursuant to the terms of this Agreement.
"PUT SHARES" shall mean all shares of Common Stock issued or issuable
pursuant to a Put that has been exercised or may be exercised in accordance with
the terms and conditions of this Agreement.
"REGISTRABLE SECURITIES" shall mean the Put Shares and any securities
issued or issuable with respect thereto by way of exchange, stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (i) a Registration Statement has been declared
effective by the SEC and such Registrable Securities have been disposed of
pursuant to a Registration Statement, (ii) such Registrable Securities have been
sold under circumstances under which all of the applicable conditions of Rule
144 are met, (iii) such time as such Registrable Securities have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) in the opinion of counsel to the Company, which counsel shall be reasonably
acceptable to Investor, such Registrable Securities may be sold without
registration under the Securities Act or the need for an exemption from any such
registration requirements and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration rights
agreement in the form of Exhibit A hereto.
"REGISTRATION STATEMENT" shall mean a registration statement on Form
S-1 (if use of such form is then available to the Company pursuant to the rules
of the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which
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counsel for the Company shall deem appropriate and which form shall be available
for the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement and in accordance with the intended method of distribution of such
securities), for the registration of the resale by Investor of the Registrable
Securities under the Securities Act.
"REGULATION D" shall mean Regulation D under the Securities Act.
"REMAINING PUT SHARES" shall have the meaning specified in Section
2.7.
"RULE 144" shall mean Rule 144 under the Securities Act or any similar
provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals of
this Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals of
this Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and
other documents filed by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since November 18, 1999.
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is
executed and delivered by the Company and Investor.
"THIRD PARTY CLAIM" shall have the meaning specified in Section
9.3(a).
"TRADING CUSHION" shall mean a minimum of fifteen (15) Trading Days
between Put Dates, unless a shorter period is agreed to by the Company and
Investor.
"TRADING DAY" shall mean any day during which the Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means this Private Equity Credit Agreement,
the Registration Rights Agreement, the Warrant, Closing Certificate, and the
Transfer Agent Instructions.
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"TRANSFER AGENT" shall mean the transfer agent for the Common Stock
(and any substitute or replacement transfer agent for the Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent).
"UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of Investor pursuant to a
Registration Statement.
"VALUATION EVENT" shall mean an event in which the Company at any time
during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes
any other distribution of shares of Common Stock;
(c) issues any warrants, options or other rights to
subscribe for or purchase shares of Common Stock
and the price per share for which shares of Common
Stock may at any time thereafter be issuable
pursuant to such warrants, options or other rights
shall be less than the Bid Price in effect
immediately prior to such issuance;
(d) issues any securities convertible into or
exchangeable for shares of Common Stock and the
consideration per share for which shares of Common
Stock may at any time thereafter be issuable
pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid
Price in effect immediately prior to such
issuance;
(e) issues shares of Common Stock otherwise than as
provided in the foregoing subsections (a) through
(d), at a price per share less, or for other
consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without
consideration;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a
dividend in liquidation or by way of return of
capital or other than as a dividend payable out of
earnings or surplus legally available for
dividends under applicable law or any distribution
to such holders made in respect of the sale of all
or substantially all of the Company's assets
(other than under the circumstances provided for
in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of
Outstanding Common Stock, other than an action
described in any of the foregoing subsections (a)
through (f) hereof, inclusive, which in the
opinion of the Company's Board of Directors,
determined in good faith, would have a materially
adverse effect upon the rights of Investor at the
time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days
immediately following the date on which the applicable Put Notice is deemed to
be delivered and during which the Purchase Price of the Common Stock is valued;
provided, however, that if a
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Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately after the occurrence of such Valuation
Event and end on the tenth (10th) Trading Day thereafter.
"WEIGHTED AVERAGE VOLUME" shall mean the average of the product of (a)
the closing Bid Price times (b) the volume on the Principal Market for the
relevant number of days.
"WEIGHTED VOLUME" shall mean the product of (a) the Closing Bid Price
times (b) the volume on the Principal Market.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII), on any Put Date, the Company
may exercise a Put by the delivery of a Put Notice. The number of Put Shares
that Investor shall receive pursuant to such Put shall be determined by dividing
the Investment Amount specified in the Put Notice by the Purchase Price with
respect to such Put Date.
(b) MINIMUM AMOUNT OF PUTS. If the Company for any reason, other than
Investor's breach of this Agreement, fails to issue and deliver Put Shares with
an aggregate Investment Amount equal to or exceeding the Minimum Commitment
Amount during the Commitment Period, then on the first business day after the
expiration of the Commitment Period, the Company shall (i) issue to the investor
warrants to purchase a number of shares equal to (A) the Minimum Investment
Amount, less the aggregate Investment Amount of the Put Shares actually
delivered hereunder (the "Undrawn Minimum Amount"), divided by (B) the lowest
closing Bid Price during the ninety (90) day period immediately prior to the
expiration of the Commitment Period (the "Lowest Closing Bid") and (ii) pay to
Investor within five (5) business days after the expiration of the Commitment
Period an amount equal to the Undrawn Minimum Amount, multiplied by eighteen and
eight tenths percent (18.8%). Said warrants shall be in the form of Exhibit F
hereto (the "Warrants"), shall be for a term of five (5) years, shall have
cashless exercise provisions, and shall be deemed shares under the Registration
Rights Agreement annexed hereto, and shall be exercisable at a price equal to
the Lowest Closing Bid.
(c) MAXIMUM AMOUNT OF PUTS. Unless the Company obtains the
requisite approval of its shareholders in accordance with the corporate laws
of the State of Delaware and the applicable rules of the Principal Market, no
more than that amount of shares equal to 4,305,968 less the amount of shares
of Common Stock issued or issuable under the Securities Purchase Agreement
dated as of July 31, 2000 between the parties hereto (the "Securities
Purchase Agreement") and the agreements and instruments entered into or
delivered in connection therewith (including, without limitation, Common
Stock issuable upon the exercise of Warrants)
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may be issued and sold to Investor pursuant to this Agreement.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company
may deliver a Put Notice to Investor, subject to the conditions set forth in
Section 7.2; provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall be neither less than the
Minimum Put Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by
Investor if such notice is received on or prior to 12:00 noon New York time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon New York time on a Trading Day or at anytime on a day
which is not a Trading Day.
Section 2.3 CLOSINGS. At least one (1) business day prior to each
applicable Closing Date for a Put, (a) the Company shall deliver, to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as Exhibit G (the "Joint Escrow Instructions"), one or more certificates,
at Investor's option, representing the Put Shares to be purchased by Investor
pursuant to Section 2.1 herein, registered in the name of Investor and (b)
Investor shall deliver to the Escrow Agent the Investment Amount specified in
the Put Notice by wire transfer of immediately available funds to an account
designated in the Joint Escrow Instructions. In lieu of delivering physical
certificates representing the Common Stock issuable in accordance with clause
(a) of this Section 2.3, and provided that the Transfer Agent then is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of Investor, the Company shall use its
commercially reasonable efforts to cause the Transfer Agent to electronically
transmit the Put Shares by crediting the Escrow Agent's designated brokerage
account with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. In addition, at least one (1) business day prior to such Closing Date,
each of the Company and Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered in order to
implement and effect the transactions contemplated herein. Escrow Agent will be
authorized to release the Escrow Property (as defined in the Escrow Agreement)
only upon the delivery of the Put Shares, the Investment Amount and other
documents pursuant to this Section 2.3 and the satisfaction of the conditions
set forth in this Agreement.
Section 2.4 WARRANTS. The Company agrees to issue Warrants to Investor for
the purchase of 1,500 shares of Common Stock for each 10,000 Put Shares
delivered by Company to Investor pursuant to Section 2.3 of this Agreement. Such
warrants shall bear an exercise price per share of Common Stock equal to 125% of
the Market Price as of the Put Date, and shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter, together with cashless
exercise and piggyback registration rights under the Registration Rights
Agreement.
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Section 2.5 TERMINATION OF INVESTMENT OBLIGATION. The obligation of
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (a) there shall occur any stop order or suspension of the
effectiveness of any Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period or as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act, (b) the
Company shall at any time fail to comply with the requirements of Section 6.3,
6.4, 6.5 or 6.6 and such failure shall continue for more than thirty (30) days,
or (c) as permitted by Section 2(c) of the Registration Rights Agreement.
Section 2.6 TERMINATION OF COMPANY'S OBLIGATIONS. If Investor fails to
deliver the Investment Amount on the Closing Date for any Put, Company may
terminate this Agreement and the Registration Rights Agreement, and may refuse
to honor the exercise of any unexercised portion of the warrant issued in
respect of the immediately preceding Put Notice. Company may terminate under
this Section 2.6 effective as of the date of delivery of a written notice.
Company's obligation to maintain the effectiveness of any Registration Statement
terminates ninety (90) days after termination of the Agreement under this
Section 2.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its own
account and Investor has no present arrangement (whether or not legally binding)
at any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, Investor does not
agree to hold the Common Stock for any minimum or other specific term and
reserves the right to dispose of the Common Stock at any time in accordance with
federal and state securities laws applicable to such disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor and each of its members are
sophisticated investors (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited investor (as defined in Rule 501 of Regulation D), and Investor
and each of its members have such experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the
Common Stock. Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
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Section 3.3 AUTHORITY. (a) Investor has the requisite power and authority
to enter into and perform its obligations under this Agreement and the
transactions contemplated hereby in accordance with its terms; (b) the execution
and delivery of this Agreement and the Registration Rights Agreement, and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action and no further consent or authorization
of Investor or its partners is required; and (c) this Agreement has been duly
authorized and validly executed and delivered by Investor and is a valid and
binding agreement of Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company, or of any broker-dealer registered with the Securities and Exchange
Commission.
Section 3.5 ORGANIZATION AND STANDING. Investor is a limited liability
corporation organized, validly existing and in good standing under the laws of
the Cayman Islands, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Investor is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a material adverse
effect on Investor.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, and compliance
with the requirements hereof and thereof, will not (a) violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investor, (b) violate any provision of any indenture, instrument or agreement to
which Investor is a party or is subject, or by which Investor or any of its
assets is bound, or conflict with or constitute a material default thereunder,
(c) result in the creation or imposition of any lien pursuant to the terms of
any such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investor to any third party, or (d) require the approval
of any third-party (that has not been obtained) pursuant to any material
contract, instrument, agreement, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or management may
be subject.
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. Investor has
reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of
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general solicitation or advertising in connection with the transactions
contemplated hereby.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the financial
capacity and the necessary capital to perform its obligations hereunder and
shall and has provided to the Company such financial and other information that
the Company has requested to demonstrate such capacity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware, and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Except as
set forth in Schedule 4.1, the Company does not own more than fifty percent
(50%) of the outstanding capital stock of or control any other business entity.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement
and the Registration Rights Agreement and to issue the Put Shares; (b) the
execution and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or
its Board of Directors or stockholders is required; and (c) each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
Section 4.3 CAPITALIZATION. As of June 30, 2000, the authorized capital
stock of the Company consisted of 250,000,000 shares of Common Stock, of which
21,638,031 shares were issued and outstanding, and 5,000,000 shares of preferred
stock, none of which shares were outstanding. Except as shown on the attached
Schedule 4.3, all of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. As of June 30, 2000, the Company had outstanding warrants to
purchase 1,033,375 shares of Common Stock and options to purchase 4,503,918
shares of Common Stock.
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Section 4.4 COMMON STOCK. The Company has registered the Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of the Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date of this Agreement, the Principal Market is the National
Market System.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available to
Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form and substance in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The sale and
issuance of the Put Shares, if any in accordance with the terms and on the bases
of the representations and warranties set forth in this Agreement, may and shall
be properly issued by the Company to Investor pursuant to Section 4(2),
Regulation D and/or any applicable state law. When issued and paid for as herein
provided, the Put Shares, if any, shall be duly and validly issued, fully paid,
and nonassessable. Except as described on Schedule 4.6, neither the sales of the
Put Shares, if any, pursuant to, nor the Company's performance of its
obligations under, this Agreement or the Registration Rights Agreement shall (a)
result in the creation or imposition of any liens, charges, claims or other
encumbrances upon the Put Shares, if any, or any of the assets of the Company,
or (b) entitle the holders of Outstanding Common Stock to preemptive or other
rights to subscribe to or acquire the Common Stock or other securities of the
Company. The Put Shares shall not subject Investor to personal liability solely
by reason of the ownership thereof, except in for liabilities arising in
connection with Investor's willful misconduct.
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Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares, or (b) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock under the
Securities Act.
Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made
available to Investor true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the "CERTIFICATE"),
and the Company's By-Laws, as in effect on the date hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance
of the Put Shares do not and will not (a) result in a violation of the
Certificate or By-Laws or (b) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a
material default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (c)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations)applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, conflict with
or in default under any of the foregoing; provided, however, that for
purposes of the Company's representations and warranties as to violations of
foreign law, rule or regulation referenced in clause (c), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations under
this Agreement or issue and sell the Common Stock in accordance with the
terms hereof (other than any SEC, NASD, Principal Market or state securities
filings that may be required to be made by the Company subsequent to any
Closing, any registration statement that may be filed pursuant hereto, and
any shareholder approval required by the rules applicable to companies whose
common stock trades on the Principal Market); provided that, for purposes of
the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of Investor
herein.
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Section 4.10 NO MATERIAL ADVERSE CHANGE. Since March 31, 2000, no event has
occurred that would have a Material Adverse Effect on the Company, except as
disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since March
31, 2000 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since November 18,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.13 EXEMPT OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security that would eliminate the availability of the exemption from
registration under Regulation D or Section 4(2) of the Securities Act in
connection with the offer and sale of the Common Stock and other securities as
contemplated hereby.
Section 4.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares, if any, in connection with the
transactions contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not in
possession of, nor has the Company or its agents disclosed to Investor, any
material non-public information that (a) if disclosed, would reasonably be
expected to have a materially adverse effect
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on the price of the Common Stock or (b) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with respect
to shares of the Common Stock will be in compliance with all applicable state
and federal securities laws, rules and regulations and the rules and regulations
of the NASD and the Principal Market on which the Common stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has available and the Company shall reserve and keep available at all times,
free of preemptive rights, shares of Common Stock for the purpose of enabling
the Company to satisfy any obligation to issue the Put Shares. The number of
shares so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
Section 6.3 LISTING OF COMMON STOCK. The Company shall maintain the listing
of the Common Stock on a Principal Market, and will cause the Put Shares to be
listed on the Principal Market. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Put Shares and shall take such other action as is
necessary or desirable in the reasonable opinion of Investor to cause the Common
Stock to be listed on such other Principal Market as promptly as possible. The
Company shall use its commercially reasonable efforts to continue the listing
and trading of the Common Stock on the Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.4 EXCHANGE ACT REGISTRATION. The Company shall take all
commercially reasonable steps to cause the Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Exchange Act, will use its
commercially reasonable efforts to comply in all material respects with its
reporting and filing obligations under said Act, and will not take any
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action or file any document (whether or not permitted by said Act or the rules
thereunder)to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act.
Section 6.5 LEGENDS. The certificates evidencing the Put Sharesshall be
free of legends, except as provided for in Article VIII.
Section 6.6 CORPORATE EXISTENCE. The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
the Company.
Section 6.7 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to
Investor, promptly after the originals thereof are submitted to the SEC for
filing, copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF
RIGHT TO MAKE A PUT. The Company shall promptly notify Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (a)
receipt of any request for additional information by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the registration statement for amendments or supplements to the registration
statement or related prospectus; (b) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose; (c) receipt of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.9 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days after
the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes, upon written
request by the Investor, to notify Investor as to its reasonable expectations as
to the dollar amount it intends to raise during such calendar quarter, if any,
through the issuance of Put Notices. Such notification shall constitute only
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the Company's good faith estimate with respect to such calendar quarter and
shall in no way obligate the Company to raise such amount during such calendar
quarter or otherwise limit its ability to deliver Put Notices during such
calendar quarter. The failure by the Company to comply with this provision can
be cured by the Company's notifying Investor at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.10 CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to Investor
such shares of stock and/or securities as Investor is entitled to receive
pursuant to this Agreement.
Section 6.11 ISSUANCE OF PUT SHARES. The sale of the Put Shares shall be
made in accordance with the provisions and requirements of Regulation D and any
applicable state law.
Section 6.12 [INTENTIONALLY DELETED],
Section 6.13 REIMBURSEMENT. If (i) Investor, other than by reason of its
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, or (ii) Investor, other
than by reason of its negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Documents, or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such case,
the Company will reimburse Investor for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which Investor is a named party, the Company will pay to
Investor the charges, as reasonably determined by Investor, for the time of any
officers or employees of Investor devoted to appearing and preparing to appear
as witnesses, assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearing, trials, and other proceedings
relating to the subject matter of this Agreement. The reimbursement obligations
of the Company under this section shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any affiliates of Investor that are actually named in such action, proceeding
or investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, Investor and any such affiliate and
any such person.
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Section 6.14 DILUTION. The number of shares of Common Stock issuable as Put
Shares may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the period between the Effective Date and the end of the
Commitment Period. The Company's executive officers and directors fully
understand the nature of the transactions contemplated by this Agreement and
recognize that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Put Shares is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company
Section 6.15 USE OF PROCEEDS The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Common Stock) for working
capital and general corporate purposes, and, unless specifically consented to in
advance in each instance by the Investor, the Company shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership enterprise or other person or for the repayment of any
outstanding loan by the Company to any other party, except for Company
subsidiaries identified in Schedule 4.1.
Section 6.16 CERTAIN AGREEMENTS. The Company shall not breach the
provisions of Section 4g of the Securities Purchase Agreement. In the event
the Company breaches the provisions of such Section 4g, the Discount shall be
amended to 110% of the Discount set forth herein and Investor may terminate
its obligations under this Agreement and demand such amounts as may be owing
under Section 2.1(b).
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE
AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell
the Put Shares to Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATION AND WARRANTIES. The
representations and warranties of Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time, except for changes which have not
had a Material Adverse Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
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required by this Agreement to be performed, satisfied or complied with by
Investor at or prior to such Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits or directly and materially adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or materially adversely affecting any of the
transactions contemplated by this Agreement.
(d) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock (including the Put Shares)
shall have been approved for listing or quotation on and shall not have been
delisted from the Principal Market.
(e) SHAREHOLDER VOTE. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.
It is expressly understood and agreed by the parties hereto that the failure of
the Company to Close because of any condition set forth in Section 7.1(c), (d)
or (e) hereof has not been satisfied shall not relieve the Company of its
obligations under Section 2.1(b) to deliver Put Shares with an aggregate
Investment Amount equal to or exceeding the Minimum Commitment Amount.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A
PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of
the Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As set forth
in the Registration Rights Agreement, the Company shall have filed with the SEC
the Registration Statement with respect to the resale of the Registrable
Securities by Investor and such Registration Statement shall have been declared
effective by the SEC prior to the first Put Date. For the purposes of any Put
Notice with respect to the Registrable Securities, the Company shall have filed
with the SEC a Registration Statement and paid all applicable fees with respect
to the resale of such Registrable Securities by Investor which shall have been
declared effective by the SEC prior to the Put Date therefore.
(b) EFFECTIVE REGISTRATION STATEMENT. As set forth in the Registration
Rights Agreement, a Registration Statement shall have previously become
effective for the resale by Investor of the Registrable Securities subject to
such Put Notice and such Registration Statement shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor Investor
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shall have received notice that the SEC has issued or intends to issue a stop
order with respect to such Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and Investor is reasonably satisfied that the
SEC no longer is considering or intends to take such action),and (ii) no other
suspension of the use or withdrawal of the effectiveness of such Registration
Statement or related prospectus shall exist.
(c) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(d) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits or directly and materially adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or materially adversely affecting any of the
transactions contemplated by this Agreement.
(f) ADVERSE CHANGES. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock (including the Put Shares)
shall have been approved for listing or quotation on and shall not have been
delisted from the Principal Market.
(h) LEGAL OPINION. The Company shall have caused to be delivered to
Investor, within five (5) Trading Days of the effective date of the Initial
Registration Statement and each subsequent Registration Statement, an opinion of
the Company's legal counsel in the form of Exhibit C hereto, addressed to
Investor.
(i) ACCURACY OF REGISTRATION STATEMENT. No good
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faith dispute between the Company and Investor shall exist pursuant to Section
7.3 as to the adequacy of the disclosure contained in any Registration
Statement; provided, however, that the Closing condition contained in this
Section 7.2(i) may not be invoked on the basis that the disclosures reflect
adverse conditions affecting the Company if no good faith dispute exists as to
the adequacy of such disclosures.
(i) MINIMUM BID PRICE. The average of the Bid Prices for the ten (10)
Trading Days immediately preceding the Put Notice and the Closing Date, shall
have equaled or exceeded $1.00 (as adjusted for stock splits, stock dividends,
reverse stock splits, and similar events).
(j) The Investment Amount shall be less than 150% of the Weighted
Average Volume for the twenty (20) Trading Days prior to the Closing Date.
(k) NO KNOWLEDGE. The Company shall have no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is more likely than not to
occur within the fifteen Trading Days following the Trading Day on which such
Notice is deemed delivered).
(l) TRADING CUSHION. The Trading Cushion shall have elapsed since the
immediately preceding Put Date.
(m) SHAREHOLDER VOTE. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Principal Market.
(n) NO VALUATION EVENT. No Valuation Event shall have occurred since
the Put Date.
(o) OTHER. On each Condition Satisfaction Date, Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by Investor in order for
Investor to confirm the Company's satisfaction of the conditions set forth in
this Section 7.2., including, without limitation, a certificate substantially in
the form and substance of Exhibit D hereto, executed by an executive officer of
the Company and to the effect that all the conditions to such Closing shall have
been satisfied as at the date of each such certificate and the execution and
delivery of the Transfer Agent Instructions.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall make available for inspection and review by
Investor, advisors to and representatives of Investor (who may or may not be
affiliated with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or
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amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by Investor or any such representative, advisor or Underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of such Registration Statement for the sole purpose of enabling Investor and
such representatives, advisors and Underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.
(b) Each of the Company, its officers, directors, employees and agents
shall in no event disclose non-public information to Investor, advisors to or
representatives of Investor unless prior to disclosure of such information the
Company identifies such information as being non-public information and provides
Investor, such advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require Investor's
advisors and representatives to enter into a confidentiality agreement in form
and substance reasonably satisfactory to the Company and Investor.
(c) Nothing herein shall require the Company to disclose non-public
information to Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance(without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than Investor (without the written consent of Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms and
conditions of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, any Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in such Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
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ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (which legend
may be modified solely to comply with amendments to applicable security laws)
(the "LEGEND"):
The securities represented by this certificate have not been registered
under the Securities Act of 1933 (the "Securities Act") or qualified under
applicable state securities laws. These securities may not be offered,
sold, pledged, hypothecated, transferred or otherwise disposed of except
pursuant to (i) an effective registration statement and qualification in
effect with respect thereto under the Securities Act and under any
applicable state securities law, (ii) to the extent applicable, Rule 144
under the Securities Act, or (iii) an opinion of counsel reasonably
acceptable to the Company that such registration and qualification is not
required under applicable federal and state securities laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent, instructions in substantially the form of
Exhibit E hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
Transfer Agent to issue to Investor certificates evidencing shares of Common
Stock incident to a Closing, free of the Legend, without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the Transfer Agent by or from
the Company or its counsel or Investor; provided that (a) a Registration
Statement shall then be effective, (b) Investor confirms to the Transfer Agent
and the Company that it has or intends to sell such Common Stock to a third
party which is not an affiliate of Investor or the Company and Investor agrees
to redeliver the certificate representing such shares of Common Stock to the
Transfer Agent to add the Legend in the event the Common Stock is not sold, and
(c) if reasonably requested by the transfer agent or the Company, Investor
confirms to the transfer agent and the Company that Investor has complied with
the prospectus delivery requirement under the Securities Act. At any time after
the Effective Date, upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those surrendered.
Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other
than the one specified in Section 8.1 has been or shall be placed on the share
certificates representing the Common Stock and no instructions or "stop transfer
orders," so called, "stock transfer restrictions," or other restrictions have
been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article VIII.
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Section 8.3 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall
affect in any way Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (a) personally served, (b)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company: Netgateway, Inc.
300 Oceangate, 5th Floor,
Long Beach, CA 90802
ATTN: CEO
Telephone No.: (562) 308-0010
Telecopier No.: (562) 308-0021
with a copy to:
Nida & Maloney, LLP
800 Anacapa St.
Santa Barbara, CA 93101
Attention: C. Thomas Hopkins, Esq.
Telephone: (805) 568-1151
Facsimile: (805) 568-1955
if to Investor: King William, LLC
c/o Navigator Management
P.O. Box 972
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Road Town
Tortola, British Virgin Islands
Telephone: (284) 494-4770
Facsimile: (284) 494-4771
with a copy (which shall not constitute notice) to:
Law Offices of Michael S. Rosenblum
1875 Century Park East, Suite 700
Los Angeles, California 90067
Attention: Michael S. Rosenblum
Telephone: (310) 286-2100
Facsimile: (310) 286-3010
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9.2 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Investor and its
Affiliates and agents from and against any Damages, joint or several, and any
action in respect thereof to which Investor, its Affiliates or agents, becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, except to the extent such Damages result primarily from Investor's
failure to perform any covenant or agreement contained in this Agreement or
Investor's or its Affiliates' or agents' negligence, recklessness or bad faith
in performing any of their obligations under this Agreement.
(b) Investor agrees to indemnify and hold harmless the Company and its
Affiliates and agents from and against any Damages, joint or several, and any
action in respect thereof to which Company and its Affiliates and agents,
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Investor contained in this Agreement,
as such Damages are incurred, except to the extent such Damages result primarily
from the Company's failure to perform any covenant or agreement contained in
this Agreement or the Company's or its Affiliates' or agents' negligence,
recklessness or bad faith in performing its obligations under this Agreement.
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.2
shall be asserted and resolved as follows:
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(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.2 (an "INDEMNIFIED
PARTY") might seek indemnity under Section 9.2 is asserted against or sought to
be collected from such Indemnified Party by a person other than a party hereto
or an Affiliate or agent thereof (a "THIRD PARTY CLAIM"), the Indemnified Party
shall deliver a written notification, enclosing a copy of all papers served, if
any, and specifying the nature of and basis for such Third Party Claim and for
the Indemnified Party's claim for indemnification that is being asserted under
any provision of Section 9.2 against any person (the "INDEMNIFYING PARTY"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "CLAIM NOTICE")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party shall not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "DISPUTE PERIOD") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under Section
9.2 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
9.3(a), then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.2). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate protect its interests;
and provided further, that if requested by the Indemnifying Party, the
Indemnified Party will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnifying Party in contesting any Third
Party Claim that the Indemnifying Party elects to contest. The Indemnified Party
may participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this clause (i),
and except as provided in the preceding sentence, the Indemnified Party shall
bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may takeover the control of
the defense or settlement of a Third Party Claim at any time if it
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irrevocably waives its right to indemnity under Section 9.2 with respect to such
Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party(with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause(iii) below, the Indemnifying
Party will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
clause (ii), and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation.
(iii) If the Indemnifying Party has timely disputed its liability
or the amount of its liability with respect to such claim, the Indemnifying
Party and the Indemnified Party shall proceed in good faith to negotiate a
resolution of such dispute; provided, however, that it the dispute is not
resolved within thirty (30) days after the Claim Notice, the Indemnifying Party
shall be entitled to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under
Section 9.2 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 9.2 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "INDEMNITY NOTICE") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party has timely
disputed its liability or the amount of its liability with respect to such
claim, the Indemnifying Party and the Indemnified Party shall proceed in good
faith to negotiate a
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resolution of such dispute; provided, however, that it the dispute is not
resolved within thirty (30) days after the Claim Notice, the Indemnifying Party
shall be entitled to institute such legal action as it deems appropriate.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of California
without regard to the principles of conflicts of law. Each of the Company and
Investor hereby submit to the exclusive jurisdiction of the United States
Federal and state courts located in Los Angeles, California with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.
Section 10.2 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by Investor hereunder with respect to the Common
Stock held by such person, and (b) Investor's interest in this Agreement, but
not its obligations under this Agreement, may be assigned at any time, in whole
but not in part, to any affiliate of Investor.
Section 10.3 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
Section 10.4 TERMINATION. This Agreement shall terminate twelve (12) months
after the delivery of the final Put Notice (unless extended by the agreement of
the Company and Investor); provided, however, that the provisions of Article V,
VI, VIII, IX and Sections 10.9 and 10.12 shall survive the termination of this
Agreement.
Section 10.5 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the
instruments referenced herein contain the entire understanding of the Company
and Investor with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
Section 10.6 FEES AND EXPENSES. Each of the Company and Investor agrees to
pay its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder, except, as a condition of Closing,
that the Company shall pay Law Offices of Michael S. Rosenblum the fee of $2,500
at each Closing of a Put.
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Section 10.7 NO BROKERS. Each of the Company and Investor represents that
it has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party,
except Roth Capital Partners, Inc. The Company on the one hand, and Investor, on
the other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
Section 10.9 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder for a period of one year. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10 FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.11 NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 10.12 EQUITABLE RELIEF. Each party recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief. Each
party therefore agrees that the other shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
Section 10.13 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting
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this Agreement.
Section 10.14 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price of the Common Stock on
any given Trading Day for the purposes of this Agreement shall be Bloomberg L.P.
or any successor thereto. The written mutual consent of Investor and the Company
shall be required to employ any other reporting entity.
Section 10.15 OWNERSHIP LIMITATION. Notwithstanding the provisions hereof
or any prior agreement between the Investor and the Company, in no event shall
Company deliver a Put to Investor in an amount that, after such Put, the sum of
the number of shares of Common Stock beneficially owned by Investor and its
affiliates would be more than 9.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act. If the Company delivers a Put that would cause the Investor to exceed 9.9%
of the outstanding shares of Common Stock, then Investor shall notify the
Company and the parties hereby agree to reduce the amount of the Put so that
such 9.9% limit shall not be exceeded.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
NETGATEWAY, INC., a Delaware corporation
By: /s/ DONALD M. CORLISS, JR.
--------------------------------------------
Name: Donald M. Corliss, Jr.
Title: President and Chief Operating Officer
KING WILLIAM, LLC, a Cayman Islands limited
liability company
By:
--------------------------------------------
Name:
Title:
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EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Put Notice
EXHIBIT C Opinion
EXHIBIT D Closing Certificate
EXHIBIT E Transfer Agent Instructions
EXHIBIT F Warrant
EXHIBIT G Escrow Instructions
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