Warrants (the sweetners :( )
Within five business days after the end of each pricing period, we are required to issue and deliver to Swartz a warrant to purchase a number of shares of our common stock equal to 10% of the common shares issued to Swartz in the applicable put. Each warrant will be exercisable at a price that will initially equal the market price for the applicable put. The warrants will have annual reset provisions similar to the reset provisions for the warrants Swartz currently holdsEach warrant will be immediately exercisable and have a term beginning on the date of issuance and ending 7 years later.
At no time may Swartz own a number of shares that, when added to the number of shares acquired by Swartz under the Swartz investment agreement during the 61 days before the put date, will result in Swartz holding more than 9.99% of our outstanding common stock.
We are registering 32,700,000 shares of common stock for issuance to Swartz under the Swartz investment agreement. We believe, based on the recent market prices of our shares of common stock and volume in our common stock, that 32,700,000 shares will be sufficient to satisfy our obligations to issue stock and warrants to Swartz in order to fully utilize the $15 million available under the Swartz investment agreement. If 32,700,000 shares is not sufficient, we will register additional shares for resale by Swartz.
Limitations and Conditions to Our Put Rights
Our ability to put shares of our common stock, and Swartz's obligation to purchase the shares, is subject to the satisfaction of certain conditions. These conditions include:
o we have satisfied all obligations under the agreements entered into between us and Swartz in connection with the Swartz investment agreement;
o our common stock is listed and traded on Nasdaq, the O.T.C. Bulletin Board, or an exchange;
o our representations and warranties in the Swartz investment agreement are accurate as of the date of each put;
o we have reserved for issuance a sufficient number of shares of our common stock to satisfy our obligations to issue shares under any put and upon exercise of warrants;
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o the registration statement for the shares we will be issuing
to Swartz must remain effective as of the put date and no stop
order with respect to the registration statement is in effect;
o if the number of shares to be put to Swartz, together with any
shares previously put to Swartz, would equal 20% of all shares
of our common stock that would be outstanding upon completion
of the put, we must obtain shareholder approval of such excess
issuance as required by Nasdaq rules; and
o other than continuing losses described in an attachment to the
Swartz investment agreement, at the time of a put, there can
be no material adverse change in our business prospects or
financial condition.
Swartz is not required to acquire and pay for any additional shares of our common stock once it has acquired $15 million worth of common stock. Additionally, in the event that one of the following events occurs after we deliver an advance put notice to Swartz, but before the applicable Put Date, that Put shall terminate:
o we announced or implemented a stock split or combination of our common stock;
o we paid a dividend on our common stock;
o we made a distribution of all or any portion of our assets or evidences of indebtedness to the holders of our common stock; or
o we consummated a major transaction, such as a sale of all or substantially all of our assets or a merger or tender or exchange offer that results in a change in control.
We may not require Swartz to purchase any subsequent put shares if:
o we, or any of our directors or executive officers, have engaged in a transaction or conduct related to us that resulted in:
o a SEC enforcement action, administrative proceeding or civil lawsuit; or
o a civil judgment or criminal conviction or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;
o the aggregate amount of time which this registration statement is not effective or our common stock is not listed and traded on Nasdaq, the O.T.C. Bulletin Board, or an exchange exceeds four months;
o we file for bankruptcy or any other proceeding for the relief of debtors;
o we breach certain covenants contained in the Swartz investment agreement; or
o the registration statement for the resale of shares of common stock issued to Swartz is not effective by December 22, 2001
