Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DIMENSIONAL VISIONS INCORPORATED
(Name of small business issuer in its charter)
Delaware 2759 23-2517953
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2301 W. Dunlap Avenue, Suite 207 2301 W. Dunlap Avenue, Suite 207
Phoenix, Arizona 85021 Phoenix, Arizona 85021
(602) 997-1990 (602) 997-1990
(Address and telephone number of (Address and telephone number of
principal executive office) principal place of business)
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Prentice Hall Corporation System, Inc.
1013 Centre Road
Wilmington, DE 19805
(302) 998-0595
(Name, address and telephone number of agent for service)
COPIES TO:
Lynne Bolduc, Esq.
Senn Palumbo Meulemans, LLP
18301 Von Karman Avenue, Suite 850
Irvine, CA 92612
(949) 442-0300
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.[X]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE (1) OFFERING PRICE FEE
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Common Stock, $0.001 par value 25,222,207(2) $0.25 $6,305,551.75 $1,576.39
Common Stock, $0.001 par value,
underlying debt securities 1,500,000(3) $0.25 $ 375,000.00 $ 93.75
Common Stock, $0.001 par value,
underlying warrants 6,959,000(4) $0.25 $1,739,750.00 $ 434.94
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Total 33,681,207 $8,420,301.75 $2,105.08
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
DIMENSIONAL VISIONS INCORPORATED
33,681,207 SHARES OF
COMMON STOCK
($0.001 PAR VALUE)
THE OFFERING:
This Offering relates to the possible sale, from time to time, by certain stockholders of Dimensional Visions Incorporated of up to 33,681,207 shares of common stock of Dimensional Visions. These shares include 25,000,000 shares and 1,309,000 shares underlying warrants to be sold from time to time by Swartz Private Equity, LLC, an underwriter within the meaning of Section 2(11) of the Securities Act of 1933, as amended. See "Selling Stockholders" on page 23.
MARKET FOR THE SHARES:
The common stock of Dimensional Visions is traded in the over-the-counter electronic bulletin board system, also called the Bulletin Board, under the symbol "DVUI." The closing bid and asked prices for the common stock on April 4, 2001, as reported by the Bulletin Board were $0.22 and $0.28 per share, respectively.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IF TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 9, 2001
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD ALSO READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND FINANCIAL STATEMENTS.
DIMENSIONAL VISIONS INCORPORATED
OFFICES:
Dimensional Visions' office and principal place of business is located at 2301 West Dunlap Avenue, Suite 207, Phoenix, Arizona 85021, and its telephone number is (602) 997-1990.
OUR BUSINESS:
Dimensional Visions creates and delivers 3D/animated graphics for products, packaging and marketing communications.
Our 3D/animated graphics are created by viewing multiple images through a series of lenses incorporated into a plastic sheet called lenticular. Viewed in one direction, the lenses allow an individual to see stereo, i.e. multiple, views of an image simultaneously. Stereo views are interpreted by the brain as being in three dimensions. Alternatively, viewed in the other direction, the lenses restrict the view to a particular image that changes as the piece is moved creating an animation effect (i.e., it appears that the picture is moving).
Images are printed directly on the lenticular and then incorporated into or onto other products. For example, the images can be applied on products such as mouse pads, children's backpacks, business cards and notebooks. They may also be used on product packaging such as cereal boxes to differentiate the item from other similar products by adding a three-dimensional or animated component to attract the buyer's attention.
OUR SUBSIDIARY:
InfoPak, Inc., our sole wholly-owned subsidiary, manufactures and markets a data delivery system. We have decided to focus all of our resources on our 3D/animated graphics product line. We will continue to support the operations of InfoPak until it is sold or our Board of Directors decides to discontinue its operations.
OUR OBJECTIVE:
Our objective is to become a dominant marketer, developer and producer of 3D/animated graphics in the United States and internationally.
COMPETITION:
Currently Dimensional Visions has two major competitors who produce similar products. However, we have applied for a patent to protect our particular process.
OUR STRATEGY:
Our graphics offer multi-dimensional and/or animated images for the promotion marketing industry, advertising and graphic design industry, and original equipment manufacturers throughout the United States. Interested original equipment manufacturers include manufacturers making products that our images can be affixed to or included in their packaging to alter the traditional flat design.
OUR FINANCIAL POSITION:
The Company has sustained recurring losses through December 31, 2000 of $22,427,533. As of June 30, 2000, total assets exceeded total liabilities by $365,921. As of December 31, 2000, total liabilities exceeded total assets by $41,718. Three customers accounted for 82% and four customers accounted for 79% of the 3D/animated graphics revenue for the fiscal year ended June 30, 2000, and the six months ended December 31, 2000, respectively. Our independent auditors, Kopple & Gottlieb, LLP, expressed substantial doubt regarding the company's ability to continue as a going concern in the year ended June 30, 2000, financial statements.
SECURITIES TO BE ISSUED TO SWARTZ PRIVATE EQUITY, LLC
This prospectus has been prepared to register the sale from time to time of 25,000,000 shares of common stock and 1,309,000 shares underlying warrants held by Swartz Private Equity, LLC. These shares may be issued to Swartz in the future pursuant to our investment agreement with Swartz that provides us with put options valued at up to $20,000,000. For each common share put to Swartz, Dimensional Visions will receive the lesser of 91% of the market price or the market price less $0.075. The number of common shares sold to Swartz may not exceed 15% of the aggregate trading volume during any period where the Company puts common shares to Swartz. See "The Swartz Investment Agreement" for a detailed description of terms.
SECURITIES TO BE ISSUED TO DALE RIKER AND RUSS RITCHIE
This prospectus has been prepared to register the sale from time to time of 50,000 shares of common stock, 750,000 shares underlying warrants and 1,500,000 shares upon the assumption of debt, which have been or may be issued in the future. These securities are to be issued pursuant to a Security Agreement (Exhibit 4.10) guaranteeing a $500,000 line of credit through Merrill Lynch. Per the agreement, Riker and Ritchie, as a group, received 50,000 shares of common stock and 250,000 5-year warrants at an exercise price of $.2656. They will also receive one 3-year warrant for every dollar borrowed against the line at an exercise price of 75% of the market price. Riker and Ritchie may assume any portion of the current outstanding balance at conversion rate of three shares of the company's common stock per dollar assumed. As of the date of this prospectus, Riker and Ritchie have been issued 50,000 shares of common stock and 500,000 warrants.
SELLING STOCKHOLDERS:
This prospectus has also been prepared to register shares of common stock, shares underlying warrants, and shares underlying debt securities to various individuals. A list of the shares being registered in this prospectus and the people and entities that own them appears in the "Selling Stockholders" section of this prospectus.
THE OFFERING
Common stock outstanding on April 9, 2001 10,339,873
If converted fully diluted common stock
outstanding 17,594,034
Common stock offered by selling
stockholders 33,681,207
Risk Factors An investment in our shares is very
risky, and you should be able to
bear a complete loss of your
investment. See "Risk Factors" for
a detailed discussion of the risks
and uncertainties concerning
Dimensional Visions' common stock.
OTC Bulletin Board Symbol DVUI.ob
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SUMMARY FINANCIAL INFORMATION
The following table presents selected historical financial data for Dimensional Visions derived from our Financial Statements. The following data should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements of Dimensional Visions and the notes to the Financial Statements included elsewhere in this prospectus.
Six Months Ended Fiscal Year Ended
December 31, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited) (audited) (audited)
STATEMENT OF OPERATIONS DATA:
Revenue $ 162,996 $ 300,418 $ 1,008,862 $ 741,901
Net loss $(598,780) $(459,051) $(1,021,145) $(1,465,812)
Net loss per share per share of common stock* $ (0.07) $ (0.09) $ (0.18) $ (0.39)
DECEMBER 31, 2000 JUNE 30, 2000
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(unaudited) (audited)
BALANCE SHEET DATA:
Working capital surplus (deficiency) $(206,620) $ 205,284
Total assets $ 373,429 $ 885,033
Total liabilities $ 415,147 $ 519,112
Stockholder's equity (deficiency) $ (41,718) $ 365,921
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* The calculation of earnings per share considers the accumulative dividends in arrears on preferred stock as paid.
RISK FACTORS
THE SHARES OFFERED IN THIS PROSPECTUS ARE VERY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. THESE SHARES SHOULD BE PURCHASED ONLY BY PEOPLE WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. BEFORE PURCHASING THESE SHARES, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION CONCERNING DIMENSIONAL VISIONS AND ITS BUSINESS CONTAINED IN THIS PROSPECTUS.
DIMENSIONAL VISIONS HAS INCURRED LOSSES SINCE INCEPTION AND MAY CONTINUE TO INCUR LOSSES IN THE FUTURE.
Dimensional Visions has operated at a loss for all of the periods for which financial statements are included in this prospectus. We must be able to garner market share from our competitors and/or establish new markets for our products. As lenticular products are more expensive alternatives to traditional flat images, we must establish market acceptance of the products while simultaneously generating sales into this market. The likelihood of our success depends on our ability to develop and produce multi-dimensional and/or animated print products in various formats and at competitive prices. Difficulties and delays in developing new formats using various lenticulars and new technologies for their application may affect our ability to successfully produce marketable products. Failure to overcome any of the above difficulties may have a materially adverse effect upon our business and could force us to reduce or close operations. No assurance can be given that Dimensional Visions can or will ever operate profitably. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business of Dimensional Visions--Market and Penetration" and "--Competition."
THE INDEPENDENT AUDITORS HAVE ISSUED A GOING CONCERN OPINION FOR THE FISCAL YEARS ENDED JUNE 30, 2000 AND 1999.
The company's independent auditors have included an explanatory paragraph regarding the company's ability to continue as a going concern for each of the fiscal years ended June 30, 2000 and 1999. Among the factors cited by the accountants that raised substantial doubt as to the company's ability to continue as a going concern are the company's continued recurring losses from operations and limited sales of its products.
DIMENSIONAL VISIONS IS DEPENDENT ON A LIMITED PRODUCT LINE AND HAS DECLINING RESOURCES ALLOCATED TO THE DEVELOPMENT OF NEW PRODUCTS.
The company's product line is composed solely of lenticular-based products. If the company's share of the market for these products fails to develop to a level sufficient to make the company profitable, there are no other products available for sale. In this case, the company would be forced to reduce or close operations. Additionally, the resources allocated to the development of new products have been declining, further reducing the availability of new products to market.
DIMENSIONAL VISIONS RELIES ON A FEW CUSTOMERS FOR THEIR SALES. WITHOUT REPEAT ORDERS FROM OUR CUSTOMERS, DIMENSIONAL VISIONS WOULD HAVE TO REDUCE OR CLOSE OPERATIONS.
For the fiscal year ended June 30, 2000, and the six months ended December 31, 2000, three customers accounted for 82% and four customers accounted for 79% of the 3D/animated graphics revenue respectively. In addition, two customers accounted for 98% and 100% of the InfoPak, Inc. revenue for the fiscal year ended June 30, 2000, and the six months ended December 31, 2000. If Dimensional Visions were to lose their repeat customers, then the company would have to significantly curtail or close operations.
WE CANNOT GUARANTEE THAT OUR PRODUCTS WILL SELL SUCCESSFULLY THUS GENERATING SUFFICIENT REVENUE TO CONTINUE OPERATIONS.
There can be no assurance that our marketing and sales strategies will be effective and that consumers will buy our products. Our failure to penetrate our targeted markets would have a material adverse effect upon our operations. Market acceptance of our products will depend in part upon our ability to demonstrate the advantages of three-dimensional and/or animated products over similar or competing products described under the next risk factor of competition. In addition, our sales strategy contemplates sales to markets that are unfamiliar with multi-dimensional printed images and may not be accepting of these new products. Currently, we don't have any distribution agreements for any of our products in place. See "Business of Dimensional Visions--Market and Penetration" and "--Competition."
THERE IS COMPETITION FOR OUR PRODUCTS, AND THERE CAN BE NO ASSURANCE THAT CUSTOMERS WILL CHOOSE OUR PRODUCTS OVER THOSE OF OUR COMPETITORS. CUSTOMERS MAY CHOOSE LESS EXPENSIVE, CONVENTIONAL PRINTS OVER OUR PRODUCTS.
We compete with other established businesses that market similar products. Many of these companies have greater capital, marketing and other resources than we do. Also, other means of viewing three-dimensional and/or animated images exist. These other methods may be less expensive or easier to incorporate into other products. Further, traditional printed images are less expensive than our products and may be favored in many, if not most, illustration and promotion contexts. See "Business of Dimensional Visions--Competition."
DIMENSIONAL VISIONS DEPENDS ON KEY PERSONNEL FOR CRITICAL MANAGEMENT DECISIONS AND THESE KEY PERSONNEL MAY LEAVE DIMENSIONAL VISIONS IN THE FUTURE.
Our success depends, to a significant extent, upon a number of key employees, including our C.E.O./President, John McPhilimy, and our Senior Vice President, Bruce D. Sandig. The loss of services of one or more of these employees could have a material adverse effect on our business. We believe that our future success will also depend in part upon our ability to attract, retain, and motivate qualified personnel. Competition for such personnel is intense. There can be no assurance that we can attract and retain such personnel. We have "key person" life insurance on both Mr. McPhilimy and Mr. Sandig. See "Management."
DIMENSIONAL VISIONS MAY REQUIRE ADDITIONAL FINANCING FOR ITS BUSINESS THAT COULD DILUTE THE OWNERSHIP OF EXISTING STOCKHOLDERS AND FORCE DIMENSIONAL VISIONS TO CURTAIL OR CLOSE OPERATIONS.
Our future cash requirements will depend significantly on generating sufficient cash flow from operations to cover our cost of goods sold and operating costs or "burn rate" of approximately $70,000 per month. To continue operations, the Company must obtain sufficient funds from the Swartz equity line agreement and/or the line of credit from the investor group. Any equity financings could result in dilution to our stockholders. Also, if the price of our common stock declines to $.075 or less or the trading volume in our common stock is low, we will only be able to utilize the current line of credit per the investor group agreement as it would be impractical to use the Swartz equity line. Once the credit line from the investor group is used, we would only have the Swartz equity agreement for additional financing. However, the future market price and volume of trading our common stock limits the rate at which we can obtain money under the Swartz equity line agreement.
UP TO 33,681,207 SHARES OF COMMON STOCK OF DIMENSIONAL VISIONS WILL BECOME ELIGIBLE FOR PUBLIC SALE THAT COULD HAVE A DEPRESSIVE EFFECT ON THE STOCK.
When our registration statement, of which this prospectus is a part, is declared effective by the SEC, 222,207 shares of our common stock will be eligible for immediate resale on the public market and 2,559,000 shares of our common stock underlying warrants and convertible debt, upon their exercise or conversion, will be eligible for immediate resale on the public market for our common stock. Also 25,000,000 shares will be available for sale upon the issuance of stock to Swartz based on limitations of our trading volume and stock price. The remaining 4,900,000 shares underlying warrants will be available upon ongoing profitability of the Company beginning on June 30, 2001or upon the discretion of the Board of Directors and 250,000 shares underlying warrants upon the Company borrowing from their line of credit with an investor group. Additionally, if a significant number of shares are offered for sale simultaneously, it would have a depressive effect on the trading price of our common stock on the public market. If and when we exercise our put rights and sell shares of our common stock to Swartz, if and to the extent that Swartz sells the common stock, our common stock price my decrease due to the additional shares in the market. Swartz is limited to the extent that they may not exercise the 1,309,000 warrants to the extent that such exercise would result in Swartz's beneficial ownership of more than 4.99% of our issued and outstanding common stock at any time. Also, under the Line of Credit Agreement with Dale Riker and Russ Ritchie, the maximum percentage ownership of our common stock would be 14.5% for Dale Riker and 10.4% for Russ Ritchie.
DIMENSIONAL VISIONS' COMMON STOCK IS CURRENTLY CLASSIFIED AS A "PENNY STOCK" WHICH COULD CAUSE INVESTORS TO EXPERIENCE DELAYS AND OTHER DIFFICULTIES IN TRADING SHARES IN THE STOCK MARKET.
Dimensional Visions' common stock is quoted and traded on the Over-the-Counter Bulletin Board ("Bulletin Board"). As a result, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the stock. In addition, trading in the common stock is covered by what is known as the "Penny Stock Rules." The Penny Stock Rules require brokers to provide additional disclosure in connection with any trades involving a stock defined as a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The regulations governing penny stocks could limit the ability of brokers to sell the shares offered in this prospectus and thus the ability of the purchasers of this Offering to sell these shares in the secondary market. Dimensional Visions' stock will be covered by the Penny Stock Rules until it has a market price of $5.00 per share or more, subject to certain exceptions.
THE OFFERING PRICE OF THESE SHARES MAY NOT HAVE ANY RELATIONSHIP TO OUR NET WORTH OR FUTURE TRADING VALUE.
The shares being registered in this prospectus were offered at the market price prevailing at the time of the offer. The market price of these shares may have a limited relationship, or no relationship, to our assets, book value, results of operations, or other established criteria of value. The offering price also may not be indicative of the prices that will prevail in the subsequent trading market for our securities.
NO DIVIDENDS HAVE BEEN PAID ON COMMON STOCK AND MAY NEVER BE PAID. REQUIRED DIVIDENDS IN ARREARS ON PREFERRED STOCK MUST BE PAID BEFORE ANY DIVIDENDS ARE PAID ON COMMON STOCK.
Dimensional Visions has never paid dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. Dimensional Visions is in arrears on dividends required to be paid on its Series A Preferred Stock and Series B Preferred Stock. The unpaid cumulative dividends total approximately $74,225 and must be paid before dividends on common stock can be declared or paid. See "Dividend Policy" and Note 10 of Notes to Consolidated Financial Statements.
ALTHOUGH DIMENSIONAL VISIONS HAS PATENTS, THIRD PARTIES MAY DEVELOP SIMILAR OR COMPETITIVE TECHNOLOGY. DIMENSIONAL VISIONS CAN GIVE NO ASSURANCE THAT ITS OWN TECHNOLOGY DOES NOT INFRINGE ON EXISTING PATENTS.
Dimensional Visions enters into confidentiality agreements with all persons and entities who or which may have access to our technology. However, no assurance can be given that such agreements, the patents, or any additional patents that may be issued to Dimensional Visions will prevent third parties from developing similar or competitive technology. There can be no assurance that the patents will provide us with any significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of its patents, or if instituted that any such challenges will not be successful. The cost of litigation to uphold the validity and prevent infringement can be substantial. In addition, no assurance can be given that we will have sufficient resources to either institute or defend any action, suit or other proceeding by or against our company with respect to any claimed infringement of patent or other proprietary rights. In the event that we should lose, in the near future, the protection afforded by the patents and any future patents, such event could have a material adverse effect on our operations. Furthermore, there can be no assurance that our own technology will not infringe patent or other rights owned by others or licenses to which may not be available to us.
DIMENSIONAL VISIONS RELIES ON THIRD PARTY PRINTERS THAT COULD RESULT IN A DELAY OF OUR PRODUCT TO OUR CUSTOMERS AND SUBSTANTIALLY DECREASE OUR SALES IF OUR PRINTERS BECAME UNABLE TO FULFILL OUR ORDERS OR WERE UNABLE TO PURCHASE CERTAIN PLASTICS
Dimensional Visions relies on two large lithographic printers and one photographic printer for most of its printing needs. If we were unable to use these printers, it could delay the sales orders to our customers. We would have to find another printer which may require additional time to schedule production. Although we do not purchase our plastics directly, if our printers were unable to purchase plastics, it could also delay the sales orders to our customers. Even though the majority of our print jobs are completed at our printer in Minneapolis, MN, we can now rely on another printer in Los Angeles, CA.
DIMENSIONAL VISIONS OUTSIDE INDEPENDENT AUDITORS ISSUED A GOING CONCERN OPINION IN OUR CONSOLIDATED FINANCIAL STATEMENTS DATED JUNE 30, 2000.
Dimensional Visions independent certified public accountants' report on our consolidated financial statements for the year ended June 30, 2000 contains an explanatory paragraph regarding the Company's ability to continue as a going concern. Among the factors cited by the accountants that raised substantial doubt as to the Company's ability to continue as a going concern are the Company's continued recurring losses from operations and limited sales of its products. The Company's ability to continue as a going concern is subject to the attainment of profitable operations or obtaining necessary outside funding. See "Plan to Address Going Concern Opinion" on page 13.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR COMMON STOCK AND ENCOURAGE SHORT SALES.
If and when we exercise our put rights and sell shares of our common stock to Swartz, if and to the extent that Swartz sells the common stock, our common stock price may decrease due to the additional shares in the market. If the price of our common stock decreases, and if we decide to exercise our right to put shares to Swartz, we must issue more shares of our common stock for any given dollar amount invested by Swartz. This may encourage short sales, which could place further downward pressure on the price of our common stock.
USE OF PROCEEDS
The primary use of proceeds raised through the issuance of stock registered in this prospectus will be for working capital, sales and marketing expenses and other general corporate purposes. We estimate that we will spend approximately $300,000 over the next 12 months on our nationwide marketing and sales campaign and approximately $1,000,000 to cover working capital requirements as well as paying down our line of credit. For other general corporate purposes, we believe we will utilize approximately $200,000 of the proceeds. Of the 25,222,207 shares of common stock being registered, 222,207 are already issued and outstanding. The remaining 25,000,000 are to establish a credit line sufficient to meet these current expenses and allow for the growth of the company. If an advantageous acquisition opportunity presents itself and the stock price is sufficiently high to make an acquisition reasonable, additional proceeds may also be used to make such an acquisition.
THE SWARTZ INVESTMENT AGREEMENT
OVERVIEW
On December 13, 2000, we entered into an investment agreement with Swartz Private Equity, LLC. The investment agreement entitles us to issue and sell up to $20 million of our common stock to Swartz, subject to a formula based on stock price and trading volume, from time to time over a three year period beginning on the date that this registration statement is declared effective. For each common share put to Swartz, Dimensional Visions will receive the lesser of 91% of the market price or the market price less $.075. We refer to each election by us to sell stock to Swartz as a put right. As of the date of this prospectus Swartz does not have, nor has ever had, a short position in Dimensional Visions.
PUT RIGHTS
In order to invoke a put right, we must have an effective registration statement
on file with the SEC registering the resale of the common shares which may be
issued as a consequence of the invocation of that put right and we must be
trading on at least the Over-The-Counter Bulletin Board. Additionally, we must
give at least ten but not more than twenty business days' advance notice to
Swartz of the date on which we intend to exercise a particular put right and we
must indicate the number of shares of common stock we intend to sell to Swartz.
At our option, we may also designate a maximum dollar amount of common stock not
to exceed $2 million which we will sell to Swartz during the put and/or a
minimum purchase price per common share, if applicable, at which Swartz may
purchase shares during that put. The designated minimum purchase price per
common share, if we chose to specify one, shall be no greater than the lesser of
(i) 80% of the closing bid price of our common stock on the business day prior
to the date of the advance put notice or (ii) the closing bid price of our
common stock on the business day prior to the date of the advance put notice,
minus $.125. This could affect Swartz's potential return on investment in that
Swartz's purchase price may not be less than the minimum price designated by the
Company. The number of common shares sold to Swartz in a given put may not
exceed the lesser of:
- 15% of the aggregate daily reported trading volume, excluding any
block trades of 20,000 or more shares of common stock, during a period
which begins on the business day immediately following the day we
invoked the put right and ends on and includes the day which is twenty
business days after the date we invoked the put right, excluding,
however, certain days where the common shares trade below a minimum
price specified by us.
- 15% of the sum aggregate daily reported trading volumes, excluding
block trades of 20,000 or more shares of common stock, for the twenty
business days immediately preceding the put date.
- The intended put amount, specified in our put notice,
- The number of our shares, which when multiplied by the put share
price, equals $2 million,
- An amount of put shares, which when added to the number of put shares
acquired by the investor during the 61 days preceding the put date
would exceed 9.99% of the number of common shares outstanding on a
fully diluted basis.
For each common share, Swartz will pay us the lesser of:
- the market price for the applicable pricing period, minus $.075 or
- 91% of the market price for the applicable pricing period.
Market price is defined as the lowest closing bid price for common stock during the pricing period. The pricing period is the period beginning on the business day immediately following the put date and ending on and including the date which is twenty business days after such put date.
The following is an example of the calculation of a put we would issue to Swartz in connection with that put based on hypothetical assumptions:
Sample drawdown amount calculation:
For purposes of this example, suppose for our first put we provide a put notice to Swartz, and that we set the threshold price at $0.50 per share, below which we will not sell any shares to Swartz during this purchase period. Suppose further that the total daily trading volume for the 20 trading days immediately preceding the put date is 1,000,000 shares with no block trades exceeding 20,000 or more shares. Under these hypothetical numbers, the maximum amount of shares that could be sold to Swartz is as follows:
- the total trading volume for the 20 days prior to our put notice (1,000,000 shares) multiplied by 15% equals 150,000
If the total daily trading volume for the 20 trading days during the actual purchase period was greater than 1,000,000 (like our example that follows) then the maximum amount of shares that could be sold will be 150,000.
Sample calculation of number of shares:
For example, for the first trading day in the example in the table below, the calculation is as follows: multiply 15% times the total shares traded (40,000) to get 6,000 shares. Perform this calculation for each of the 20 trading days during the purchase period, excluding any days on which daily trading price traded below the $0.50 Threshold price set by us. In the table below there are no days which must be excluded.
CLOSING TOTAL NUMBER OF
TRADING DAY BID PRICE ($)(1) SHARES TRADED SHARES SOLD
----------- ---------------- ------------- -----------
1 0.75 40,000 6,000
2 0.75 45,000 6,750
3 0.77 48,000 7,200
4 0.77 70,000 10,500
5 0.75 82,000 12,300
6 0.72 55,000 8,250
7 0.75 60,000 9,000
8 0.70 60,000 9,000
9 0.72 50,000 7,500
10 0.70 32,000 4,800
11 0.68 50,000 7,500
12 0.68 60,000 9,000
13 0.75 95,000 14,250
14 0.77 80,000 12,000
15 0.77 50,000 7,500
16 0.75 50,000 7,500
17 0.77 60,000 9,000
18 0.78 60,000 9,000
19 0.80 80,000 12,000
20 0.80 60,000 9,000
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Totals: 1,187,000 178,050
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(1) The share prices are illustrative only and should not be interpreted as a forecast of share prices or the expected or historical volatility of the share prices of our common stock.
The total number of shares that we would issue to Swartz for this put would be 150,000 shares, which was previously calculated as the maximum of shares that could have been sold based on multiplying 15% by the total trading volume for the 20 trading days prior to the put date (even though 15% multiplied by the total shares traded during the purchase period equals 178,050). Swartz will purchase the shares at a purchase price equal to the lesser of: the market price for the applicable pricing period (market price is defined as the lowest closing bid price during the pricing period) minus $0.075 or 91% of the market price. In this case Swartz would pay $0.605 per share for 150,000 shares equaling $90,750. There is no placement agent involved in this transaction to receive any other fees.
We are registering 25,000,000 shares to be sold to Swartz in puts. Therefore, in order for the Company to receive $20,000,000, the average sale price of these shares would need to be $.80. Unless our share price increases drastically, we will need to register additional shares in order to access the $20,000,000 maximum.
Our closing price on the Over-The-Counter Bulletin Board as of March 6, 2001 was $.27. The maximum allowable number of shares per put under the Investment Agreement is 1,500,000 shares. Assuming our trading price remained at its current level, even if we put the maximum allowable shares per put to Swartz under the investment agreement, each put would yield only $292,500 in proceeds to us. The restrictions discussed, such as the restriction limiting the put amount to a percentage of our aggregate trading volume, may operate to prevent us from putting the maximum allowable number of shares. The 30,000,000 shares that Swartz may sell under this prospectus would represent 74.37% of the Company if they were all issued assuming that we don't issue any other shares in the future.
WARRANTS
We have delivered to Swartz warrants to purchase 1,309,000 shares of our common stock at anytime for seven years. The warrants will have semi-annual reset provisions. Each warrant will be immediately exercisable and have a term beginning on the date of issuance and ending seven years thereafter. All shares underlying these warrants are being registered in this prospectus.
LIMITATIONS AND CONDITIONS PRECEDENT 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:
- We have satisfied all obligations under the agreements entered into
between us and Swartz in connection with the Swartz investment
agreement;
- Our common stock is listed and traded on Nasdaq, the O.T.C. Bulletin
Board, or an exchange;
- Our representations and warranties in the Swartz investment agreement
are accurate as of the date of each put;
- 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;
- 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;
- If the number of shares to be put to Swartz, together with any
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.
Swartz is not required to acquire and pay for any common shares with respect to any particular put for which during the period beginning on the date of the advance put notice and ending on the last day of the pricing period:
- We have announced or implemented a subdivision or combination of our
common stock;
- We have paid a common stock dividend;
- We have made a distribution of all or any portion of our assets
between the put notice date and the date the particular put closes; or
- We have consummated a major transaction between the advance put notice
date and the date the particular put closed.
SHORT SALES
Swartz and its affiliates are prohibited from engaging in short sales of our common stock, except that after they have received a put notice, they may sell a number of the shares in long sales or short sales, up to the number of shares specified in the put notice.
CANCELLATION OF PUTS
We must cancel a particular put if between the date of the advance put notice and the last day of the pricing period:
- We discover an undisclosed material fact that would require the
registration statement to be amended or supplemented in order to
remain current and effective;
- The registration statement registering resales of the common shares
becomes ineffective; or
- Shares are delisted from the then primary exchange.
NON-USAGE FEE
On the last business day of each one year period following the effectiveness of the registration period, if we have not put $1,000,000 of our stock to Swartz, we will be required to pay Swartz a non-usage fee equal to the difference of $50,000 and 10% of the aggregate put amounts to Swartz during the first one year period and $100,000 and 10% of the aggregate put amounts to Swartz during the remaining year periods thereafter.
TERMINATION OF INVESTMENT AGREEMENT
We may terminate our right to initiate further puts or terminate the investment agreement by providing Swartz with notice of such intention to terminate; however, any such termination will not affect any other rights or obligations we have concerning the investment agreement or any related agreement.
RIGHT OF FIRST REFUSAL
During the term of the investment agreement and for 60 days after its termination, we are prohibited from issuing or selling any capital stock or securities convertible into our capital stock for cash in private capital raising transactions, without obtaining the prior written approval of Swartz. In addition, Swartz has the option to for 10 days after receiving notice to purchase such securities on the same terms and conditions.
SWARTZ'S RIGHT OF INDEMNIFICATION
We are obligated to indemnify Swartz, including their affiliates, stockholders, officers, directors, employees and agents, from all liability and losses resulting from any misrepresentations or breaches we made in connection with the investment agreement, our registration rights agreement, other related agreements, or the registration statement.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Dimensional Visions' common stock has been quoted on the Bulletin Board under the symbol "DVUI.ob" since January 12, 1998. Prior to January 12, 1998, Dimensional Visions' common stock traded under the symbol "DVGL." The following table sets forth the quarterly high and low bid prices of Dimensional Visions' common stock for the periods indicated, after adjusting such prices for Dimensional Visions' 1-for-25 reverse common stock split which was effective January 15, 1998. Bid quotations represent interdealer prices without adjustment for retail markup, markdown and/or commissions and may not necessarily represent actual transactions.
HIGH LOW
---- ---
FISCAL 1999
First Quarter................................ 1 11/32 27/64
Second Quarter............................... 21/32 1/4
Third Quarter................................ 7/16 3/16
Fourth Quarter............................... 27/32 3/16
FISCAL 2000
First Quarter................................ 2 3/16 3/8
Second Quarter............................... 1 23/32 27/32
Third Quarter................................ 2 3/32 13/16
Fourth Quarter............................... 2 9/32 3/8
FISCAL 2001
First Quarter................................ 17/32 17/64
Second Quarter............................... 7/16 1/8
Third Quarter (through April 9, 2001)........ 5/16 1/8
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HOLDERS
As of March 5, 2001, the number of stockholders of record was 469, not including beneficial owners whose shares are held by banks, brokers and other nominees. Dimensional Visions estimates that it has approximately 3,500 stockholders in total.
DIVIDEND POLICY
Dimensional Visions has paid no dividends on its common stock since its inception and does not anticipate or contemplate paying cash dividends in the foreseeable future.
Pursuant to the terms of Dimensional Visions' Series A Convertible Preferred Stock, a 5% annual dividend is due and owing. Pursuant to the terms of Dimensional Visions' Series B Convertible Preferred Stock, an 8% annual dividend is due and owing. As of June 30, 2000, Dimensional Visions has not declared dividends on Series A or B preferred stock. The unpaid cumulative dividends totaled approximately $74,225. See Note 10 of Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion regarding the financial statements of Dimensional Visions should be read in conjunction with the financial statements of Dimensional Visions included herewith.
OVERVIEW
Dimensional Visions is engaged in the business of manufacturing multi-dimensional marketing promotional products.
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below along with "Management's Discussion and Analysis" and our consolidated financial statements and the related notes. We have derived the consolidated financial data for 1996, 1997, 1998, 1999 and 2000 from our audited consolidated financial statements. We believe the unaudited financial data shown in the table below include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. Operating results for the six months ended December 31, 2000, are not necessarily indicative of the results that may be expected for all of 2001. Potentially dilutive common shares have been excluded from the shares used to compute earnings per share in each loss year because their inclusion would be antidilutive.
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- ------------- ------------- -------------
Operation revenue $ 1,008,862 $ 741,901 $ 609,392 $ 551,517 $ 1,083,897
Net Loss $(1,021,145) $(1,465,812) $ (421,659) $(2,162,134) $(2,035,647)
Net Loss per share of
common stock* $ (.18) $ (.39) $ (.14) $ (1.14) $ (3.34)
Balance Sheet Data:
Working Capital (deficit) $ 205,284 $ (603,946) $ (235,920) $ (107,952) $ 9,528
Total Assets $ 885,033 $ 397,185 $ 920,841 $ 529,520 $ 1,408,919
Total Liabilities $ 519,112 $ 1,118,740 $ 713,539 $ 613,947 $ 673,058
Stockholders' equity
(deficiency) $ 365,921 $ (721,555) $ 207,302 $ (84,427) $ 735,861
Six Months Ended Six Months Ended
December 31, 2000 December 31, 1999
----------------- -----------------
(unaudited) (unaudited)
Operation revenue $ 162,996 $ 300,418
Net Loss $(598,780) $ (459,051)
Net Loss per share of common stock* $ (.07) $ (.09)
Balance Sheet Data:
Working Capital (deficit) $(206,620) $ 176,478
Total Assets $ 373,429 $1,021,112
Total Liabilities $ 415,147 $1,027,988
Stockholders' Deficiency $ (41,718) $ (6,876)
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PLAN TO ADDRESS GOING CONCERN OPINION
The company's independent certified public accountants' report on the company's consolidated financial statements for the year ended June 30, 2000 contains an explanatory paragraph regarding the company's ability to continue as a going concern. Among the factors cited by the accountants that raised substantial doubt as to the company's ability to continue as a going concern are the company's continued recurring losses from operations and limited sales of its products. The accountants state that the company's ability to continue as a going concern is subject to the attainment of profitable operations or obtaining necessary funding from outside sources. The company has developed a plan to achieve profitability and allay doubts as to its ability to continue as a going concern. This plan includes: (1) increased marketing of its existing products to increase sales; and (2) utilize long term financing through securities offerings.
INCREASED MARKETING. As indicated in the Use of Proceeds, the company will use a portion of the proceeds to expand its sales force and fund product marketing. The company believes these efforts will result in increased sales of its products.
LONG TERM FINANCING THROUGH SECURITIES OFFERINGS. The company has established an equity line agreement with Swartz Private Equity of up to $20,000,000 with common shares and shares underlying warrants registered under this prospectus. This investment agreement is subject to a formula based on our stock price and trading volume. See "The Swartz Investment Agreement". Management believes that proceeds from any offerings using this line, together with our anticipated cash flow from sales of the company's products, will be sufficient to support currently anticipated working capital requirements through 2004.
FISCAL YEAR ENDED JUNE 30, 2000, AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
The net loss for the fiscal year ended June 30, 2000, was $1,021,145 compared with a net loss of $1,465,812 for the fiscal year ended June 30, 1999. The gross profit increased from 24% in fiscal year 1999 to 34% in fiscal year 2000. General and administrative expenses increased by approximately $245,000. The amortization of one time consulting contracts paid through the issuance of the Company's common stock makes up $175,000 of the increase. Other general and administrative expense categories that increased were salary expense by approximately $25,000 and rental expense by approximately $30,000. Marketing expenses decreased from $301,630 in fiscal year 1999, to $129,520 in fiscal year 2000. Marketing salary and commissions decreased by approximately $110,000 and travel and entertainment by $13,000. Management believes that marketing expenses will increase in the fiscal year 2001, as a result of hiring of new sales staff and the beginning of a nationwide marketing campaign. Of the $173,878 of interest expense for the fiscal year 2000, approximately $49,572 was paid with the Company's common stock on June 19, 2000. An additional $116,215 was the result of the amortization of the discounted value of the Company's long and short-term debentures which were simultaneously converted with their associated interest.
Revenue for the fiscal year ended June 30, 2000, was $1,008,862 compared to revenue of $741,901 for the fiscal year ended June 30, 1999. Approximately $980,000 or 97% of total revenue for the fiscal year ended June 30, 2000, was from our 3D/animated graphics compared to $614,000 or 83% of total revenue for the fiscal year ended June 30, 1999. Sales of products and licensing fees related to InfoPak, Inc's data delivery system are continuing to diminish. Management plans to continue to focus its efforts on growing the revenue generated from our 3D/animated print products.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had a working capital of $205,284 compared with a working capital deficiency of $603,946 as of June 30, 1999. The increase in working capital is largely attributable to the increase in cash of approximately $258,000, an increase in account receivable of $270,000, and the conversion of short-term debt and accrued interest into shares of the Company's common stock. During the period ended June 30, 2000,the Company raised a total of $1,050,000 before expenses of approximately $94,500 through the sale of its Series D and Series E Preferred Stock.
The Company extended an offer to its debenture holders and certain trade creditors to convert their debt to equity in the Company. The offer, which expired on October 15, 1999, permitted the conversion of debt into shares of the Company's common stock at prices ranging from $.25 to $.375 per share. Interest on the debentures accrued at 12% per annum through January 31, 2000. Additionally, certain trade creditors were offered the opportunity to convert their receivables into shares of Dimensional Visions' common stock at $.375 per share. On June 19, 2000, the entire outstanding balance of $720,000 of debentures held by a total of 22 parties including individuals, corporations, and trusts and $60,748 of accounts payable held by three trade creditors comprised of legal, financial and general consulting vendors were converted into shares of the Company's common stock. A total of 2,601,021 shares was issued to convert the accounts payable and the debentures including accrued interest.
Dimensional Visions plans to become profitable through increased sales of its 3D/animated graphics while maintaining current or higher gross margins. The Company has a strong relationship with its printer which includes preferential pricing and scheduling, the ability to quickly produce products requested by customers, and the resources to significantly expand production without a commensurate increase in expenses. Our current customers are reordering products on a regular basis which reduces our cost of sales. For the fiscal year ended June 30, 1999, eight customers ordered additional products compared to ten customers for the fiscal year ended June 30, 2000. These customers are also increasing their order quantities indicating a growing acceptance of our 3D/animated products in the market place. The Company's three largest customers ordered $64,940, $31,844 and $175,574 worth of products in the fiscal year 1999 compared to $119,571, $159,748 and $538,653 for the fiscal year ended June 30, 2000.
The Company's independent auditors report contained an explanatory paragraph regarding the ability of the Company to continue as a going concern.
SIX MONTHS ENDED DECEMBER 31, 2000, AS COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1999
RESULTS OF OPERATIONS
The net loss for the six months ended December 31, 2000 was $598,780, compared to a net loss of $459,051 for the six months ended December 31, 1999. The Company's marketing expenses for the six months ended December 31, 2000 increased by approximately $95,000. This increase is due to the addition of two salesmen along with their travel expenses. The Company's engineering expenses for the six months ended December 31, 2000 increased by approximately $57,000 over the same period last year. This increase was attributed to the increase in the Company's design staff. The Company also increased their general and administrative expenses for the six months ended December 31, 2000 by $44,000 over the six months ended December 31, 1999. The Company attributes this increase to an arbitration settlement of disputed invoices for commissions of approximately $40,000 and the increase in the administrative staff of approximately $5,000.
Revenue for the six months ended December 31, 2000 was $162, 996 compared to revenue of $300,418 for the six months ended December 31, 1999. Revenue for the six months ended December 31, 1999 was boosted by $103,000 through the sale of Pokemon products that are no longer being ordered. Generally, the sales volume for the six months ended December 31, 2000 without Pokemon was down approximately $34,000.
As a result of the decline in revenue, the Company has reduced its fixed overhead costs by reducing the number of personnel employed by the Company. As of December 31, 2000, the Company's work force has been reduced by six employees which will result in a savings of approximately $100,000 through June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 2000, the Company collected approximately $310,000 of accounts receivable. Substantially all the cash received and cash on hand was used to support operations. The Company will utilize the secured line of credit to sustain operations until its sales will support the Company's operations and growth. The Company is continually focusing on expanding its customer base through its marketing and sales campaign.
As of December 31, 2000 the Company's financial position is precarious. The Company needs funding in order to maintain current operations and to support growth and sales. The Company has secured a $500,000 line of credit on January 12, 2000 through Merrill Lynch that was obtained by an investor group of existing shareholders as guarantors of the line of credit. Additionally, the Company finalized an equity line with Swartz Private Equity, LLC to provide funding through the sale of the Company's common stock. The Company has the right at its sole discretion to put common stock to Swartz, subject to certain limitations and conditions based upon trading volume of the Company's common stock. However, due to the current limited trading volume of the Company's common stock, the Company would not be able to raise significant funding from this arrangement. Based upon 30 consecutive trading days beginning February 13, 2001 and subject to the volume limitations, the Company would be able to raise in any 20 day put period approximately $9,700. At these current levels, the Company would be unable to raise sufficient capital to fund operations; therefore, the Company is attempting to increase interest in our Company which would help increase daily trading volumes while utilizing our current line of credit through Merrill Lynch. The put to the investment firm is based upon trading volume and cannot exceed 15% of the volume per trade day.
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
Annual and quarterly fluctuations in Dimensional Visions' results of operations may be caused by the timing and composition of orders from Dimensional Visions' customers and distribution channels. Dimensional Visions' future results also may be affected by a number of factors, including its ability to offer products at competitive prices and to anticipate customer demands. Dimensional Visions' results may also be affected by economic conditions in the geographical areas in which Dimensional Visions operates. All of the foregoing may result in substantial unanticipated quarterly earnings shortfalls or losses. Due to all of the foregoing, Dimensional Visions believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indicative of future performance.
AVAILABLE INFORMATION
Dimensional Visions is presently subject to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). Dimensional Visions has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Act") with respect to the securities offered hereby. This prospectus, which constitutes a part of the Registration Statement, omits certain information contained in the Registration Statement on file with the Commission pursuant to the Act and the rules and regulations of the Commission thereunder. The Registration Statement, including the exhibits thereto, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of such material may be obtained by mail at prescribed rates from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. Dimensional Visions' securities are currently listed on the over-the-counter bulletin board and trading under the symbol "DVUI."
BUSINESS OF DIMENSIONAL VISIONS
GENERAL
Dimensional Visions creates and delivers 3D/animated graphics for products, packaging and marketing communications.
Our graphics are multi-dimensional (commonly known as "3-D") and/or animated visual effects. These effects may be produced in varying sizes to specified customer applications for companies who want to differentiate their products from the competition. The visual effects are created by viewing multiple images through a series of lenses incorporated into a plastic sheet called lenticular. These lenses work as a viewer which self adjusts to whatever distance the viewer is from the image. Viewed in one direction, the lenses allow the individual to see multiple views of an image simultaneously. These multiple views are seen as being in three dimensions. Alternatively, viewed in the other direction, the lenses restrict the view to a particular image that changes as the piece is moved, thus creating an animation effect (i.e., the picture appears to be moving).
Our objective is to become a dominant marketer, developer and producer of the 3D/animated graphics in the United States and internationally.
Our 3D/animated graphics offer multi-dimensional and/or animated images for the promotion marketing industry, advertising and graphic design industry and original equipment manufacturers throughout the United States.
InfoPak, Inc. is our one active subsidiary company. InfoPak manufactures and markets a data delivery system comprised of a hardware/software packaged product line called the "InfoPakSystemTM." This system was designed to handle substantial offline information and databases that may require frequent updating.
We have decided to focus all of our resources on our 3D/animated graphics product line. During Fiscal Year 1999, we retained Chapman Associates, an investment banking firm, to assist us in the sale of our InfoPak, Inc. subsidiary. To date, we have not found a buyer. We will continue to support the operations of InfoPak until it is sold or our Board of Directors decides to discontinue its operations.
Dimensional Visions office and principal place of business is located at 2301 West Dunlap Avenue, Suite 207, Phoenix, Arizona 85021, and its telephone number is (602) 997-1990.
OUR HISTORY
FISCAL YEARS 1988-1994
In 1988 Dimensional Visions Group, Ltd. (Bulletin Board: DVGL) was incorporated in the state of Delaware. Dimensional Visions was headquartered in Philadelphia, Pennsylvania. At that time, Dimensional Visions created its three-dimensional effects by building model sets and photographing these sets using a robotic controlled camera. These photographed images were then prepared for lithographic printing. The process utilized during this timeframe was very expensive and extremely difficult to consistently reproduce quality images. Throughout this period Dimensional Visions tried unsuccessfully to perfect the robotic camera process.
FISCAL YEARS 1995-1997
In 1995 Dimensional Visions acquired InfoPak, Inc. of Phoenix, Arizona ("InfoPak") which is currently our wholly owned subsidiary. InfoPak manufactures and markets a hardware/software package called the "InfoPakSystem(TM)". This system takes existing databases and prepares them for use on a palm-top computer manufactured by InfoPak. It is particularly useful to individuals who need access to information while away from a computer terminal. Therefore, it is marketed to mobile business professionals in the automobile appraisal and real-estate businesses. Automobile appraisal guides are available on the palm-top unit for access at automobile auctions or at car dealership lots. Multiple listing data is similarly available for real estate agents for field access to the home listings.
From 1995 to 1997, Dimensional Visions utilized the software development resources of InfoPak to develop the patent-pending software and systematic digital process for its 3D/animated graphics .
FISCAL YEARS 1998-2000
In January 1998 we established our current headquarters in Phoenix, Arizona. Under the leadership of a new executive management team, Dimensional Visions was completely restructured including changing our corporate name to Dimensional Visions Incorporated and changing our stock trading symbol from DVGL to DVUI. At the end of 1997, the company needed to complete private placements of debt and equity to continue operations. As a prerequisite, our investment banking firm, Capital West Investment Group, required the company to replace the upper level management and effect a 1 for 25 reverse stock split.
During this timeframe we sold all of the original robotic photographic equipment to concentrate on the new 3D/animated graphics(utilizing very high-end Intel based graphic design computers). Our management team believes that the new process is much more cost effective, reproducible, and has a shorter production cycle than the photographic process formerly used by the company. We also believe that it better meets the demands of today's market which requires quick turn around of products from inception to delivery.
STRATEGY
MARKET & PENETRATION
Multi-dimensional and/or animated images are being utilized today by Dimensional Visions' clients. The images are used because they combine depth and movement to attract the consumer's attention and potentially increase their sales.
Living Image(TM) solutions have and will be (a) integrated onto products (for example: affixed to yearbooks, children's portfolio cover's, etc), (b) integrated onto product packaging (for example: affixed to cereal boxes, CD packages, etc), and (c) integrated onto marketing communications for products and services (for example: affixed to annual reports, etc). We define the market for our 3D/animated graphics as the following major markets in the United States:
* Original Equipment Manufacturers
* Promotional Marketing Firms
* Advertising & Graphics Design Firms (less newspaper, radio and TV)
Dimensional Visions believes that the market for our 3D/animated graphics is in its infancy particularly with the advent of new high-end Intel based graphic design computers and improved lenticular plastic manufacturing capabilities which yield higher quality products. With these advances, coupled with the our proprietary software methodology and marketing strategy, we believe Dimensional Visions can be a market leader.
Dimensional Visions estimates that the market universe for its 3D/animated graphics is as follows:
* ORIGINAL EQUIPMENT MANUFACTURERS: Our revenues for the fiscal year ended June 30, 2000, from the original manufacturers were approximately 91% of our total revenue. Plymouth, Inc. made up 54% of our revenues for the fiscal year June 30, 2000, while Phoenix Display was approximately 16%.
* PROMOTION MARKETING INDUSTRY: Dimensional Visions believes that the Premium/Incentives, Point of Purchase, Specialty Printing, and Agencies Net Revenues categories are potential users of our 3D/animated graphics . Our revenues for the fiscal year ended June 30, 2000 from this market were approximately 9%. Campbell Fisher Ditko and Visual Odyssey, Inc each made up 3% of total revenues.
* ADVERTISING INDUSTRY: We believe that newspapers, magazines, direct mail, business papers, and miscellaneous other advertising methods are potential users of 3D/animated graphics Solutions. These categories make up over $116.4 billion or 62% of total advertising revenues.
PRODUCTION
Dimensional Visions controls or supervises all phases of the production of its 3D/animated graphics from the image development and computerized enhancement phases through the color separation and printing phases. Images are provided to us by our clients in many formats including digitally in graphic file formats and photographically in pictures or transparencies. Photographic images are scanned into the computer to be modified and enhanced. Through a proprietary process, several images are composited together to generate a final image that will appear as a three-dimensional and/or animation image when viewed through a lenticular material. "Lenticular" is a plastic optical material that allows the three-dimensional and/or animation image to be viewed without the use of any viewing apparatus such as glasses or hoods. The digital files are forwarded to Travel Tags, our primary printer, or other commercial printer, where, through the lithographic process, the images are printed on a polymer based lenticular material which focuses the multi-dimensional or animation images. Printing is done under the supervision of Dimensional Visions. The lenticular material is supplied by producers in the petrochemical and plastic fabricating industries directly to our printer. Dimensional Visions has no long-term contracts with its printers.
COMPETITION
Other processes currently are available which allow a viewer to perceive an image in three-dimensions, including those which employ stereoscopic glasses and viewing hoods and other processes, and holograms and other three-dimensional image systems which do not require the use of viewing apparatus. Dimensional Visions is aware of at least two companies, Optigraphics, Inc. and National Graphics, Inc., which compete with our products. There are three primary methods of competition in our industry. They include price, quality and delivery time. Our company relies on the quality of our 3D/animated graphics. Our products may be more expensive than conventional, high quality, two-dimensional prints and for this reason, high quality, conventional processes and methods may be favored for many, if not most, illustration and promotion contexts. Color lenticular images are less expensive than other forms of three-dimensional prints.
PATENTS, TRADEMARKS AND PROPRIETARY PROTECTION
The company filed a patent application on February 15, 1999 for its 3D/animated graphics software and print system. The company believes that the patent will issue within two years.
Dimensional Visions has received trademark registration of DV3D(R).
EMPLOYEES
As of the date of this prospectus, we had six employees, including three in management, one of whom is involved in product development and manufacturing, one in marketing and sales, and one in finance. Dimensional Visions is not a party to any collective bargaining agreements. Dimensional Visions considers its relations with employees to be good.
PROPERTIES
We lease approximately 3,100 square feet of office space at 2301 W. Dunlap Avenue, Suite 207 in Phoenix, Arizona. This location serves as our principal executive offices and our current design and production facilities. The total lease payments for fiscal year 2001 will be $48,050. The lease also requires us to pay all taxes and insurance and expires on December 31, 2003.
LITIGATION
On August 2, 2000, Richman Group, Inc. filed a demand for Arbitration/Statement of Claim with the American Arbitration Association against Dimensional Visions, Inc. The arbitration hearing was held in Phoenix, Arizona on December 13, 2000. Dimensional Visions had terminated its contract with Richman Group to pay commissions. Richman claimed Dimensional Visions still owed them commissions on two invoices. Richman sought to receive the amount of the invoices, plus interest and attorney fees. The arbitrator awarded Richman the amount of the invoices of $41,250 plus interest. The hearings were closed on February 21, 2001.
To the best knowledge of our management, there are no material litigation matters pending or threatened against us.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of Dimensional Visions as of the date of this prospectus are as follows:
NAME AGE POSITION
---- --- --------
John D. McPhilimy 57 Director, Chairman of the Board of Directors and
Chief Executive Officer
Roy D. Pringle 33 Vice President, Chief Financial Officer and Director
Bruce D. Sandig 41 Senior Vice President Engineering and Director
Susan A. Perlow 50 Director
Lisa R. McPhilimy 26 Vice President, Controller
Ronald L. Chilston 45 Vice President of Business Development
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Mr. John McPhilimy was appointed as a Director, President, and Chief Executive Officer of Dimensional Visions in November 1997. In January 1998, he was appointed Chairman of the Board. From January 1995 until November 1997, Mr. McPhilimy served as President of Selah Information Systems, Inc., Mesa, Arizona, a company involved in information systems. From March 1992 to December 1995, Mr. McPhilimy served as President of Travel Teller, Inc. Mr. McPhilimy has over 30 years of executive and marketing experience in high-technology industries such as aerospace, air transportation, and electronic telecommunication networks with Bell Helicopter Textron, Aerospatiale, Executive Jet Aviation, Travel Teller Inc., Marketing Works, and Selah Information Systems. Over the last 15 years he has been responsible for implementing marketing strategies of NetJets and Travel Teller, which created the new industries of "nationwide fractional ownership of business jets" and "electronic ticket delivery networks," respectively.
Mr. Roy D. Pringle was appointed as Vice President, Chief Financial Officer, and Chief Information Officer of Dimensional Visions in November 1997, and provides overall integrated enterprise-wide financial management systems for Dimensional Visions. Mr. Pringle has worked for InfoPak, Inc. since June 1992. Mr. Pringle holds a master's degree from the American Graduate School of International Management. Prior to joining InfoPak, he was President and founder of a small software company, Signature Software.
Mr. Bruce D. Sandig was appointed as a Director of Dimensional Visions in January 1998 and as Senior-Vice President of Creative Design and Production Engineering of Dimensional Visions in November 1997 and provides overall development and integration of the DV3D(R)and AnimotionTM Multi-Dimensional Images systems. Mr. Sandig was a co-founder of InfoPak in 1992. Mr. Sandig has over 15 years experience in electro-mechanical and software engineering/design with such companies as Universal Propulsion Company, Kroy, Inc., Dial Manufacturing, and Softie, Inc., where he also created several proprietary software games for Nintendo.
Ms. Susan A. Perlow has served as Director of Dimensional Visions since January 1998. Since January 1998 she has served as Managing Principal Consultant for Oracle, Inc. She served as Director of Business Processing from March 1995 to December 1997 for AmKor Electronics.
Mrs. Lisa R. McPhilimy, daughter-in-law of John McPhilimy, CEO, is Vice President & Controller and provides overall integrated financial management and reporting for the company. She is a Certified Public Accountant and a graduate of Ohio University. She has over 5 years experience in financial management and is responsible for the Securities & Exchange Commission reporting required as a publicly held company.
Mr. Ronald L. Chilston is Vice President of Business Development and provides overall integrated sales of our 3D/animated graphics for the company. He has over 25 years of sales and operations experience in the photographic printing industry. He is in charge of our national direct sales for our 3D/animated graphics, as well as, coordinating the national sales effort of both Anderson Litho and Photobition-Phoenix & their collective 50+ sales people.
There is currently one committee on the Board of Directors. The Audit Committee is comprised of Ms. Perlow and Mr. Pringle.
Directors serve until the next annual meeting or until their successors are qualified and elected. Officers serve at the discretion of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation earned by or paid to Dimensional Visions' Chief Executive Officer for the fiscal year ended June 30, 2000. No officer of Dimensional Visions earned more than $100,000 in the fiscal year ended June 30, 2000.
LONG TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION Awards Payouts
--------------------------------------- -------------------------------- ----------
Securities
Other Annual Restricted Underlying LTIP All Other
Year Salary ($) Bonus ($) Compensation ($) Stock Awards($) Options/SARs(#) Payouts($) Compensation($)
---- ---------- --------- ---------------- --------------- --------------- ---------- ---------------
John D. McPhilimy 1999 $89,250 $ 0 $0 $0 -- $0 $0
2000 $90,000 $7,500 $0 $0 -- $0 $0
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 2000
INDIVIDUAL GRANTS
Number of
Securities % of Total
Underlying Options/SARs Granted
Option/SARs to Employees in Exercise or Base Expiration
Name Year Granted (#) Fiscal Year Price ($/Share) Date
---- ---- ----------- ----------- --------------- ----
John D. McPhilimy 2000 550,000 41.9 .25 1/27/05
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 2000
AND FY-END OPTION/SAR VALUES
Value of Unexercised
Number of Securities Underlying In-the-Money
Shares Acquired Value Exercised Options/ SARs at FY-End (#) Options/SARs at
Name Year on Exercise (#) Realized Exercisable/ Unexercisable FY-End ($)
---- ---- --------------- -------- -------------------------- ----------
John D. McPhilimy 2000 -- 0 1,000,000(E)/0(U) $147,500
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EMPLOYMENT AND RELATED AGREEMENTS
None.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and Bylaws of Dimensional Visions provide that Dimensional Visions will indemnify and advance expenses, to the fullest extent permitted by the Delaware General Corporation Law, to each person who is or was a director, officer or agent of Dimensional Visions, or who serves or served any other enterprise or organization at the request of Dimensional Visions (an "Indemnitee"). Under Delaware law, to the extent that an Indemnitee is successful on the merits of a suit or proceeding brought against him or her by reason of the fact that he or she was a director, officer or agent of Dimensional Visions, or serves or served any other enterprise or organization at the request of Dimensional Visions, Dimensional Visions will indemnify him or her against expenses (including attorneys' fees) actually and reasonably incurred in connection with such action. If unsuccessful in defense of a third-party civil suit or a criminal suit, or if such a suit is settled, an Indemnitee may be indemnified under Delaware law against both (i) expenses, including attorneys' fees, and (ii) judgments, fines and amounts paid in settlement if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Dimensional Visions, and, with respect to any criminal action, had no reasonable cause to believe his other conduct was unlawful. If unsuccessful in defense of a suit brought by or in the right of Dimensional Visions, where the suit is settled, an Indemnitee may be indemnified under Delaware law only against expenses (including attorneys' fees) actually and reasonably incurred in the defense or settlement of the suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Dimensional Visions except that if the Indemnitee is adjudged to be liable for negligence or misconduct in the performance of his or her duty to Dimensional Visions, he or she cannot be made whole even for expenses unless a court determines that he or she is fully and reasonably entitled to indemnification for such expenses. Also under Delaware law, expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by Dimensional Visions in advance of the final disposition of the suit, action or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by Dimensional Visions. Dimensional Visions may also advance expenses incurred by other employees and agents of Dimensional Visions upon such terms and conditions, if any, that the Board of Directors of Dimensional Visions deems appropriate. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling Dimensional Visions pursuant to the foregoing provisions, in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
On January 12, 2001, the Company issued 4,900,000 employee incentive warrants to purchase shares of common stock of the Company at an exercise price of $0.125 over the next two fiscal years of the Company. If the Company if profitable June 30, 2001, 25% of the warrants will vest at that time. The additional 75% of the warrants will vest over the next four consecutive quarters if the Company remains profitable. The warrants will also vest to the employees if there is a change in control of the Company or upon discretion of the Board. The plan includes all current employees (6).
The Company entered into loan agreement with John McPhilimy on July 12, 2000. The principle amount of the loan is $5,000 due June 30, 2001 with 6% interest.
The Company entered into a loan agreement with Bruce Sandig on July 12, 2000. The principle amount of the loan is $7,000 due June 30, 2001 with 6% interest.
STOCK OPTION PLANS
1996 EQUITY INCENTIVE PLAN
In June 1996, Dimensional Visions adopted the 1996 Equity Incentive Plan (the "1996 Plan") covering 10,000,000 shares of Dimensional Visions' common stock pursuant to which employees, consultants and other persons or entities who were in a position to make a significant contribution to the success of Dimensional Visions were eligible to receive awards in the form of incentive or non-incentive options, stock appreciation rights, restricted stock or deferred stock. The 1996 Plan will terminate ten years after June 12, 1996, the effective date of the 1996 Plan. The 1996 Plan is administered by the Board of Directors. In its discretion, the Board of Directors may elect to administer the 1996 Plan. Restricted stock entitles the recipients to receive shares of Dimensional Visions' common stock subject to such restriction and condition as the Compensation Committee may determine for no consideration or such considerations as determined by the Compensation Committee. Deferred stock entitles the recipients to receive shares of Dimensional Visions' common stock in the future. As of the date of this prospectus, 5,002,978 shares have been issued pursuant to this plan. The company has decided that it will not issue any additional shares under the 1996 Plan, but will instead issue options under its 1999 Stock Option Plan.
1999 STOCK OPTION PLAN
On November 15, 1999, the Board of Directors of Dimensional Visions adopted the 1999 Stock Option Plan (the "1999 Plan"). This plan was approved by a majority of our stockholders at our January 28, 2000, stockholders' meeting. The purpose of the 1999 Plan is to advance the interests of the company by encouraging and enabling acquisition of a financial interest in the company by its officers and other key individuals. The 1999 Plan is intended to aid the company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the company. A maximum of 1,500,000 shares of the company's common stock are available to be issued under the 1999 Plan. The option exercise price will be 100% of the fair market value of the company's common stock on the date the option is granted and will be exercisable for a period not to exceed 10 years from the date of grant. No options have been issued to date.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the shares of Dimensional Visions' outstanding common stock beneficially owned as of the date of this prospectus by (i) each of Dimensional Visions' directors and executive officers, (ii) all directors and executive officers as a group, and (iii) each other person who is known by Dimensional Visions to own beneficially more than 5% of Dimensional Visions' common stock.
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) BENEFICIAL OWNERSHIP(2) OWNERSHIP(2)
---------------------------------------- ----------------------- ------------
John D. McPhilimy 2,385,000(3) 18.8%
127 W. Fellars Dr
Phoenix, AZ 85023
Bruce D. Sandig 1,700,000(4) 14.1%
5801 N 14th St
Phoenix, AZ 85014
Roy D. Pringle 1,506,047(5) 12.7%
4915 W. Marco Polo Rd.
Glendale, AZ 85308
Susan A. Perlow 75,000(6) 0.7%
26210 S. Lime Drive
Queen Creek, AZ 85242
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Lisa R. McPhilimy 550,000(7) 5.1% 2906 E. Leland St Mesa, AZ 85213 Ronald Chilston 400,000(8) 3.7% 3612 N 21st St Dr Phoenix, AZ 85015 Swartz Private Equity 1,309,000(9) 11.2% 300 Colonial Center Parkway, #300 Roswell, GA 30076 Dale Riker 1,166,961(10) 10.6% 10040 Happy Valley Road, #438 Scottsdale, AZ 85255 Russ Ritchie 700,000(11) 6.4% 4700 S. McClintock Dr, #120 Tempe, AZ 85282 All executive officers and directors as a group (6 persons) 6,616,047 39.1% |
(2) The percentages shown are calculated based upon the 10,339,873 shares of common stock outstanding as of the date of this prospectus. The numbers and percentages shown include the shares of common stock actually owned as of the date of this prospectus and the shares of common stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of common stock that the identified person or group had the right to acquire within 60 days of the date of this prospectus upon the exercise of options and warrants, or the conversion of preferred stock, are deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by any other person.
(3) Mr. McPhilimy has warrants to purchase 385,000 shares of Dimensional Visions' common stock at an exercise price of $.20 until October 28, 2003. He also has warrants to purchase 2,000,000 shares of common stock at an exercise price of $.125 until January 1, 2008, which are zero percent vested. On July 1, 2001, 25% of the warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001 or upon the discretion of the Board of Directors. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable.
(4) Mr. Sandig ownes 10,000 shares of Dimensional Visions' common stock. Also included in the amount are common stock purchase warrants to purchase 230,000 shares of Dimensional Visions' common stock at an exercise price of $.20 until October 28, 2003 and warrants to purchase 460,000 shares of common stock at an exercise price of $.25 until January 27, 2005. He also has warrants to purchase 1,000,000 shares of common stock at an exercise price of $.125 until January 1, 2008, which are zero percent vested. On July 1, 2001, 25% of the warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001 or upon the discretion of the Board of Directors. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable.
(5) Mr. Pringle owns 6,047 shares of Dimensional Visions' common stock. Also included in the amount are common stock purchase warrants to purchase 210,000 shares of Dimensional Visions' common stock at an exercise price of $.20 until October 28, 2003 and warrants to purchase 290,000 shares of common stock at an exercise price of $.25 until January 27, 2005. He also has warrants to purchase 1,000,000 shares of common stock at an exercise price of $.125 until January 1, 2008, which are zero percent vested. On July 1, 2001, 25% of the warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001 or upon the discretion of the Board of Directors. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable.
(6) Ms. Perlow has warrants to purchase 40,000 shares of Dimensional Visions' common stock at an exercise price of $.50 until October 28, 2003 and warrants to purchase 35,000 shares of common stock at an exercise price of $.25 until January 27, 2005.
(7) Ms. McPhilimy has warrants to purchase 18,334 shares of Dimensional Visions' common stock at an exercise price of $.20 until October 28, 2003 and warrants to purchase 31,666 shares of common stock at an exercise price of $.25 until January 27, 2005. She also has warrants to purchase 500,000 shares of common stock at an exercise price of $.125 until January 1, 2008, which are zero percent vested. On July 1, 2001, 25% of the warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001 or upon the discretion of the Board of Directors. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable.
(8) Mr. Chilston has warrants to purchase 400,000 shares of common stock at an exercise price of $.125 until January 1, 2008, which are zero percent vested. On July 1, 2001, 25% of the warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001 or upon the discretion of the Board of Directors. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable.
(9) Swartz Private Equity has warrants to purchase 1,309,000 shares of common stock issuable upon the exercise of outstanding warrants which are currently exercisable, which represents approximately 11.2% of our issued and outstanding common stock as of the date of this prospectus. Exercise of these warrants is limited to the extent that Swartz may not exercise the warrants to the extent that such exercise would result in Swartz's beneficial ownership of more than 4.99% of our issued and outstanding common stock at any time.
(10) Dale Riker owns 541,961 shares of Dimensional Visions' common stock. Also included in the amount are warrants to purchase 125,000 shares of the Dimensional Visions' stock at an exercise price of $.2656 until January 11, 2006, warrants to purchase 50,000 shares of common stock at an exercise price of $.20 until January 11, 2006 and warrants to purchase 75,000 shares of common stock at an exercise price of $.1406 until January 31, 2006. He may also own 375,000 shares of common stock by the assumption of the debt associated with the line of credit.
(11) Russ Ritchie owns 25,000 shares of Dimensional Visions' common stock. Also included in the amount are warrants to purchase 50,000 shares of Dimensional Visions' common stock at an exercise price of $.10 until January 24, 2002, warrants to purchase 125,000 shares of common stock at an exercise price of $.2656 until January 11, 2006, warrants to purchase 50,000 shares of common stock at an exercise price of $.20 until January 11, 2006 and warrants to purchase 75,000 shares of common stock at an exercise price of $.1406 until January 31, 2006. He may also own 375,000 shares of common stock by the assumption of debt associated with the line of credit.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of common stock which may be offered for sale from time to time by the selling stockholders. The shares offered for sale constitute all of the shares of common stock known to Dimensional Visions to be beneficially owned by the selling stockholders. Other than as indicated, to the best of management's knowledge, none of the selling stockholders has or have any material relationship with Dimensional Visions.
PERCENTAGE
SHARES OF OWNED AFTER
SHARES OWNED COMMON STOCK OFFERING IF
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING OFFERED (1) MORE THAN 1%
--------------------------- ----------------- ----------- ------------
Donald John Casey Family Trust 11,250 2,812 --
Kent Casey 12,080 3,545 --
Mark Casey 12,500 3,125 --
Robert Casey -- 833 --
Edward Conn 6,000 500 --
Keith Denner -- 1,250 --
Evjen Profit Sharing Plan 40,000 15,000 --
Fideltiy Insurance Co. Ltd/B9-2206A -- 2,500 --
Roy A. Kite 85,000 30,000 --
Janice Casey Larsen -- 312 --
Larry Peery 45,000 3,750 --
Dennis & Diane Schlegel 40,000 3,250 --
Michael Shapiro 37,500 3,125 --
Eugene Snowden 121,250 75,000 1.9
Southwest Ventures -- 1,250 --
VMR Profit Sharing 80,842 9,375 --
Charles Wafer 213,000 12,500 2.3
Mark Ward -- 2,500 --
Watson Revocable Trust Dated 1/20/99 -- 1,330 --
Pamela Wilson -- 250 --
Dale Riker (3) 516,961 1,150,000 14.5
Russ Ritchie (4) 50,000 1,150,000 10.4
Swartz Private Equity, LLC (5) -- 26,309,000 71.8
John D. McPhilimy (2) (6) 385,000 2,000,000 18.8
Bruce D. Sandig (2) (7) 700,000 1,000,000 14.1
Roy D. Pringle (2) (8) 506,047 1,000,000 12.7
Lisa R. McPhilimy (2)(9) -- 400,000 3.7
Ron Chilston (2)(10) -- 400,000 3.7
Michael J. McPhilimy (2)(11) 50,000 100,000 1.4
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Total 33,681,207
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(2) Indicates common shares issuable upon exercise of warrants that become vested if the company is profitable for the fiscal year ended June 30, 2001 or upon the discretion of the Board of Directors.
(3) Includes 516,961 shares of common stock and 25,000 additional shares in common stock pursuant to the investment agreement, 250,000 shares held upon exercise of warrants, 375,000 shares upon conversion of debt, 125,000 shares held upon exercise of warrants to be issued pursuant to an investment agreement and 375,000 shares held upon conversion of debt to be issued pursuant to an investment agreement.
(4) Includes 50,000 shares underlying warrants, 25,000 shares of common stock pursuant to the investment agreement, 250,000 shares held upon exercise of warrants, 375,000 shares upon conversion of debt, 125,000 shares held upon exercise of warrants to be issued pursuant to an investment agreement and 375,000 shares held upon conversion of debt to be issued pursuant to an investment agreement.
(5) This number includes 1,309,000 shares of common stock issuable upon exercise of warrants which are currently outstanding, which represents approximately 11.2% of our issued and outstanding common stock as of the date of this prospectus. Exercise of the warrants is limited to the extent that such exercise would result in Swartz's beneficial ownership of more than 4.99% of our issued and outstanding common stock at any time. This number also includes (solely for purposes of this prospectus) up to an aggregate of 25,000,000 shares of our common stock that we may sell to Swartz under the Swartz investment agreement. These shares would not be deemed beneficially owned within the meaning of Sections 13(d) and 13(g) of the Exchange Act before their acquisition by Swartz. We cannot assure you that Swartz will not sell any or all of these shares. We anticipate that Swartz will not beneficially own more than 9.9% of our outstanding common stock at any time. Eric S. Swartz holds investment and voting control of the shares held by Swartz.
(6) John D. McPhilimy is the President and Chief Executive Officer of the company.
(7) Bruce D. Sandig is a Senior Vice President of the company.
(8) Roy D. Pringle is a Vice President and Chief Financial Officer of the company.
(9) Lisa R. McPhilimy is a Vice President and Controller of the company.
(10) Ron Chilston is the Vice President of Business Development of the company.
(11) Michael J. McPhilimy is an employee of the company.
PLAN OF DISTRIBUTION
This prospectus involves an offering that relates to:
- The possible sale from time to time of 25,000,000 shares and 1,309,000
shares underlying warrants by Swartz Private Equity, LLC pursuant to an
investment agreement,
- The possible sale from time to time of 50,000 shares, 350,000 shares
underlying warrants, 400,000 shares underlying warrants to be issued
pursuant to an investment agreement and 1,500,000 shares held upon
conversion of debt pursuant to a line of credit investment agreement with
an investor group consisting on Dale Riker and Russ Ritchie.
- The possible sale from time to time of 4,900,000 shares underlying warrants issued to the employees of the Company and fully vested if we are profitable at June 30, 2001 and the subsequent four consecutive quarters or upon the discretion of the Board of Directors.
- The possible sale from time to time by other selling shareholders of Dimensional Visions, Inc. of up to 172,207 shares of common stock of Dimensional Visions.
SWARTZ PRIVATE EQUITY, LLC
This prospectus is registering the possible sale from time to time of 25,000,000 shares and 1,309,000 shares underlying warrants by Swartz. Pursuant to our investment agreement with Swartz Private Equity, LLC, we can place puts to them
of our common stock of up to $20,000,000. The dollar amount of each sale is limited by our common stock's trading volume and a minimum period of time since the last sale. Each sale will be to Swartz. In turn, Swartz may sell our stock in the open market, place our stock through negotiated transactions with other investors, or hold our stock in their own portfolio.
SELLING SHAREHOLDERS
The shares will be offered and sold by the selling stockholders for their own accounts. Dimensional Visions will not receive any of the proceeds from the sale of the shares pursuant to this prospectus other than from the exercise of warrants or the conversion of debt. Dimensional Visions will pay all of the expenses of the registration of the shares, but shall not pay any commissions, discounts, and fees of underwriters, dealers, or agents.
The selling shareholders and their successors, which term includes their transferees, pledgees or donees or their successors may sell the common stock directly to one or more purchasers (including pledgees) or through brokers, dealers or underwriters who may act solely as agents or may acquire common stock as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices, which may be changed. The selling shareholders may effect the distribution of the common stock in one or more of the following methods:
- ordinary brokers transactions, which may include long or short sales;
- transactions involving cross or block trades or otherwise on the Nasdaq National Market;
- purchases by brokers, dealers or underwriters as principal and resale by such purchasers for their own accounts under this prospectus;
- "at the market" to or through market makers or into an existing market for the common stock;
- in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents;
- through transactions in options, swaps or other derivatives (whether exchange listed or otherwise); or
- any combination of the above, or by any other legally available means.
In addition, the selling shareholders or successors in interest may enter into hedging transactions with broker-dealers who may engage in short sales of common stock in the course of hedging the positions they assume with the selling shareholders. The selling shareholders or successors in interest may also enter into option or other transactions with broker-dealers that require delivery by such broker-dealers of the common stock, which common stock may be resold thereafter under this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution of the common stock may receive compensation in the form of discounts, concessions or commission from the selling shareholders and/or the purchasers of common stock for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions).
Swartz is, and each remaining selling shareholder and any broker-dealers acting in connection with the sale of the common stock by this prospectus may be deemed to be, an underwriter within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and any profit realized by them on the resale of common stock as principals may be underwriting compensation under the Securities Act. Neither the selling shareholders nor we can presently estimate the amount of such compensation. We do not know of any existing arrangements between the selling shareholders and any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the common stock.
The selling shareholders and any other persons participating in a distribution of securities will be subject to applicable provisions of the Securities Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may restrict certain activities of, and limit the timing of purchases and sales of securities by, the selling shareholders and other persons participating in a distribution of securities. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions subject to specified exceptions or exemptions. Swartz has, before any sales, agreed not to effect any offers or sales of the common stock in any manner other than as specified in this prospectus and not to purchase or induce others to purchase common stock in violation of Regulation M under the Exchange Act. All of the foregoing may affect the marketability of the securities offered by this prospectus.
Any securities covered by this prospectus that qualify for sale under Rule 144 under the Securities Act may be sold under that Rule rather than under this prospectus.
We cannot assure you that the selling shareholders will sell any or all of the shares of common stock offered by the selling shareholders.
In order to comply with the securities laws of certain states, if applicable, the selling shareholders will sell the common stock in jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states, the selling shareholders may not sell the common stock unless the shares of common stock have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
DESCRIPTION OF SECURITIES
The authorized capital stock of Dimensional Visions currently consists of 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par value.
Dimensional Visions' transfer agent is American Stock Transfer & Trust Corporation, 59 Maiden Lane, New York, New York 10007.
The following summary of certain terms of Dimensional Visions' securities does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of Dimensional Visions' Articles of Incorporation and Bylaws.
COMMON STOCK
As of the date of this prospectus, there are 10,339,873 shares of common stock outstanding.
Holders of common stock are each entitled to cast one vote for each share held of record on all matters presented to stockholders. Cumulative voting is not allowed; hence, the holders of a majority of the outstanding common stock can elect all directors.
Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore and, in the event of liquidation, to share pro rata in any distribution of Dimensional Visions' assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend and it is not anticipated that dividends will be paid until Dimensional Visions is profitable.
Holders of common stock do not have preemptive rights to subscribe to additional shares if issued by Dimensional Visions. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock. All of the outstanding shares of common stock are fully paid and non-assessable and all of the shares of common stock offered hereby will be, upon issuance, fully paid and non-assessable.
PREFERRED STOCK
SERIES A PREFERRED STOCK
The company's Series A Convertible 5% Preferred Stock, 100,000 shares authorized, is convertible into common stock at the rate of 1.6 shares of common stock for each share of the Series A Preferred. Dividends from date of issue are payable from retained earnings, and have been accumulated on June 30 each year, but have not been declared or paid. The Series A Preferred were issued for the purpose of raising operating funds. As of the date of this prospectus, there are 15,500 shares of Series A Convertible 5% Preferred Stock outstanding.
SERIES B PREFERRED STOCK
The company's Series B Convertible 8% Preferred Stock, 200,000 shares authorized, is convertible into common stock at the rate of four shares of common stock for each share of the Series B Preferred. Dividends from date of issue are payable from retained earnings, and have been accumulated on June 30 each year, but have not been declared or paid. The Series B Preferred were issued for the purpose of raising operating fund. Shares of Series B Preferred were issued to holders of warrants to purchase such preferred stock. The funding for the exercise of these warrants was the exchange of 1,907,000 of principal amount of secured and unsecured notes. As of the date of this prospectus, there are 3,500 shares of Series B Convertible 8% Preferred Stock outstanding.
SERIES C PREFERRED STOCK
The company's Series C Convertible Preferred Stock is convertible at a rate of 0.4 shares of common stock per share of Series C Preferred and was issued to certain holders of the company's 10% Secured Notes in lieu of accrued interest. Shares of Series C Preferred were also issued in exchange for $262,750 of interest due under secured and unsecured notes. As of the date of this prospectus, there are 13,404 shares of Series C Convertible Preferred Stock outstanding.
SERIES D PREFERRED STOCK
The company's Series D Convertible Preferred Stock is convertible at a rate of two shares of common stock per share of Series D Preferred and was issued for the purpose of raising operating funds. As of the date of this prospectus, there are 180,000 shares of Series D Convertible Preferred Stock outstanding.
SERIES E PREFERRED STOCK
The company's Series E Convertible Preferred Stock is convertible at a rate of one share of common stock per share of Series E Preferred and was issued for the purpose of raising operating funds. As of the date of this prospectus, there are 275,000 shares of Series E Convertible Preferred Stock outstanding.
SERIES P PREFERRED STOCK
The company's Series P Convertible Preferred Stock is convertible at a rate of 0.4 shares of common stock per share of Series P Preferred. The Series P Preferred was issued on September 2, 1995, to InfoPak stockholders in exchange for (1) all of the outstanding capital stock of InfoPak, (2) as signing bonuses for certain employees and a consultant of InfoPak, and (3) to satisfy InfoPak's outstanding debt obligations to certain stockholders. As of the date of this prospectus, there are 86,640 shares of Series P Convertible Preferred Stock outstanding.
WARRANTS AND OPTIONS
As of March 6, 2001, there are 10,690,343 warrants issued and outstanding expiring at various times until January 1, 2008. The exercise prices vary from $.10 to $12.50 per share with a weighted average exercise price of $.25 per share. Officers and directors of the company own 6,600,000 of the 10,690,343 issued and outstanding warrants with a weighted average exercise price of $.15 per share. Of these 6,600,000 warrants, 4,900,000 are part of incentive warrants for the officers. On July 1, 2001, 25% of these warrants will fully vest provided Dimensional Visions has a positive net income for the fiscal year ending June 30, 2001. The remaining warrants will vest at a rate of 18.75% of the total warrants for each consecutive quarter that the company is profitable. The warrants would also vest if the Company were to have a change in control before June 30, 2001 or upon the discretion of the Board of Directors. Other individuals or entities own the other 4,090,343 warrants which have a weighted average exercise price of $.42 per share.
CONVERTIBLE DEBT
RIKER AND RITCHIE MAY CONVERT THE COMPANY'S OUTSTANDING DEBT INTO SHARES OF COMMON STOCK AT A RATE OF THREE SHARES OF COMMON STOCK FOR EVERY DOLLAR DRAWN ON THE LINE OF CREDIT PER THE INVESTMENT AGREEMENT. AS OF THE DATE OF THIS PROSPECTUS, $250,000 IS OUTSTANDING ON THE LINE OF CREDIT.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for Dimensional Visions by Senn Palumbo Meulemans, LLP, Irvine, California.
EXPERTS
The Financial Statements of Dimensional Visions for the fiscal years ended June 30, 2000 and June 30, 1999, included herein and elsewhere in the registration statement, have been included herein and in the registration statement in reliance on the reports of Kopple & Gottlieb, LLP and Gitomer & Berenholz, P.C., appearing elsewhere herein, and upon the authority of said firms as experts in accounting and auditing.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
YEARS ENDED JUNE 30, 2000 AND 1999
AND
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F-4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficiency) F-6
Statements of Cash Flows F-10
Notes to Consolidated Financial Statements F-14
|
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Dimensional Visions Incorporated and Subsidiary Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional Visions Incorporated and Subsidiary (the "Company") as of June 30, 2000, and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the period ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dimensional Visions Incorporated and Subsidiary as of June 30, 2000 and the results of their operations and their cash flows for the period ended June 30, 2000 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has financed its operations primarily through the sale of its securities. As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has limited sales of its products, which raises substantial doubt about the Company's ability to continue as a going concern. The future of the Company as an operating business will depend on its ability ability to (1) successfully market its products, (2) obtain sufficient capital contributions and/or financing as may be required to sustain its current operations and fulfill its sales and marketing activities, (3) achieve a level of sales adequate to support the Company's cost structure, and (4) ultimately achieve a level of profitability. Management's plan concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kopple & Gottlieb, LLP KOPPLE & GOTTLIEB, LLP Jenkintown, Pennsylvania September 1, 2000 |
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Dimensional Visions Incorporated and Subsidiary Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional Visions Incorporated and Subsidiary (the "Company") as of June 30, 1999 (not presented herein), and the related consolidated statement of operations, stockholders' equity (deficiency), and cash flows for the year ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dimensional Visions Incorporated and Subsidiary as of June 30, 2000 and the results of their operations and their cash flows for the year ended June 30, 1999 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has financed its
operations primarily through the sale of its securities. As described in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from operations and has limited sales of its products, which raises
substantial doubt about the Company's ability to continue as a going concern.
The future of the Company as an operating business will depend on its ability to
(1) successfully market its products, (2) obtain sufficient capital
contributions and/or financing as may be required to sustain its current
operations and fulfill its sales and marketing activities, (3) achieve a level
of sales adequate to support the Company's cost structure, and (4) ultimately
achieve a level of profitability. Management's plan concerning these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ GITOMER & BERENHOLZ, P.C.
Huntingdon Valley, Pennsylvania
October 7, 1999
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2000
------------ ------------
(Unaudited)
ASSETS
Current assets
Cash $ 14,129 $ 276,333
Notes receivable, net of allowance for bad debts of $443,699 -- --
Notes receivable, officers 12,341 --
Accounts receivable, trade, net of allowance for bad debts of
$11,833 at December 31, 2000 and June 30, 2000 116,100 350,493
Prepaid expenses 6,593 9,227
------------ ------------
Total current assets 149,163 636,053
------------ ------------
Equipment
Equipment 479,972 479,372
Furniture and fixtures 49,329 46,944
------------ ------------
529,301 526,316
Less accumulated depreciation 334,624 308,963
------------ ------------
194,677 217,353
------------ ------------
Other assets
Patent rights and other assets 29,589 31,627
------------ ------------
Total assets $ 373,429 $ 885,033
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Current portion of obligations under capital leases $ 55,559 $ 50,962
Accounts payable, accrued expenses and other liabilities 300,224 379,807
------------ ------------
Total current liabilities 355,783 430,769
------------ ------------
Obligations under capital leases, net of current portion 59,364 88,343
------------ ------------
Total liabilities 415,147 519,112
------------ ------------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock - $.001 par value, authorized 10,000,000 shares;
issued and outstanding 574,044 at December 31, 2000, and
1,146,044 shares at June 30, 2000 574 1,146
Additional paid-in capital 953,843 1,474,295
------------ ------------
954,417 1,475,441
Common stock - $.001 par value, authorized 100,000,000 shares;
issued and outstanding 10,259,873 at December 31, 2000 and
8,934,916 shares at June 30, 2000 10,260 8,935
Additional paid-in capital 21,506,592 20,885,581
Deficit (22,427,533) (21,828,753)
------------ ------------
Total stockholders' equity (deficiency) before deferred
consulting contracts 43,736 (541,204)
Deferred consulting contracts (85,454) (175,283)
------------ ------------
Total stockholders' equity (deficiency) (41,718) 365,921)
------------ ------------
Total liabilities and stockholders' equity (deficiency) $ 373,429 $ 885,033
============ ============
|
See notes to consolidated financial statements.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended December 31, Year Ended June 30,
----------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Operating revenue $ 162,996 $ 300,418 $ 1,008,862 $ 741,901
Cost of sales 106,475 193,261 662,021 562,711
----------- ----------- ----------- -----------
Gross profit 56,521 107,157 346,841 179,190
Operating expenses
Engineering and development costs 134,562 77,152 169,895 146,480
Marketing expenses 120,116 25,367 129,520 301,630
General and administrative expenses 392,754 348,577 852,140 605,347
----------- ----------- ----------- -----------
Total operating expenses 647,432 451,096 1,151,555 1,053,457
----------- ----------- ----------- -----------
Loss before other income (expenses) (590,911) (343,939) (804,714) (874,267)
----------- ----------- ----------- -----------
Other income (expenses)
Interest expense (10,627) (120,196) (173,878) (207,727)
Interest income 2,758 5,084 14,779 18,188
Bad debt expense on notes receivable -- -- (57,332) (402,006)
----------- ----------- ----------- -----------
(7,869) (115,112) (216,431) (591,545)
----------- ----------- ----------- -----------
Net loss (598,780) (459,051) (1,021,145) (1,465,812)
Dividends in arrears on preferred stock (74,225) (88,050) (74,225) (88,050)
----------- ----------- ----------- -----------
Net loss available to common shareholders $ (673,005) $ (547,101) $(1,095,370) $(1,553,862)
=========== =========== =========== ===========
Loss per share
Basic and diluted loss per common share $ (.07) $ (.09) $ (.18) $ (.39)
=========== =========== =========== ===========
Shares used in computing net loss per share 9,620,342 5,759,686 6,052,835 3,973,118
=========== =========== =========== ===========
|
See notes to consolidated financial statements.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock Common Stock
$(.001 Par Value) Additional $(.001 Par Value) Additional
---------------- Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------- ----- --------- --------- ------ ----------- ------------ -----------
Balance, July 1, 1998 133,321 $ 133 $ 683,278 3,612,101 $3,612 $18,862,075 $(19,341,796) $ 207,302
Conversion of 1,500 shares
Series B convertible preferred
stock valued at $15,000 into
6,000 shares of the Company's
common stock (1,500) (1) (14,999) 6,000 6 14,994 -- --
Conversion of 1,011 shares
Series C convertible preferred
stock valued at $10,110 into
47,390 shares of the Company's
common stock (1,011) (1) (10,109) 403 -- 10,110 -- --
Issuance of 1,519,688 shares
of the Company's common stock
to consultants for services
valued at $320,593 -- -- -- 1,519,688 1,520 319,073 -- 320,593
Issuance of 485,000 warrants
to purchase 485,000 shares of
the Company's common stock at
$.50 per share for a three and
a half year period commencing
January 16, 1998 in connection
with the issuance of convertible
debentures due July 31, 2001
Black Scholes option pricing
model was used to value the
warrants -- -- -- -- -- 310,850 -- 310,850
Issuance of 85,000 warrants to
purchase 85,000 shares of the
Company's common stock at $.25
per share and issuance of
150,000 warrants to purchase
150,000 shares of the Company's
common stock at $.10 per share
for a three year period
commencing January 25, 1999 in
connection with the issuance of
convertible debentures due July
1999 through October 1999. The
Black Scholes option pricing
model was used to value the
warrants -- -- -- -- -- 39,300 -- 39,300
Net loss -- -- -- -- -- -- (1,465,812) (1,465,812)
Balance, June 30, 1999 130,810 $ 131 $ 658,170 5,138,192 $5,138 $19,556,402 $(20,807,608) $ (587,767)
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Preferred Stock Common Stock
$(.001 Par Value) Additional $(.001 Par Value) Additional
---------------- Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------- ----- --------- --------- ------ ----------- ------------ ----------
Balance, July 1, 1999 130,810 $ 131 $ 658,170 5,138,192 $5,138 $19,556,402 $(20,807,608) $(587,767)
Conversion of 4,266 shares
Series C convertible preferred
stock valued at $42,660 into
1,703 shares of the Company's
common stock (4,266) (4) (42,656) 1,703 2 42,658 -- --
Exercise of 135,000 warrants to
purchase 135,000 shares of the
Company's common stock at $.20
per share -- -- -- 135,000 135 26,865 -- 27,000
Exercise of 355,000 warrants to
purchase 355,000 shares of the
Company's common stock at $.10
per share -- -- -- 355,000 355 35,145 -- 35,500
Exercise of 30,000 warrants to
purchase 30,000 shares of the
Company's common stock at $.50
per share -- -- -- 30,000 30 14,970 -- 15,000
Exercise of 32,000 warrants to
purchase 32,000 shares of the
Company's common stock at $.25
per share -- -- -- 32,000 32 7,968 -- 8,000
Issuance of 166,730 shares of
the Company's common stock to
settle accounts payable valued
at $62,398 -- -- -- 166,730 167 62,231 -- 62,398
Issuance of 544,000 shares of
the Company's common stock to
consultants for services valued
at $341,250 -- -- -- 544,000 544 340,706 -- 341,250
Issuance of 375,000 shares of the
Company's Series D Preferred Stock 375,000 375 337,125 -- -- -- -- 337,500
Issuance of 675,000 shares of the
Company's Series E Preferred Stock 675,000 675 617,325 -- -- -- -- 618,000
Conversion of 7,500 shares
Series A convertible preferred
stock valued at $75,000 into
12,000 shares of the Company's
common stock (7,500) (8) (74,992) 12,000 12 74,988 -- --
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Preferred Stock Common Stock
$(.001 Par Value) Additional $(.001 Par Value) Additional
------------------ Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------- ------ --------- --------- ------ ----------- ------------ ---------
Conversion of 23,000 shares
Series D convertible preferred
stock valued at $20,700 into
46,000 shares of the Company's
common stock (23,000) (23) (20,677) 46,000 46 20,654 -- --
Issuance of 40,000 shares of
Company's common stock as
payment of a $20,000 commission
owed from the sale of Series D
Preferred Stock in lieu of a
cash payment -- -- -- 40,000 40 19,960 -- 20,000
Conversion of debt of $570,000
and related interest of $97,387
at $.375 pursuant to SB-2
registration statement -- -- -- 1,779,691 1779 665,608 -- 667,387
Conversion of debt of $150,000
and related interest of $13,650
at $.25 pursuant to SB-2
registration statement -- -- -- 654,600 655 162,995 -- 163,650
Professional fees incurred in
connection with SB-2
registration statement (15,698) (15,698)
Adjustment for long term debt
discount of which debt was
converted into equity with the
SB-2 registration -- -- -- -- -- (116,622) -- (116,622)
Adjustment for deferred offering
costs associated with the SB-2
registration -- -- -- -- -- (13,249) -- (13,249)
Issuance of 323,293 warrants to
purchase the Company's common
stock at $.10 per share
commencing January 2001 in
connection with the issuance of
convertible debentures -- -- -- -- -- -- -- --
Issuance of 395,000 warrants to
purchase the Company's common
stock at $.25 per share
commencing October 2000 in
connection with private placement
of the Company's securities -- -- -- -- -- -- -- --
Issuance of 1,397,500 warrants
to purchase the Company's common
stock at $.25 per share
commencing December 2000 through
February 2005 for employee
incentives and consultants -- -- -- -- -- -- -- --
|
See notes to financial statements.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Preferred Stock Common Stock
$(.001 Par Value) Additional $(.001 Par Value) Additional
------------------- Paid-in -------------------- Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
--------- ------- ----------- ---------- ------- ----------- ------------ -----------
Issuance of 917,500 warrants
to purchase the Company's
common stock at $.50 per
share commencing October
2000 through January 2003 in
connection with private
placement of the Company's
securities -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- (1,021,145) (1,021,145)
--------- ------- ----------- ---------- ------- ----------- ------------ -----------
Balance, June 30, 2000 1,146,044 $ 1,146 $ 1,474,295 8,934,916 $ 8,935 $20,885,581 $(21,828,753) $ 541,204
Exercise of 85,000 warrants
to purchase 85,000 shares of
the Company's common stock
at $.10 per share -- -- -- 85,000 85 8,415 -- 8,500
Exercise of 73,750 warrants
to purchase 73,750 shares of
the Company's common stock
at $.50 per share along with
additional common stock per
the inducement to exercise -- -- -- 186,125 186 30,470 -- 36,875
Exercise of 250,000 warrants
to purchase 250,000 shares
of the Company's common stock
at $.25 per share along with
additional common stock per
the inducement to exercise -- -- -- 250,000 250 61,848 -- 55,937
Conversion of 172,000 shares
Series D convertible
preferred stock valued at
$154,800 into 344,000 shares
of the Company's common stock (172,000) (172) (154,629) 344,000 344 154,456 -- --
Conversion of 400,000 shares
Series E convertible
preferred stock valued at
$366,222 into 400,000 shares
of the Company's common stock (400,000) (400) (365,823) 400,000 400 365,822 -- --
Issuance of 172,207 shares
of the Company's common stock
as a warrant exercise
inducement -- -- -- 172,207 172
Net loss -- -- -- -- -- -- (598,780) (598,780)
--------- ------- ----------- ---------- ------- ----------- ------------ -----------
Balance, December 31, 2000
(unaudited) 574,044 $ 574 $ 953,843 10,259,873 10,260 $21,506,592 $(22,427,533) $ 43,736
========= ======= =========== ========== ======= =========== ============ ===========
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended December 31, Year Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Operating activities
Net loss $ (598,780) $ (459,051) $(1,021,145) $(1,465,812)
Adjustments to reconcile net loss to net
cash used in operating activities
Allowance for bad debts on notes receivable -- -- 41,663 402,006
Consulting service paid through issuance of
warrants and common stock -- 22,500 22,500 65,593
Depreciation and amortization of property and equipment 25,661 17,819 42,299 46,172
Amortization of debt discount 73,041 121,396 112,132
Amortization of other assets and deferred costs 91,867 71,316 262,858 36,811
Interest expense paid through issuance of common stock -- -- 50,400 --
Changes in assets and liabilities which provided (used) cash
Accounts receivable, trade 222,052 (108,911) (272,425) 66,552
Inventory (4,772) 4,822 62,464
Prepaid expenses 2,633 8,193 10,748 7,782
Accounts payable, accrued expenses and other liabilities (79,583) (91,616) (31,332) 94,196
----------- ----------- ----------- -----------
Net cash used in operating activities (336,150) (461,937) (768,216) (572,104)
----------- ----------- ----------- -----------
Investing activities
Payment of obligations under capital lease (24,382) (9,779) (49,702) (16,477)
Purchase of equipment (2,985) -- (1,071) (57,279)
Proceeds from payments on notes receivable -- -- -- 18,169
----------- ----------- ----------- -----------
Net cash used in investing activities
(27,367) (9,779) (50,773) (55,587)
----------- ----------- ----------- -----------
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months
Ended December 31, Year Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Financing activities
Proceeds from Exercise of warrants 107,875 -- 85,500 --
Sale of Common stock -- -- -- --
Preferred stock net of offering costs of $74,500 -- -- 975,000 --
Preferred stock net of offering costs of $94,500 -- 955,500 -- --
Warrant right -- -- -- --
Short-term borrowings -- -- -- 235,000
Long-term debt -- -- -- 485,000
Reduction in deferred consulting fee contract originally
paid in common stock -- 30,000 30,000 100,000
Professional fees incurred in connection with SB-2
registration statement -- -- (15,697) --
Stock issuance costs (6,563) -- -- --
Issuance of common stock in connection with the exercise
of warrants -- 40,000 -- --
Proceeds from sale of equipment and supplies -- -- -- --
Borrowings from factor -- -- -- 195,560
Payment of debt obligations -- -- -- (350,060)
Disbursement of debt issuance costs -- -- -- (33,700)
--------- ---------- ----------- ---------
Net cash provided by financing activities 101,313 1,025,500 1,075,303 631,800
--------- ---------- ----------- ---------
Net increase (decrease) in cash and cash equivalents (262,204) 553,783 256,314 4,109
Cash, beginning of period 276,333 20,019 20,019 15,910
--------- ---------- ----------- ---------
Cash, end of period $ 14,129 $ 573,802 $ 276,333 $ 20,019
========= ========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,584 $ 7,152 $ 24,677 $ 34,957
========= ========== =========== =========
Issuance of common stock in connection with consulting
services $ -- $ 210,000 $ 341,250 $ 320,593
========= ========== =========== =========
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
AND
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED)
Supplemental disclosure of non-cash investing and financing activities for the six months ended December 31, 2000:
The Company issued 344,000 of the Company's common stock as a result of the conversion of 172,000 shares of Series D Convertible Preferred Stock valued at $154,800.
The Company issued 400,000 shares of the Company's common stock as a result of the conversion of 400,000 shares of Series E Convertible Preferred Stock valued at $366,222.
Supplemental disclosure of non-cash investing and financing activities for the fiscal year 2000:
The Company recorded capital lease obligations of $86,422 relating to the acquisition of equipment.
The Company issued 12,000 shares of the Company's common stock in connection with the conversion of Series A Convertible Preferred Stock valued at $75,000.
The Company issued 40,000 shares of its common stock in lieu of cash to settle $20,000 in commissions payable from the Series D Preferred Stock offering.
The Company issued 1,703 shares of the Company's common stock in connection with the conversion of Series C Convertible Preferred Stock valued at $42,660.
The Company issued 46,000 shares of the Company's common stock in connection with the conversion of Series D Convertible Preferred Stock valued at $20,700.
The Company issued 544,000 of the Company's common stock to consultants for services valued at $341,250.
The Company issued 166,730 of the Company's common stock to settle accounts payable valued at $62,398.
The Company issued 2,434,291 shares of the Company's common stock in connection with the conversion of $720,000 in debt and related accrued interest of $111,037.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1999 AND 1998
AND
SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED)
Supplemental disclosure of non-cash investing and financing activities for fiscal year 1999:
The Company issued 6,403 shares of the Company's common stock in connection with the conversion of convertible preferred stock valued at $25,110 as follows:
Converted to
Value Common Stock
---------- ----------
Series B Convertible Preferred Stock $ 15,000 6,000
Series C Convertible Preferred Stock 10,110 403
---------- ----------
$ 25,110 6,403
========== ==========
|
The Company issued 1,519,688 shares of the Company's common stock to consultants for services valued at $320,593.
The Company recorded additional paid-in capital of $350,150 with the issuance of warrants to purchase 920,000 shares of the Company's common stock in connection with the short and long-term debenture financing.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 1: Summary of Significant Accounting Policies
Description of Business, Financing and Basis of Financial Statement Presentation
Dimensional Visions Incorporated (the "Company" or "DVI") was incorporated in Delaware on May 12, 1988. The Company produces and markets lithographically printed stereoscopic and animation print products. The stockholders of the Company approved a name change effective January 15, 1998 from Dimensional Visions Group, Ltd. to Dimensional Visions Incorporated.
The Company, through a wholly-owned subsidiary of InfoPak, Inc. has developed a data delivery system that provides end users with specific industry printed materials by way of a portable hand-held reader. Data is acquired electronically from the data provided by mainframe systems and distributed through a computer network to all subscribers.
The Company has financed its operations primarily through the sale of its securities. The Company has had limited sales of its products during the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999. Even though the sales during the past two years have significantly increased over the prior years, the volume of business is not nearly sufficient to support the Company's cost structure.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception of $22,427,533 and had working capital deficiency of $206,620 as of December 31, 2000 and had a working capital of $206,544 as of June 30, 2000. The future of the Company as an operating business will depend on its ability to (1) successfully market and sell its products, (2) obtain sufficient capital contributions and/or financing as may be required to sustain its current operations and to fulfill its sales and marketing activities, (3) achieve a level of sales adequate to support the Company's cost structure, and (4) ultimately achieve a level of profitability. Management's plan to address these issues includes (a) redirecting its marketing efforts of the Company's products and substantially increasing sales results, (b) continued exercise of tight cost controls to conserve cash, (c) raising additional long term financing, and (d) selling of its subsidiary.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 1: Summary of Significant Accounting Policies (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The consolidated financial statements have been prepared on a going concern basis which contemplates the realization and settlement of liabilities and commitments in the normal course of business. The available funds at June 30, 2000, plus the limited revenue is not sufficient to satisfy the present cost structure. Management recognizes that the Company must generate additional resources to enable it to continue operations. Management plans include the continued expansion of the sale of its products and the sale of additional securities.
Further, there can be no assurances, assuming the Company successfully raises additional funds that the Company will achieve profitability or positive cash flow from the sale of its products. In the event the Company is not able to secure sufficient funds on a timely basis necessary to maintain its current operations, it may cease all or part of its existing operations and/or seek protection under the bankruptcy laws.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of DVI and its wholly-owned subsidiary, InfoPak, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
EQUIPMENT, DEPRECIATION AND AMORTIZATION
Equipment is stated at cost. Depreciation, which includes amortization of assets under capital lease is provided by the use of the straight-line method over the estimated useful lives of the assets as follows:
Equipment 5 - 7 years Furniture and fixtures 5 years
PATENT RIGHTS
Costs incurred to acquire patent rights and the related technology are amortized over the shorter of the estimated useful life or the remaining term of the patent rights. In the event that the costs of patent rights and/or acquired technology are abandoned, the write-off will be charged to expenses in the period the determination is made to abandon them.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 1: Summary of Significant Accounting Policies (Continued)
ENGINEERING AND DEVELOPMENT COSTS
The Company charges to engineering and development costs items related to bringing improvement to its product. Such costs include salaries and expenses of employees and consultants, the conceptual formulation, design, and testing of the products and creation of prototypes.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards Statement No. 128, "Earnings Per Share" (FAS 128), which is effective for fiscal years ending after December 15, 1997. FAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Dilutive earnings per share is very similar to the previously reported fully diluted earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 1: Summary of Significant Accounting Policies (Continued)
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. The Company relies on a limited number of customers for its sales. The Company is in the process of building a customer base for its products and, therefore, the degree of risk is substantially higher until the base grows.
The Company also relies on several key vendors to supply plastics and printing services. Although there are a limited number of vendors capable of fulfilling the Company's needs, the Company believes that other vendors could provide for the Company's needs on comparable terms. Abrupt changes could, however, cause a delay in processing and a possible inability to meet sales commitments on schedule, or a possible loss of sales, which would affect operating results adversely.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The financial statements and all information in these notes as of and for the six months ended December 31, 2000 and 1999 are unaudited, but in the opinion of management, have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments necessary for the fair presentation of the results of the interim period. All adjustments reflected in the consolidated financial statements are of a normal recurring nature. The data disclosed in the notes to the consolidated financial statements for this period is also unaudited.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 1: Summary of Significant Accounting Policies (Continued)
Note 2: Cash
The Company considers all highly liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.
The Company maintains its cash in banks located in Arizona. The total cash balances are insured by the FDIC up to $100,000 per financial institution. As of December 31, 2000 and June 30, 2000, there were no uninsured balances.
Note 3: Notes Receivable
Notes receivable consists of the following:
Interest
Rate Amount Maturity
---- -------- --------
Sale of Product Line (1) 11% $360,506 September 2001
Sale of InfoReaders (2) 10% 83,163 August 2001
--------
443,669
Less allowance for bad debts 443,669
--------
$ --
========
|
(1) The Company has been unable to collect the required monthly payments. During the year ended June 30, 1999, the Company received three installments and a fee of $10,000 which was included as interest income. Management has determined that they are currently unable to collect the amounts due on the note. Accordingly, management has established a 100% allowance against this note. The Company has determined that it does not make economic sense to take back this product line and operate this aspect of the business. The Company will continue to pursue the collection of this note. As of December 31, 2000 no additional funds have been collected.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 3: Notes Receivable (Continued)
(2) On March 1, 1998, the Company sold InfoReaders (hardware) to a customer for $100,000 and agreed to accept a note for $90,000 with payments commencing on September 1, 1998. The monthly installment is $2,904, including interest at 10% per annum for thirty-six months. The Company has not been able to collect the required monthly payments due on this note. The customer has filed for an arbitration hearing on the basis that the Company failed to provide data to support their customer base and is requesting payment of $1,000,000 for the lost business. The Company made provisions to acquire the data for the customer. However, the customer was unwilling to pay for the acquisition cost of the data and bring their account current. Accordingly, without the updated data and failure to pay the outstanding balance due the Company, there is no reason to support the system. No date has been set for the arbitration hearings. The Company has filed a counter-claim for full payment of the note. The Company has taken a $41,500 allowance against the balance due on the note as of June 30, 1999. The note is personally guaranteed by the sole-shareholder of the customer and the Company expects to collect approximately $50,000 as a result of this personal guarantee.
Note 4: Deferred Costs
Deferred costs as of December 31, 2000 consist of two consulting contracts totaling $85,454. These costs are accounted for in the equity section as a contra equity account.
On April 5, 1999, the Company entered into a contract with a consultant. The fee for services for 36 months is $287,668 $(7,991 per month), or upon signing of the contract, the Company will issue $255,000 of the Company's common stock. The market value of the common stock on April 5, 1999 was $.1875 per share and 1,360,000 shares of registered common stock was issued (registered under Form S-8). In addition, the warrant price on previously issued 500,000 warrants will be reduced to $.10 per share.
In accordance with the terms of the agreement either party may terminate or change the terms of this agreement with 30 days written notice. On May 28, 1999 the term of this agreement was modified and the term was reduced to 22 months. Under the provisions of the contract, the consultant is required to either return the shares or the cash equivalency of the reduction.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 4: Deferred Costs (Continued)
Accordingly on May 28, 1999, the Company received a $100,000 payment from the consultant.
On August 10, 1999, the Company entered into a contract with a consultant. The fee for services for 36 months is $169,216 $(4,700 per month), or upon signing of the contract, the Company will issue $150,000 of the Company's common stock. The market value of the common stock on August 10, 1999 was $.50 per share and 300,000 shares of registered common stock was issued (registered under Form S-8). In accordance with the terms of the agreement either party may terminate or change the terms of this agreement with 30 days written notice. In accordance with the terms of the agreement either party may terminate or change the terms of this agreement with 30 days written notice.
Note 5: Patent Rights and Other Assets
December 31, June 30,
2000 2000
-------- --------
Patent rights $ 58,426 $ 58,426
Deposits 4,100 4,100
Trademark 225 225
-------- --------
62,751 62,751
Less accumulated
amortization 33,162 31,125
-------- --------
Total $ 29,589 $ 35,701
======== ========
|
Note 6: Accounts Payable, Accrued Expenses and Other Liabilities
December 31, June 30,
2000 2000
-------- --------
Accounts payable $281,280 $353,927
Accrued expenses
Salaries 13,448 18,523
Payroll taxes payable 5,496 7,357
-------- --------
Total $300,224 $379,807
======== ========
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 7: Short-Term Borrowings
During January through April 1999, the Company received short-term borrowings of $235,000. The loans were 12% convertible debentures, with due dates ranging from July 25, 1999 through October 29, 1999. The terms of the debenture provide for a three month extension if the debenture is not paid on the original due date. During the extension period, interest is calculated at the stated rate plus 3% through the extended due date (15%).
On June 19, 2000 the debentures were converted into 826,667 shares of the Company's common stock. The related accrued interest on the short term borrowings were also converted unto 80,885 shares of the Company's common stock calculated at a 12% interest rate.
Note 8: Long-Term Debt
During July through September 1998, the Company through a private placement was able to borrow $485,000 through the issuance of Series A 12% convertible secured debentures. The debentures are due July 31, 2001. Interest is accrued and payable on July 31 of each year and the first interest payment is due July 31, 1999. In the event the Company fails to pay the debenture holders any accrued interest or principal the default rate is 16% from the due date through the date paid.
On June 19, 2000 all the Series A Convertible secured debentures were converted into 1,293,327 shares of the Company's common stock and the related accrued interest was converted into 233,412 shares of the Company's common stock.
Note 9: Leases
The company leases certain equipment under a master lease agreement, which are classified as capital leases. The equipment leases have a five year term with an option to acquire the equipment for $1 at the end of the lease term. Leased capital assets included in equipment was as follows:
December 31, June 30,
2000 2000
-------- --------
Equipment $225,334 $225,334
Less accumulated
amortization 65,658 47,092
-------- --------
$159,676 $178,242
======== ========
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 9: Leases (Continued)
Future minimum payments, by year and in the aggregate, under noncancellable capital leases and operating leases with terms of one year or more consist of the following:
December 30, June 30,
2000 2000
Years Ending -------- -------- June 30, 2000
June 30, Capital Leases Operating Leases
-------- --------------------- ----------------
2001 $ 36,232 $ 72,463 $ 37,000
2002 72,417 72,417 --
2003 30,527 30,527 --
-------- -------- --------
139,176 175,407 $ 37,000
========
Amounts representing
interest 24,253 36,102
-------- --------
Present value of net
minimum payments 114,923 139,305
Current portion 55,559 50,962
-------- --------
Long-term portion $ 59,364 $ 88,343
======== ========
|
The Company's rental expense for operating leases was approximately $74,948 in 2000 and $69,100 in 1999 and for the six months ended December 31, 2000 and 1999 rental expense was $35,598 and $34,247, respectively.
Note 10: Commitments and Contingencies
There are no other legal proceedings which the Company believes will have a material adverse effect on its financial position.
The Company has not declared dividends on Series A or B Convertible Preferred Stock. The cumulative dividends in arrears through December 31, 2000 and June 30, 2000 was approximately $74,225.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 11: Common Stock
As of December 31, 2000, there are outstanding 6,677,410 of non-public warrants to purchase the Company's common stock at prices ranging from $0.10 to $12.50 with a weighted average price of $0.47 per share.
As of December 31, 2000, there were 574,044 shares of various classes of Convertible Preferred Stock outstanding which can be converted to 713,818 shares of common stock (see Note 12).
During the six months ended December 31, 2000, the Company issued 344,000 shares of its common stock as a result of the conversion of 172,000 shares of Series D Convertible Preferred Stock.
During the six months ended December 31, 2000, the Company issued 400,000 shares of its common stock as a result of the conversion of 400,000 shares of Series E Preferred Convertible Preferred Stock.
During the six months ended December 31, 2000, the Company issued 580,957 shares of the Company's common stock in connection with the exercise of warrants.
The total number of shares of the Company's common stock that would have been issuable upon conversion of the outstanding warrants, options and preferred stock equaled 7,391,228 shares as of December 31, 2000, and would be in addition to the 10,259,873 shares of common stock outstanding as of December 31, 2000.
As of June 30, 2000, there were outstanding 6,808,910 of non-public warrants and options to purchase the Company's common stock at prices ranging from $.10 to $12.50 with a weighted average price of $.55 per share.
As of June 30, 2000, there were 1,146,044 shares of various classes of Convertible Preferred stock outstanding which can be converted to 1,457,818 shares of common stock (see Note 12).
During June 2000, there were $485,000 of secured debentures and related interest that were converted into 1,526,739 shares of the Company's common stock and $235,000 of short-term borrowings and related interest that were converted into 907,552 shares of the company's common stock.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 11: Common Stock (Continued)
The Company issued during August 1999, September 1999, and February 2000, 1,707 shares of its common stock as a result of the conversion of 4,266 shares of series C Convertible Preferred Stock.
During February 2000, the Company issued 12,000 shares of its common stock as a result of the conversion of 7,500 shares of Series A Convertible Preferred Stock.
The Company issued 40,000 shares of its common stock in lieu of cash to settle $20,000 in commissions from the Series D Preferred Stock offering.
During the year ended June 30, 2000, the Company issued 544,000 shares of its common stock to consultants for services valued at $341,250.
During August 1999, the Company issued 166,730 shares of its common stock in lieu of cash to settle $62,398 of accounts payable.
The Company issued 552,000 shares of its stock during the fiscal year 2000 in connection with the exercise of warrants.
The Company issued during the year ended June 30, 1999, 1,519,688 shares of the Company's common stock to consultants for services (including $133,788 as deferred) valued at $320,593 (average price per share $.21).
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 12: Preferred Stock
The Company has authorized 10,000,000 shares of $.001 par value per share Preferred Stock, of which the following were issued and outstanding:
Outstanding
-----------------------
December 31, June 30,
Allocated 2000 2000
---------- -------- ----------
Series A Preferred 100,000 15,500 15,500
Series B Preferred 200,000 3,500 3,500
Series C Preferred 1,000,000 13,404 13,404
Series D Preferred 375,000 180,000 352,000
Series E Preferred 1,000,000 275,000 675,000
Series P Preferred 600,000 86,640 86,640
---------- -------- ----------
Total Preferred Stock 3,325,000 574,044 1,146,044
========== ======== ==========
|
The Company's Series A Convertible 5% Preferred Stock ("Series A Preferred"), 100,000 shares authorized, is convertible into common stock at the rate of 1.6 shares of common stock for each share of the Series A Preferred. Dividends from date of issue are payable from retained earnings, and have been accumulated on June 30 each year, but have not been declared or paid (see Note 10).
The Company's Series B Convertible 8% Preferred Stock ("Series B Preferred") is convertible at the rate of 4 shares of common stock for each share of Series B Preferred. Dividends from date of issue are payable on June 30 from retained earnings at the rate of 8% per annum and have not been declared or paid (see Note 10).
The Company's Series C Convertible Preferred Stock ("Series C Preferred") is convertible at a rate of 0.4 shares of common stock per share of Series C Preferred.
The Company's Series D Convertible Preferred Stock ("Series D Preferred") is convertible at a rate of 2 shares of common stock per share of Series D Preferred.
The Company's Series E Convertible Preferred Stock ("Series E Preferred") is convertible at a rate of 1 share of common stock per share of Series E Preferred.
The Company's Series P Convertible Preferred Stock ("Series P Preferred") is convertible at a rate of 0.4 shares of common stock for each share of Series P Preferred.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 12: Preferred Stock (Continued)
The Company's Series A Preferred and Series B Preferred, Series D Preferred and seiries E Preferred were issued for the purpose of raising operating funds. The Series C Preferred was issued to certain holders of the Company's 10% Secured Notes in lieu of accrued interest and also will be held for future investment purposes.
The Series P Preferred was issued on September 12, 1995, to InfoPak shareholders in exchange for (1) all of the outstanding capital stock of InfoPak, (2) as signing bonuses for certain employees and a consultant of InfoPak, and (3) to satisfy InfoPak's outstanding debt obligations to certain shareholders.
Shares of Series B Preferred were issued to holders of warrants to purchase such preferred stock. The funding for the exercise of these warrants was the exchange of $1,907,000 of principal amount of secured and unsecured notes.
Shares of Series C Preferred were also issued in exchange for $262,750 of interest due under the secured and unsecured notes.
The Company raised $375,000 net of offering costs of $37,500 through this issuance of 375,000 shares of its Series D Preferred. These shares were issued for the purpose of raising operating funds.
The Company raised $675,000 net of offering costs of $57,000 through this issuance of 675,000 shares of its Series E Preferred. These shares were issued for the purpose of raising operating funds.
Note 13: Stock Option Plan and Equity Incentive Plan
The Company has adopted a stock option plan (the "Plan") covering 1,500,000 shares post-split (increased from 20,000 post-split by the Board of Directors on January 13, 1998) of the Company's common stock $.001 par value, pursuant to which officers, directors, key employees and consultants of the Company are eligible to receive incentive, as well as non-qualified stock options and Stock Appreciation Rights ("SAR's"). The Plan, which has been extended for 10 years by the Board of Directors on January 13, 1998, and expires September 2008, will be administered by the Board of Directors or a committee chosen therefrom. This plan must be formally approved by the stockholders of the Company. Incentive stock options granted under the Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price, which is not less than the fair market value of the
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 13: Stock Option Plan and Equity Incentive Plan (Continued)
common stock on the date of the grant, except that the terms of an incentive stock option granted under the Plan to a stockholder owning more than 10% of the outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such a stockholder may not be less than 110% of the fair market value of common stock on the date of the grant. Non-qualified stock options may be granted on terms determined by the Board of Directors or a committee designated by the Board of Directors. SAR's which give the holder the privilege of surrendering such rights for the appreciation in the Company's common stock between the time of grant and the surrender, may be granted on any terms determined by the Board of Directors or committee designated by the Board of Directors. No SAR's have been granted.
A summary of transactions under this Plan is as follows:
Weighted
Average
Exercise
Price
Shares Per Share
---------- ----------
Options outstanding
July 1, 1997 -- $ --
Grants 1,300,000 .93
Cancelled -- --
---------- -------
Options outstanding
June 30, 1998 1,300,000 .93
Grants -- --
Cancelled (1,300,000) (.93)
---------- -------
Options outstanding
June 30, 1999 -- $ --
========== =======
Options exercisable
at end of year -- $ --
========== =======
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 13: Stock Option Plan and Equity Incentive Plan (Continued)
The Company on June 13, 1996 adopted the 1996 Equity Incentive Plan (the "Plan") covering 10,000,000 shares of the Company's common stock $.001 par value, pursuant to which officers, directors, key employees and consultants of the Company are eligible to receive incentive, as well as non-qualified stock options, SAR's, and Restricted Stock and Deferred Stock. The Plan, which expires in June 2006, will be administered by the Compensation Committee of the Board of Directors. Incentive stock options granted under the Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price, which is not less than the fair market value of the common stock on the date of the grant, except that the terms of an incentive stock option granted under the Plan to a stockholder owning more than 10% of the outstanding common stock may not exceed five years and the exercise price of an incentive stock option granted to such a stockholder may not be less than 110% of the fair market value of common stock on the date of the grant. Non-qualified stock options may be granted on terms determined by the Compensation Committee of the Board of Directors. SAR's which give the holder the privilege of surrendering such rights for the appreciation in the Company's common stock between the time of grant and the surrender, may be granted on any terms determined by the Compensation Committee of the Board of Directors.
Restricted stock awards entitle the recipient to acquire shares for no cash consideration or for consideration determined by the Compensation Committee. The award may be subject to restrictions, conditions and forfeiture as the Committee may determine. Deferred stock award entitles recipient to receive shares in the future. Since inception of this plan in 1996 through December 31, 2000, 5,102,978 shares of common stock has been issued. For the year ended June 30, 1999, 1,519,688 shares of common stock had been issued at prices ranging from $.1875 to $.6562 per share. For the year ended June 30, 2000, 544,000 shares of common stock have been issued at prices ranging from $.37 to $.625 per share. In addition, as of December 31, 2000, no options or SAR's have been granted.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 13: Stock Option Plan and Equity Incentive Plan (Continued)
If the Company had elected to recognize compensation expense based on the fair value of stock plans as prescribed by FAS No. 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below:
Year Ended June 30,
Six Months ended --------------------------
December 31, 2000 2000 1999
----------------- ----------- -----------
Net Loss available to common shareholders $(673,005) $(1,095,370) $(1,553,862)
Net Loss - pro forma $(673,005) $(1,095,370) $(1,553,862)
Net Loss per share - as reported $ (.07) $ (.18) $ (.39)
Net Loss per share - pro forma $ (.07) $ (.18) $ (.39)
|
The weighted-average fair value at the date of grant for options granted in 2000 was $.25. The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option Pricing Model. The following weighted average assumptions were used: no dividends; expected volatility factor of 140%; risk-free interest of 5%; and an expected life of five years. The compensation expense and pro forma net loss may not be indicative of amounts to be included in future periods.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 14: Income Taxes
The tax effects of significant items comprising the Company's net deferred taxes as of June 30, 2000 were as follows:
Deferred tax assets:
Goodwill $ 284,000
Net operating loss carryforwards 6,769,000
-----------
7,053,000
-----------
Deferred tax liabilities
Allowance for bad debts 191,000
Equipment 26,000
Patent rights 3,000
-----------
220,000
-----------
Net deferred tax asset 6,833,000
Valuation allowance (6,833,000)
-----------
Net deferred tax asset reported $ --
===========
|
The change in valuation allowance for the year ended June 30, 1999 was increased by approximately $571,000.
There was no provision for current income taxes for the years ended June 30, 2000 and 1999. Additionally there was no provision for current income taxes for the six months ended December 31, 2000 and 1999.
The federal net operating loss carryforwards of approximately $19,070,000 expires in various years through 2020. In addition the Company has state carryforwards of approximately $3,175,000.
The Company has had numerous transactions in its common stock. Such transactions may have resulted in a change in the Company's ownership, as defined in the Internal Revenue Code Section 382. Such change may result in an annual limitation on the amount of the Company's taxable income which may be offset with its net operating loss carryforwards. The Company has not evaluated the impact of Section 382, if any, on its ability to utilize its net operating loss carryforwards in future years.
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 15: Segment of Business Reporting
The operations of the Company are divided into the following business segments for financial reporting purposes.
* Lithographically printed stereoscopic prints commonly referred to as three-dimensional prints and litho-graphically printed animation.
* Hardware and software information and audio playback systems and method products and programs.
There are no intersegment or foreign sales. For the period ended December 31, 2000 four customers accounted for approximately 79% of the lithographic sales and one customer accounted for 100% of the hardware and software information and playback systems. For the year ended June 30, 2000 three customers accounted for approximately 82% of the lithographic sales and two customers accounted for approximately 98% of the hardware and software information and playback systems. For the year ended June 30, 1999 three customers accounted for approximately 47% of the lithographic sales and two customers accounted for approximately 94% of the hardware and software information and playback systems.
The Company had retained an investment banking firm to assist in the sale of its subsidiary, InfoPak, Inc., which is responsible for the hardware and software information and audio playback systems. To date, a buyer has not been found. The Company will continue to support the operations of InfoPak until it is sold or the Board of Directors decides to discontinue its operations. In the event that InfoPak, Inc. is sold, management does not expect a loss on the sale.
Financial information by business segments is as follows:
Year Ended June 30, 1999
------------------------------------------
Hardware
Lithographic and Software Consolidated
------------ ------------ ------------
Net customer sales $ 613,989 $ 127,912 $ 741,901
Interest income -- 18,188 18,188
Interest expense 207,726 -- 207,726
Operating loss (852,174) (22,093) (874,267)
Segment assets 469,526 61,447 530,973
Depreciation and amortization 33,955 12,217 46,172
--------- --------- ---------
$ -- $ 402,006 $ 402,006
========= ========= =========
|
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
(Information pertaining to the six months ended December 31, 2000 and 1999 is unaudited)
Note 15: Segment of Business Reporting (Continued)
Year Ended June 30, 2000
------------------------------------------
Hardware
Lithographic and Software Consolidated
------------ ------------ ------------
Net customer sales $ 983,731 $ 25,131 $1,008,862
Interest income 14,182 -- 14,182
Interest expense 173,878 -- 173,878
Operating loss (665,574) (139,140) (804,714)
Segment assets 881,391 3,642 885,033
Depreciation and amortization 42,097 202 42,299
Six Months Ended December 31, 2000
------------------------------------------
Hardware
Lithographic and Software Consolidated
------------ ------------ ------------
Net customer sales $ 161,049 $ 1,947 $ 162,996
Interest income 2,758 -- 2,758
Interest expense 6,853 -- 6,853
Operating loss (591,408) 497 (590,911)
Segment assets 368,847 4,582 373,429
Depreciation and amortization 126,739 207,885 334,624
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====================================== ====================================== YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED TO YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE DIMENSIONAL VISIONS INCORPORATED YOU WITH INFORMATION THAT IS DIFFERENT. THE DELIVERY OF THIS PROSPECTUS AND ANY SALE MADE BY THIS PROSPECTUS DOESN'T IMPLY THAT THERE HAVEN'T BEEN CHANGES IN THE AFFAIRS OF DIMENSIONAL VISIONS SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY 33,681,207 JURISDICTION IN WHICH SUCH OFFER OR SHARES OF COMMON STOCK SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. |
TABLE OF CONTENTS
Prospectus Summary 1
Risk Factors 4 ----------
Use of Proceeds 7
The Swartz Investment Agreement 7 PROSPECTUS
Market for Common Stock and
Related Stockholder Matters 11 ----------
Dividend Policy 11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 12
Business of Dimensional Visions 16
Management 19
Employment and Related Agreements 21
Certain Transactions 21
Principal Stockholders 22
Selling Stockholders 24
Plan of Distribution 26
Description of Securities 28
Legal Matters 30
Experts 30
Financial Statements F-1
DEALER PROSPECTUS DELIVERY
OBLIGATION. UNTIL MAY 3, 2001 (90 DAYS
AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THE DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO APRIL 9, 2001
THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
====================================== ======================================
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DIMENSIONAL VISIONS INCORPORATED
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The company is required by its Bylaws and Certificate of Incorporation to indemnify, to the fullest extent permitted by law, each person that the company is permitted to indemnify. The company's Charter requires it to indemnify such parties to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law permits the company to indemnify its directors, officers, employees, or agents against expenses, including attorneys fees, judgments, fines and amounts paid in settlements actually and reasonably incurred in relation to any action, suit, or proceeding brought by third parties because they are or were directors, officers, employees, or agents of the corporation. In order to be eligible for such indemnification, however, the directors, officers, employees, or agents of the company must have acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the company. In addition, with respect to any criminal action or proceeding, the officer, director, employee, or agent must have had no reason to believe that the conduct in question was unlawful.
In derivative actions, the company may only indemnify its officers, directors, employees, and agents against expenses actually and reasonably incurred in connection with the defense or settlement of a suit, and only if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation. Indemnification is not permitted in the event that the director, officer, employee, or agent is actually adjudged liable to the Corporation unless, and only to the extent that, the court in which the action was brought so determines.
The company's Certificate of Incorporation permits the company to indemnify its directors except in the event of: (1) a breach of the duty of loyalty to the company or its stockholders; (2) an act or omission that involves intentional misconduct or a knowing violation of the law and an act or omission not in good faith; (3) liability arising under Section 174 of the Delaware General Corporation Law, relating to unlawful stock purchases, redemptions, or payment of dividends; or (4) a transaction in which the potential indemnity received an improper personal benefit.
Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers, or persons controlling the company pursuant to the foregoing provisions, the company has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 2,105
Accounting Fees and Expenses $ 3,500
Legal Fees and Expenses $10,000
Printing Expenses $ 2,500
Miscellaneous $ 1,895
-------
Total $20,000
=======
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II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 29, 1999, the Company completed a private placement (the "1999 Debt
Private Placement") of $235,000 of its short-term debt securities. The loans
were 12% convertible debentures with due dates ranging from July 25, 1999,
through October 29, 1999. The company also issued to the debenture holders three
year warrants which expire January 25, 2002, to purchase the company's common
stock at $.25 per share for 85,000 warrants and $.10 per share for 150,000
warrants. The 1999 Debt Private Placement was exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Act") by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering. The securities issued pursuant to the 1999 Debt Private Placement were
restricted securities as defined in Rule 144 of the Act. The offering generated
net proceeds of approximately $211,500. The Company relied on Rule 506 of
Regulation D of the Act in making this private placement. There was no
underwriter involved in this private placement. The nine investors in the 1999
Debt Private Placement were accredited investors as that term is defined in Rule
501 of Regulation D adopted under the Act.
On September 1, 1999, the Company completed a private placement (the "Series D
Private Placement") of 375,000 units of its securities (the "Units"), each unit
consisting of one share of Series D Convertible Preferred Stock which is
convertible into two shares of common stock of the company and one warrant,
exercisable at $0.25 and expiring 120 days after the date of effectiveness of a
registration statement of the company, at $1.00 per Unit, minimum investment
$50,000. The Series D Private Placement was exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Act") by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering. The securities issued pursuant to the Series D Private Placement were
restricted securities as defined in Rule 144 of the Act. The offering generated
net proceeds of approximately $357,500. The Company relied on Rule 506 of
Regulation D of the Act in making this private placement. There was no
underwriter involved in this private placement. The twenty-one investors in the
Series D Private Placement were accredited investors as that term is defined in
Rule 501 of Regulation D adopted under the Act.
On December 30, 1999, the Company completed a private placement (the "Series E
Private Placement") of 675,000 units of its securities (the "Units"), each unit
consisting of one share of Series E Convertible Preferred Stock which is
convertible into one share of common stock of the company and one warrant,
exercisable at $0.50 and expiring 120 days after the date of effectiveness of a
registration statement of the company, at $1.00 per Unit, minimum investment
$50,000. The Series E Private Placement was exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Act") by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering. The securities issued pursuant to the Series E Private Placement were
restricted securities as defined in Rule 144 of the Act. The offering generated
net proceeds of approximately $618,000. The Company relied on Rule 506 of
Regulation D of the Act in making this private placement. There was no
underwriter involved in this private placement. The thirteen investors in the
Series E Private Placement were accredited investors as that term is defined in
Rule 501 of Regulation D adopted under the Act.
On December 13, 2000, the Company entered into an agreement with Swartz Private Equity. Included in the agreement is the possible sale from time to time of 25,000,000 shares and 1,309,000 shares underlying warrants by Swartz Private Equity, LLC. This transaction was exempt from the registration provisions of the Securities Act of 1933, as amended (the "Act") by virtue of Section 4 (2) of the Act, as transactions by an issuer not involving any public offering.
On January 12, 2001, the Company entered into a line of credit investment agreement with Merrill Lynch guaranteed by an investor group consisting of Dale Riker and Russ Ritchie. The agreement includes the possible sale from time to time of 50,000 shares, 500,000 shares underlying warrants, 250,000 shares underlying warrants to be issued pursuant to an investment agreement,750,000 shares available upon assumption of the current debt outstanding and 750,000
II-2
shares held upon conversion of debt pursuant to a line of credit investment agreement with an investor group consisting on Dale Riker and Russ Ritchie. This transaction was exempt from the registration provisions of the Securities Act of 1933, as amended (the "Act") by virtue of Section 4 (2) of the Act, as transactions by an issuer not involving any public offering. The two investors were accredited investors as that term is defined in Rule 501 of Regulation D Adopted under the Act.
On January 12, 2001, the Company formulated an approved incentive plan. The incentives include the possible sale from time to time of 4,900,000 shares underlying warrants to be issued to all six current employees of the Company if we are profitable at June 30, 2001 or upon the discretion of the Board of Directors. This transaction was exempt from the registration provisions of the Securities Act of 1933, as amended (the "Act") by virtue of Section 4 (2) of the Act, as transactions by an issuer not involving any public offering.
ITEM 27. EXHIBITS
(a) Exhibits
3.1(a) Certificate of Incorporation, dated May 12, 1988
3.2(a) Bylaws
4.1(a) Certificate of Designation of Series A Convertible Preferred
Stock, dated December 12, 1992
4.2(a) Certificate of Designation of Series B Convertible Preferred
Stock, dated December 22, 1993
4.3(a) Certificate of Designation of Series P Convertible Preferred
Stock, dated September 11, 1995
4.4(a) Certificate of Designation of Series S Convertible Preferred
Stock, dated August 28, 1995
4.5(a) Certificate of Designation of Series C Convertible Preferred
Stock, dated November 2, 1995
4.6(a) Certificate of Designation of Series D and Series E
Convertible Preferred Stock, dated August 25, 1999
4.7(a) Form of Warrant Agreement to debt holders, dated January 15,
1998
4.8(a) Form of Warrant Agreement to debt holders, dated April 8, 1998
4.9(a) Form of Warrant Agreement to participants in Private Placement
dated April 8, 1998
4.10(b) Pledge Agreement dated January 11, 2001 with Dale Riker and
Russ Ritchie
4.11 Investment Agreement dated December 13, 2000, with Swartz
Private Equity, LLC
4.12 Merrill Lynch Portfolio Reserve Loan and Collateral Account
Agreement
5.0(b) Opinion of Senn Palumbo Meulemans, LLP
10.1(a) 1996 Equity Incentive Plan
10.2(a) 1999 Stock Option Plan
10.3(a) Agreement dated September 25, 1997 by and between InfoPak,
Inc., DataNet Enterprises, LLC, and David and Staci Noles
10.4(b) Lease Agreement, dated October 27, 1997*
21.1(b) Subsidiaries of the Registrant*
24.1(b) Consent of Senn Palumbo Meulemans, LLP (included in their
opinion set forth in Exhibit 5 hereto)
24.2 Consent of Gitomer & Berenholz, P.C.
24.3 Consent of Kopple & Gottlieb, LLP
25.1 Power of Attorney (see signature page)
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(a) Incorporated by reference from Part II of the Registrant's Registration Statement on Form SB-2 filed with the SEC on June 19, 2000, Registration Number 333-30368.
(b) Previously filed.
II-3
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of Dimensional Visions pursuant to the foregoing provisions, or otherwise, Dimensional Visions has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Dimensional Visions will, unless in the opinion of its counsel the matter has been settled by controlling precedent submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(2) File, during any period in which it offers or sells securities, a post effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and
(iii) Include any additional or changed material information on the plan of distribution.
For determining liability under the Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Phoenix, State of Arizona on April 9, 2001.
DIMENSIONAL VISIONS INCORPORATED
By: /s/ Roy D. Pringle By: /s/ John D. Mcphilimy
--------------------------------- ---------------------------------
Roy D. Pringle, Chief Financial John D. Mcphilimy, President,
Officer Chief Executive Officer, Director
By: /s/ Lisa R. Mcphilimy
---------------------------------
Lisa R. Mcphilimy, Controller,
Officer
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POWER OF ATTORNEY
Each person whose signature appears appoints John D. McPhilimy as his agent and attorney-in-fact, with full power of substitution to execute for him and in his name, in any and all capacities, all amendments (including post-effective amendments) to this Registration Statement to which this power of attorney is attached. In accordance with the requirements of the Securities Act of 1933, the following persons in the capacities and on the dates stated signed this Registration Statement.
SIGNATURE TITLE DATE
--------- ----- ----
* President, Chief Executive April 9, 2001
------------------------- Officer, Director
John D. McPhilimy
* Vice President, Chief April 9, 2001
------------------------- Financial Officer,
Roy D. Pringle Director, Secretary
* Senior Vice President, April 9, 2001
------------------------- Director
Bruce D. Sandig
* Director April 9, 2001
-------------------------
Susan A. Perlow
/s/ John D. McPhilimy
-------------------------
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* BY: John D. McPhilimy Attorney-in-Fact
II-5
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4.11 Investment Agreement dated December 13, 2000, with Swartz Private
Equity, LLC
4.12 Merrill Lynch Portfolio Reserve Loan and Collateral Account
Agreement
24.2 Consent of Gitomer & Berenholz, P.C.
24.3 Consent of Kopple & Gottlieb, LLP
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Exhibit 4.11
DIMENSIONAL VISIONS INCORPORATED
AMENDED AND RESTATED INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS AMENDED AND RESTATED INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement") is made as of the 2nd day of March, 2001, by and between Dimensional Visions Incorporated, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and the undersigned Investor executing this Agreement ("Investor") and amends and restates the Investment Agreement between the parties dated on or about December 22, 2000.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to the Investor, and the Investor shall purchase from the Company, from time to time as provided herein, shares of the Company's Common Stock, as part of an offering of Common Stock by the Company to Investor, for a maximum aggregate offering amount of Twenty Million Dollars ($20,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by the Company, the offer and sale of the Common Stock are being made in reliance
upon the provisions of Regulation D ("Regulation D") promulgated under the Act,
Section 4(2) of the Act, and/or upon such other exemption from the registration
requirements of the Act as may be available with respect to any or all of the
purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the recitals above), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a), the form of which is attached hereto as EXHIBIT E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as EXHIBIT F.
"Advance Put Notice Date" shall have the meaning set forth in Section 2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common Stock issued to Investor pursuant to the terms of this Agreement or the Registration Rights Agreement as of a given date, including Put Shares and Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.7(b).
"Business Day" shall mean any day during which the Principal Market is open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric day in question in a calendar month and for Calendar Months thereafter, beginning on the earlier of (i) the same numeric day of the next calendar month or (ii) the last day of the next calendar month. Each Calendar Month shall end on the day immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section 6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section 3.2.4, attached hereto as EXHIBIT K.
"Change in Control" shall have the meaning set forth within the definition of Major Transaction, below.
"Closing" shall mean one of (i) the Investment Commitment Closing and (ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last closing bid price for such security during Normal Trading on the O.T.C. Bulletin Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange or trading market for such security, the last closing bid price during Normal Trading of such security on the principal securities exchange or trading market where such security is listed or traded as reported by such principal securities exchange or trading market, or if the foregoing do not apply, the last closing bid price during Normal Trading of such security in the over-the-counter market on the electronic bulletin board for such security, or, if no closing bid price is reported for such security, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Investor in this Offering. If the Company and the Investor in this Offering are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved by an investment banking firm mutually acceptable to the Company and the Investor in this offering and any fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in Section 2.6.
"Commitment Period" shall have the meaning set forth in Section 2.3.2(d).
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1, the form of which is attached hereto as EXHIBIT U.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Dimensional Visions Incorporated, a corporation duly organized and existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investment Commitment Closing" shall have the meaning as set forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment Agreement, that the Company's Common Stock is not listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange, or the New York Stock Exchange or is suspended or delisted with respect to the trading of the shares of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section 3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.5.
"DWAC Put Shares" shall mean Put Shares, in electronic form, without restriction on resale, that are delivered to the Depository Trust Company DWAC account specified by the Investor for the Put Shares.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Equity Securities" shall have the meaning set forth in Section 6.5.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
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"Ineffective Period" shall have the meaning given to it in the Registration Rights Agreement.
"Ineffective Registration Payment" shall have the meaning given to it in the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from Company's independent counsel, substantially in the form attached as EXHIBIT B, or such other form as agreed upon by the parties, as to the Investment Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set forth in EXHIBIT N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.9.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such time upon any of the following events:
(i) a consolidation, merger or other business combination or event or
transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control");
(ii) the sale or transfer of a portion of in excess of $500,000 worth of the Company's assets, not in the ordinary course of business;
(iii) the purchase of assets by the Company totaling more than $500,000 in value, not in the ordinary course of business; or
(iv) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock such that following such purchase, tender or exchange offer, a change in control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common Stock on the Principal Market during the Pricing Period for the applicable Put.
"Material Facts" shall have the meaning set forth in Section 2.3.7(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"Non-Usage Fee" shall have the meaning set forth in Section 2.6.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude "after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the Investment Date or the last day of the calendar month in question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and Warrants issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of the Company, to the effect that the representations and warranties of the Company in this Agreement required to be true for the applicable Closing are true and correct in all material respects and all of the conditions and limitations set forth in this Agreement for the applicable Closing are satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion.
"Payment Due Date" shall have the meaning set forth in Section 2.3.9.
"Pricing Period" shall mean, unless otherwise shortened under the terms of this Agreement, the period beginning on the Business Day immediately following the Put Date and ending on and including the date which is 20 Business Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National 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.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.8.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Closing" shall have the meaning set forth in Section 2.3.9.
"Put Closing Date" shall have the meaning set forth in Section 2.3.9.
"Put Date" shall mean the date that is specified by the Company in any Put Notice for which the Company intends to exercise a Put under Section 2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share Amount by the respective Put Share Prices with respect to such Put Shares, subject to the limitations herein.
"Put Interruption Date" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Event" shall have the meaning set forth in Section 2.3.4.
"Put Interruption Notice" shall have the meaning set forth in Section 2.3.4.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form of which is attached hereto as EXHIBIT G.
"Put Notice Confirmation" shall have the meaning set forth in Section 2.3.1(d), the form of which is attached hereto as EXHIBIT H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent counsel, in the form attached as EXHIBIT I, or such other form as agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section 2.3.7(a), the form of which is attached hereto as EXHIBIT R.
"Registration Opinion Deadline" shall have the meaning set forth in Section 2.3.7(a).
"Registration Rights Agreement" shall mean that certain registration rights agreement entered into by the Company and Investor on even date herewith, in the form attached hereto as EXHIBIT A, or such other form as agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section 2.3.6.
"Right of First Refusal" shall have the meaning set forth in Section 6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached hereto as EXHIBIT J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the Common Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to this Investment Agreement.
"Share Authorization Increase Approval" shall have the meaning set forth in
Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section 6.11.
"Supplemental Registration Statement" shall have the meaning set forth in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three (3)
years after the Effective Date, or (ii) the date that is thirty (30) Business
Days after the later of (a) the Put Closing Date on which the sum of the
aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount,
(b) the date that the Company has delivered a Termination Notice to the
Investor, (c) the date of an Automatic Termination, and (d) the date that all of
the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section 2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude any shares trading during "after hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to its transfer agent, substantially in the form attached as EXHIBIT T, or such other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Unlegended Share Certificates" shall mean a certificate or certificates (or electronically delivered shares, as appropriate) (in denominations as instructed by Investor) representing the shares of Common Stock to which the Investor is then entitled to receive, registered in the name of Investor or its nominee (as instructed by Investor) and not containing a restrictive legend or stop transfer order, including but not limited to the Put Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section 3.2.4, attached hereto as EXHIBIT L.
"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
"Warrant Antidilution Agreement" shall mean that certain Warrant Antidilution Agreement entered into by the Company and Investor on even date herewith, in the form attached hereto as EXHIBIT O, or such other form as agreed upon by the parties.
"Warrant Shares" shall mean the Common Stock issued or issuable upon exercise of the Warrants.
"Warrants" shall mean, the Commitment Warrants.
2. PURCHASE AND SALE OF COMMON STOCK.
2.1 OFFER TO SUBSCRIBE.
Subject to the terms and conditions herein and the satisfaction of the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby agrees to purchase such amounts of Common Stock as the Company may, in its sole and absolute discretion, from time to time elect to issue and sell to Investor according to one or more Puts pursuant to Section 2.3 below.
2.2 INVESTMENT COMMITMENT.
2.2.1 INVESTMENT COMMITMENT CLOSING. The closing of this Agreement (the "Investment Commitment Closing") shall be deemed to occur when this Agreement, the Registration Rights Agreement, the Commitment Warrant and the Warrant Antidilution Agreement have been duly executed by both Investor and the Company, the Transfer Agent Instructions have been duly executed by both the Company and the Transfer Agent, and the other Conditions to the Investment Commitment Closing set forth in Section 2.2.2 below have been met.
2.2.2 CONDITIONS TO INVESTMENT COMMITMENT CLOSING. As a prerequisite to the Investment Commitment Closing, all of the following (the "Conditions to Investment Commitment Closing") shall have been satisfied prior to or concurrently with the Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by
the Company and Investor), (ii) the Commitment Warrant,
(iii) the Investment Commitment Opinion of Counsel (signed
by the Company's counsel), (iv) the Warrant Antidilution
Agreement (executed by the Company and Investor), (v) the
Transfer Agent Instructions (executed by the Company and the
Transfer Agent), and (vi) a Secretary's Certificate as to
(A) the resolutions of the Company's board of directors
authorizing this transaction, (B) the Company's Certificate
of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading and actually trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange;
(d) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in
Section 3.2.4), up through the Investment Commitment Closing
there have been no material adverse changes in the Company's
business prospects or financial condition since the date of
the last balance sheet included in the Disclosure Documents,
including but not limited to incurring material liabilities;
and
(e) the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the Conditions to Investment Commitment Closing set forth in this Section 2.2.2 shall have been satisfied on the date of such Investment Commitment Closing; and the Company shall deliver an Officer's Certificate, signed by an officer of the Company, to such effect to the Investor.
2.3 PUTS OF COMMON SHARES TO THE INVESTOR.
2.3.1 PROCEDURE TO EXERCISE A PUT. Subject to the Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and the other conditions and limitations set forth in this Agreement, at any time beginning on the date on which the Registration Statement is declared effective by the SEC (the "Effective Date"), the Company may, in its sole and absolute discretion, elect to exercise one or more Puts according to the following procedure, provided that each subsequent Put Date after the first Put Date shall be no sooner than five (5) Business Days following the preceding Pricing Period End Date:
(a) DELIVERY OF ADVANCE PUT NOTICE.At least ten (10) Business Days but not more than twenty (20) Business Days prior to any intended Put Date, the Company shall deliver advance written notice (the "Advance Put Notice," the form of which is attached hereto as EXHIBIT E, the date of such Advance Put Notice being the "Advance Put Notice Date") to Investor stating the Put Date for which the Company shall, subject to the limitations and restrictions contained herein, exercise a Put and stating the number of shares of Common Stock (subject to the Individual Put Limit and the Maximum Put Dollar Amount) which the Company intends to sell to the Investor for the Put (the "Intended Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase shares of Common Stock pursuant to such Put Notice (a
"Company Designated Minimum Put Share Price"). The Company Designated Minimum
Put Share Price, if applicable, shall be no greater than the lesser of (i) 80%
of the Closing Bid Price of the Company's common stock on the Business Day
immediately preceding the Advance Put Notice Date, or (ii) the Closing Bid Price
of the Company's common stock on the Business Day immediately preceding the
Advance Put Notice Date minus $0.125. The Company may decrease (but not
increase) the Company Designated Minimum Put Share Price for a Put at any time
by giving the Investor written notice of such decrease not later than 12:00
Noon, New York City time, on the Business Day immediately preceding the Business
Day that such decrease is to take effect. A decrease in the Company Designated
Minimum Put Share Price shall have no retroactive effect on the determination of
Trigger Prices and Excluded Days for days preceding the Business Day that such
decrease takes effect, provided that the Put Share Price for all shares in a Put
shall be calculated using the lowest Company Designated Minimum Put Share Price,
as decreased.
Notwithstanding the above, if, at the time of delivery of an Advance Put Notice, more than two (2) Calendar Months have passed since the date of the previous Put Closing, such Advance Put Notice shall provide at least twenty (20) Business Days notice of the intended Put Date, unless waived in writing by the Investor. In order to effect delivery of the Advance Put Notice, the Company shall (i) send the Advance Put Notice by facsimile on such date so that such notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender such notice on such date to a courier for overnight delivery to the Investor (or two (2) day delivery in the case of an Investor residing outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a confirmation of receipt (the "Advance Put Notice Confirmation," the form of which is attached hereto as EXHIBIT F) of the Advance Put Notice to the Company specifying that the Advance Put Notice has been received and affirming the intended Put Date and the Intended Put Share Amount.
(b) PUT SHARE AMOUNT. The "Put Share Amount" is the number
of shares of Common Stock that the Investor shall be obligated to purchase in a
given Put, and shall equal the lesser of (i) the Intended Put Share Amount, and
(ii) the Individual Put Limit. The "Individual Put Limit" shall equal the lesser
of (A) 1,500,000 shares, (B) 15% of the sum of the aggregate daily reported
Trading Volumes in the outstanding Common Stock on the Company's Principal
Market, excluding any block trades of 20,000 or more shares of Common Stock, for
all Evaluation Days (as defined below) in the Pricing Period, (C) the number of
Put Shares which, when multiplied by their respective Put Share Prices, equals
the Maximum Put Dollar Amount, and (D) the 9.9% Limitation, but in no event
shall the Individual Put Limit exceed 15% of the sum of the aggregate daily
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more shares of Common
Stock, for the twenty (20) Business Days immediately preceding the Advance Put
Notice Date (this limitation, together with the limitation in (B) immediately
above are collectively referred to herein as the "Volume Limitations"). Company
agrees not to trade Common Stock or arrange for Common Stock to be traded for
the purpose of artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i) the Company Designated Minimum Put Share Price, plus $.075, or (ii) the Company Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing Period where the lowest intra-day trading price of the Common Stock is less than the Trigger Price and each Business Day defined in Section 2.3.4 as an "Excluded Day".
An "Evaluation Day" shall mean each Business Day during a Pricing Period that is not an Excluded Day.
(c) PUT SHARE PRICE. The purchase price for the Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market Price for such Put, minus $.075, or (ii) 91% of the Market Price for such Put, but shall in no event be less than the Company Designated Minimum Put Share Price for such Put, if applicable.
(d) DELIVERY OF PUT NOTICE. After delivery of an Advance Put Notice, on the Put Date specified in the Advance Put Notice the Company shall deliver written notice (the "Put Notice," the form of which is attached hereto as EXHIBIT G) to Investor stating (i) the Put Date, (ii) the Intended Put Share Amount as specified in the Advance Put Notice (such exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if applicable), and (iv) the Company Designated Minimum Put Share Price (if applicable). In order to effect delivery of the Put Notice, the Company shall (i) send the Put Notice by facsimile on the Put Date so that such notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to a courier for overnight delivery to the Investor (or two (2) day delivery in the case of an Investor residing outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a confirmation of receipt (the "Put Notice
Confirmation," the form of which is attached hereto as EXHIBIT H) of the Put Notice to Company specifying that the Put Notice has been received and affirming the Put Date and the Intended Put Share Amount.
(e) DELIVERY OF REQUIRED PUT DOCUMENTS. On or before the Put Date for such Put, the Company shall deliver the Required Put Documents (as defined in Section 2.3.6 below) to the Investor (or to an agent of Investor, if Investor so directs). Unless otherwise specifically requested by the Investor, the Put Shares shall be transmitted electronically pursuant to the Depository Trust Company DWAC system or such other electronic delivery system as the Investor shall request. If the Company has not delivered all of the Required Put Documents to the Investor on or before the Put Date, the Put shall be automatically cancelled (an "Impermissible Put Cancellation") and the Company shall pay the Investor $5,000 for its reasonable due diligence expenses incurred in preparation for the canceled Put and the Company may deliver an Advance Put Notice for the subsequent Put no sooner than ten (10) Business Days after the date that such Put was canceled. Also, in the event of a Put Interruption Notice that occurs prior to the Put Date, the Company shall pay the Investor $5,000 for its reasonable due diligence expenses incurred in preparation for the interrupted Put.
(f) Limitation on Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, in no event shall
the Investor be required to purchase, and an Intended Put Share Amount may not
include, an amount of Put Shares, which when added to the number of Put Shares
acquired by the Investor pursuant to this Agreement during the 61 days preceding
the Put Date with respect to which this determination of the permitted Intended
Put Share Amount is being made, would exceed 9.9% of the number of shares of
Common Stock outstanding (on a fully diluted basis, to the extent that inclusion
of unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put
Date for such Pricing Period, as determined in accordance with Section 13(d) of
the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice
shall include a representation of the Company as to the Section 13(d)
Outstanding Share Amount on the related Put Date. In the event that the Section
13(d) Outstanding Share Amount is different on any date during a Pricing Period
than on the Put Date associated with such Pricing Period, then the number of
shares of Common Stock outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor, when aggregating all
purchases of Shares made pursuant to this Agreement in the 61 calendar days
preceding such date, would have acquired more than 9.9% of the Section 13(d)
Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is
referred to as the "9.9% Limitation."
2.3.2 TERMINATION OF RIGHT TO PUT. The Company's right to initiate subsequent Puts to the Investor shall terminate permanently (each, an "Automatic Termination") upon the occurrence of any of the following:
(a) if, at any time, either the Company or any director or executive officer of the Company has engaged in a transaction or conduct related to the Company that has resulted in (i) a Securities and Exchange Commission enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;
(b) on any date after a cumulative time period or series of time periods, consisting only of Ineffective Periods and Delisting Events, that lasts for an aggregate of four (4) months;
(c) if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company;
(d) after the sooner of (i) the date that is three (3) years after the Effective Date, or (ii) the Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts equal the Maximum Offering Amount (the "Commitment Period");
(e) the Company has breached any covenant in Section 6- or
Section 9 hereof; or
(f) if no Registration Statement has been declared effective by the date that is one (1) year after the date of this Agreement, the Automatic Termination shall occur on the date that is one (1) year after the date of this Agreement.
2.3.3 MAXIMUM OFFERING AMOUNT. The Investor shall not be obligated to purchase any additional Put Shares once the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering Amount.
2.3.4 PUT INTERRUPTION. Once the Company delivers an Advance Put Notice to the Investor, the Company may not cancel the Put. In the event of a "Put Interruption Event" (as defined below), in each case during any Pricing Period, then (A) the Company shall notify the Investor in writing (a "Put Interruption Notice") as soon as possible by facsimile and overnight courier, but no later than the end of the Business Day in which the Company becomes aware of such facts, (B) the Pricing Period shall be extended or shortened, as applicable, such that the Pricing Period End Date is the tenth (10th) Business Day after the date of such Put Interruption Notice from the Company (the "Put Interruption Date"), (C) each Business Day from and including the Put Interruption Date through and including the Pricing Period End Date for the applicable Put (as extended or shortened, if applicable), shall be considered to be an "Excluded Day," as that term is used in this Agreement, and (D) the Company Designated Minimum Put Share Price, if any, shall not apply to the affected Put. In the event that a Put Interruption Event occurs after an Advance Put Notice Date, but before the applicable Put Date, that Put shall be deemed to be terminated, and the Company may deliver an Advance Put Notice for a new Put anytime beginning on the following Business Day, if otherwise allowed under this Agreement. A "Put Interruption Event" shall mean any of the following: (i) an Automatic Termination, (ii) the failure of one of the items specified in Section 2.3.5 below to be true and correct on any day during an Extended Pricing Period, or (iii) the occurrence of one of the following events:
(a) the Company has announced a subdivision or combination, including a reverse split, of its Common Stock or has subdivided or combined its Common Stock;
(b) the Company has paid a dividend of its Common Stock or has made any other distribution of its Common Stock;
(c) the Company has made a distribution of all or any portion of its assets or evidences of indebtedness to the holders of its Common Stock;
(d) a Major Transaction has occurred; or
(e) the Company discovers the existence of Material Facts or any Ineffective Period or Delisting Event occurs.
2.3.5 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER AN ADVANCE PUT NOTICE OR A PUT NOTICE. The right of the Company to deliver an Advance Put Notice or a Put Notice is subject to the satisfaction, on the date of delivery of such Advance Put Notice or Put Notice, of each of the following conditions:
(a) the Company's Common Stock shall be listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market or the New York Stock Exchange and the Put Shares shall be so listed, and to the Company's knowledge there is no notice of any suspension or delisting with respect to the trading of the shares of Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all obligations pursuant to the Registration Rights Agreement, including, but not limited to, the filing of the Registration Statement with the SEC with respect to the resale of all Registrable Securities and the requirement that the Registration Statement shall have been declared effective by the SEC for the resale of all Registrable Securities and the Company shall have satisfied and shall be in compliance with any and all obligations pursuant to this Agreement and the Warrants;
(c) the representations and warranties of the Company in
Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.10, 5.13, 5.14,
5.15, 5.16, 5.18, 5.19, 5.21, and 5.25 hereof are true
and correct in all material respects as if made on such
date, the Company has satisfied its obligations under
Section 2.6 hereof and the conditions to Investor's
obligations set forth in this Section 2.3.5 are
satisfied as of such Closing, and the Company shall
deliver a certificate, signed by an officer of the
Company, to such effect to the Investor; (d) the
Company shall have reserved for issuance a sufficient
number of Common Shares for the purpose of enabling the
Company to satisfy any obligation to issue Common
Shares pursuant to any Put and to effect exercise of
the Warrants;
(e) the Registration Statement is not subject to an Ineffective Period as defined in the Registration Rights Agreement, the prospectus included therein is current and deliverable, and to the Company's knowledge there is no notice of any investigation or inquiry concerning any stop order with respect to the Registration Statement;
(f) if the Aggregate Issued Shares after the Closing of the
Put would exceed the Cap Amount, the Company shall have
obtained the Stockholder 20% Approval as specified in
Section 6.11, if the Company's Common Stock is listed
on the NASDAQ Small Cap Market or the NASDAQ National
Market System (the "NMS"), and such approval is
required by the rules of the NASDAQ;
(g) the Company shall have no knowledge of any event that, in the Company's opinion, is more likely than not to have the effect of causing any Registration Statement to be suspended or otherwise ineffective (which event is more likely than not to occur within the thirty Business Days following the date on which such Advance Put Notice and Put Notice is deemed delivered);
(h) there is not then in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained, nor is there any pending or threatened proceeding or investigation which may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement;
(i) 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 the transactions contemplated by this Agreement, and no actions, suits or proceedings shall be in progress, pending or threatened by any person (other than the Investor or any affiliate of the Investor), that seek to enjoin or prohibit the transactions contemplated by this Agreement. For purposes of this paragraph (i), no proceeding shall be deemed pending or threatened unless one of the parties has received written or oral notification thereof prior to the applicable Closing Date;
(j) the Put Shares delivered to the Investor are DTC eligible and can be immediately converted into electronic form; and
(k) the Company shall have obtained all permits and qualifications (if any) required by any state securities laws or Blue Sky laws for the offer and sale of the Common Stock to the Investor and by the Investor or shall have the availability of exemptions therefrom.
2.3.6 DOCUMENTS REQUIRED TO BE DELIVERED ON THE PUT DATE AS CONDITIONS TO CLOSING OF ANY PUT. The Closing of any Put and Investor's obligations hereunder shall additionally be conditioned upon the delivery to the Investor of each of the following (the "Required Put Documents") on or before the applicable Put Date:
(a) a number of DWAC Put Shares equal to the Intended Put Share Amount shall have been delivered to the Depository Trust Company DWAC account specified by the Investor for the Put Shares (unless the Investor has requested physical stock certificates, in writing, in which case the Company shall have delivered to the Investor a number of physical Unlegended Share Certificates equal to the Intended Put Share Amount, in denominations of not more than 50,000 shares per certificate);
(b) the following documents: Put Opinion of Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any report or disclosure required under Section 2.3.7 or Section 2.5; and
(c) all documents, instruments and other writings required to be delivered on or before the Put Date pursuant to any provision of this Agreement in order to implement and effect the transactions contemplated herein.
2.3.7 ACCOUNTANT'S LETTER AND REGISTRATION OPINION.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.7(b) or by Section 2.5.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of EXHIBIT R (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material Facts")
have come to such counsel's attention that have caused it to believe that the
Registration Statement is subject to an Ineffective Period or to believe that
the Registration Statement, any Supplemental Registration Statement (as each may
be amended, if applicable), and any related prospectuses, contain an untrue
statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. If a Registration Opinion cannot be delivered by the
Company's independent counsel to the Investor on the Registration Opinion
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration Statements,
as applicable, and any related prospectus or cause such Ineffective Period to
terminate, as the case may be, and deliver such Registration Opinion and updated
prospectus as soon as possible thereafter. If at any time after a Put Notice
shall have been delivered to Investor but before the related Pricing Period End
Date, the Company acquires knowledge of such Material Facts or any Ineffective
Period occurs, the Company shall promptly notify the Investor and shall deliver
a Put Interruption Notice to the Investor pursuant to Section 2.3.4 by facsimile
and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent auditors to
perform the procedures in accordance with the provisions of Statement on
Auditing Standards No. 71, as amended, as agreed to by the parties hereto, and
reports thereon (the "Bring Down Cold Comfort Letters") as shall have been
reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on the date that is three
(3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have requested delivery of an Agreed Upon Procedures Report pursuant to Section 2.5.3, the Company shall engage its independent auditors to perform certain agreed upon procedures and report thereon as shall have been reasonably requested by the Investor with respect to certain financial information of the Company and the Company shall deliver to the Investor a copy of such report addressed to the Investor. In the event that the report required by this Section 2.3.7(b) cannot be delivered by the Company's independent auditors, the Company shall, if necessary, promptly revise the Registration Statement and the Company shall not deliver a Put Notice until such report is delivered.
2.3.8 INVESTOR'S OBLIGATION AND RIGHT TO PURCHASE SHARES. Subject to the conditions set forth in this Agreement, following the Investor's receipt of a validly delivered Put Notice, the Investor shall be required to purchase (each a "Purchase") from the Company a number of Put Shares equal to the Put Share Amount, in the manner described below.
2.3.9 MECHANICS OF PUT CLOSING. Each of the Company and the Investor shall deliver all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement at or prior to each Closing. Subject to such delivery and the satisfaction of the conditions set forth in this Section 2, the closing of the purchase by the Investor of Shares shall occur by 5:00 PM, New York City Time, on the date which is five (5) Business Days following the applicable Pricing Period End Date (the "Payment Due Date") at the offices of Investor. On each or before each Payment Due Date, the Investor shall deliver to the Company, in the manner specified in Section 8 below, the Put Dollar Amount to be paid for such Put Shares, determined as aforesaid. The closing (each a "Put Closing") for each Put shall occur on the date that both (i) the Company has delivered to the Investor all Required Put Documents, and (ii) the Investor has delivered to the Company such Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for such Put Closing on or before the Payment Due Date, then the Investor shall pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late Payment Amount") at a rate of X% per month, accruing daily, multiplied by such Put Dollar Amount, where "X" equals one percent (1%) for the first month following the date in question, and increases by an additional one percent (1%) for each month that passes after the date in question, up to a maximum of five percent (5%) per month; provided, however, that in no event shall the amount of interest that shall become due and payable hereunder exceed the maximum amount permissible under applicable law.
In addition to any other remedies the Company may have, in the event that the Investor fails to make payment for any shares put to it by the Company under this Agreement within five (5) Business Days of the date that the Company has notified the Investor, in writing, that such payment is past due, and the Company has complied with this Agreement in all material respects, neither the Commitment Warrant nor any Purchase Warrants shall be exerciseable until such payment is made.
2.3.10 LIMITATION ON SHORT SALES. The Investor and its affiliates shall not engage in short sales of the Company's Common Stock; provided, however, that the Investor may enter into any short exempt sale or any short sale or other hedging or similar arrangement it deems appropriate with respect
to Put Shares after it receives a Put Notice with respect to such Put Shares so long as such sales or arrangements do not involve more than the number of such Put Shares specified in the Put Notice.
2.3.11 CAP AMOUNT. If the Company becomes listed on the Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the Company has obtained Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the maximum number of shares of Common Stock (the "Cap Amount") that the Company can, without stockholder approval, so issue pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule) (the "Nasdaq 20% Rule").
2.3.12 INVESTMENT AGREEMENT TERMINATION. The Company may terminate (a "Company Termination") its right to initiate future Puts by providing written notice ("Termination Notice") to the Investor, by facsimile and overnight courier, at any time other than during an Extended Put Period, provided that such termination shall have no effect on the parties' other rights and obligations under this Agreement, the Registration Rights Agreement or the Warrants. Notwithstanding the above, any Put Interruption Notice occurring during an Extended Put Period is governed by Section 2.3.4.
2.3.13 RETURN OF EXCESS COMMON SHARES. In the event that the number of Shares purchased by the Investor pursuant to its obligations hereunder is less than the Intended Put Share Amount, the Investor shall promptly return to the Company any shares of Common Stock in the Investor's possession that are not being purchased by the Investor.
2.4 WARRANTS.
2.4.1 COMMITMENT WARRANTS. In partial consideration hereof, following the execution of the Letter of Agreement dated on or about September 5, 2000 between the Company and the Investor, the Company issued and delivered to Investor warrants (the "Commitment Warrants") in the form attached hereto as EXHIBIT U, or such other form as agreed upon by the parties, to purchase 1,309,000 shares of Common Stock. Each Commitment Warrant shall be immediately exercisable in accordance with its terms, and shall have a term beginning on the date of issuance and ending on date that is seven (7) years thereafter. The Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the issuance of the Commitment Warrant and the issuance of the common stock upon exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this Agreement, regardless of whether or not the Registration Statement is or is not filed, and regardless of whether or not the Registration Statement is approved or denied by the SEC, the Investor shall retain full ownership of the Commitment Warrant as partial consideration for its commitment hereunder.
2.4.2 [Intentionally Left Blank].
2.5 DUE DILIGENCE REVIEW. The Company shall make available for inspection and review by the Investor (the "Due Diligence Review"), advisors to and representatives of the Investor (who may or may not be affiliated with the
Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of Common Stock on behalf of the Investor pursuant to the Registration Statement, any Supplemental Registration Statement, or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all 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 the 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 the Registration Statement for the sole purpose of enabling the 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 the Registration Statement.
2.5.1 TREATMENT OF NONPUBLIC INFORMATION. The Company shall not disclose nonpublic information to the Investor or to its advisors or representatives unless prior to disclosure of such information the Company identifies such information as being nonpublic information and provides the Investor and such advisors and representatives with the opportunity to accept or refuse to accept such nonpublic information for review. The Company may, as a condition to disclosing any nonpublic information hereunder, require the Investor and its advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of nonpublic information) in form reasonably satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate nonpublic 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 will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if 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 nonpublic information (whether or not requested of the Company specifically or generally during the course of due diligence by and such persons or entities), which, if not disclosed in the Prospectus included in the 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 2.5 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain nonpublic information in the course of conducting due diligence in accordance with the terms of this Agreement; provided, however, that in no event shall the Investor's advisors or representatives disclose to the Investor the nature of the specific event or circumstances constituting any nonpublic information discovered by such advisors or representatives in the course of their due diligence without the written consent of the Investor prior to disclosure of such information.
2.5.2 DISCLOSURE OF MISSTATEMENTS AND OMISSIONS. The Investor's advisors or representatives shall make complete disclosure to the Investor's counsel of all events or circumstances constituting nonpublic information discovered by such advisors or representatives in the course of their due diligence upon which such advisors or representatives form the opinion that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in the light of the circumstances in which they were made, not misleading. Upon receipt of such disclosure, the Investor's counsel shall consult with the Company's independent counsel in order to address the concern raised as to the existence of a material misstatement or omission and to discuss appropriate disclosure with respect thereto; provided, however, that such consultation shall not constitute the advice of the Company's independent counsel to the Investor as to the accuracy of the Registration Statement and related Prospectus.
2.5.3 PROCEDURE IF MATERIAL FACTS ARE REASONABLY BELIEVED TO BE UNTRUE OR ARE Omitted. In the event after such consultation the Investor or the Investor's counsel reasonably believes that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the Registration Statement responsive to such alleged untrue statement or omission and provide the Investor, as promptly as practicable, with copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such material misstatement or omission, (i) the Company's independent counsel shall provide the Investor's counsel with a Registration Opinion and (ii) in the event the dispute relates to the adequacy of financial disclosure and the Investor shall reasonably request, the Company's independent auditors shall provide to the Company a letter ("Agreed Upon Procedures Report") outlining the performance of such "agreed upon procedures" as shall be reasonably requested by the Investor and the Company shall provide the Investor with a copy of such letter.
2.6 COMMITMENT PAYMENTS.
On the last Business Day of the first one year period following the
Effective Date (a "Commitment Evaluation Period"), if the Company has not Put at
least $500,000 in aggregate Put Dollar Amount during that Commitment Evaluation
Period, the Company, in consideration of Investor's commitment costs, including,
but not limited to, due diligence expenses, shall pay to the Investor an amount
(the "Non-Usage Fee") equal to the difference of (i) $50,000, minus (ii) 10% of
the aggregate Put Dollar Amount of the Put Shares purchased by Investor during
that Commitment Evaluation Period. On the last Business Day of the second one
year period and the third one year period following the Effective Date (each
such one year period also a "Commitment Evaluation Period"), if the Company has
not Put at least $1,000,000 in aggregate Put Dollar Amount during that
Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Non-Usage Fee") equal to the difference of
(i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount of the Put
Shares purchased by Investor during that Commitment Evaluation Period. In the
event that the Company delivers a Termination Notice to the Investor or an Automatic Termination occurs, the Company shall pay to the Investor (the "Termination Fee") the greater of (i) the Non-Usage Fee for the applicable Commitment Evaluation Period, or (ii) the difference of (x) $200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares put to Investor during all Puts to date, and the Company shall not be required to pay the Non-Usage Fee thereafter.
Each Non-Usage Fee or Termination Fee is payable, in cash, within five (5) business days of the date it accrued. The Company shall not be required to deliver any payments to Investor under this subsection until Investor has paid all Put Dollar Amounts that are then due.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR. Investor hereby represents and warrants to and agrees with the Company as follows:
3.1 ACCREDITED INVESTOR. Investor is an accredited investor ("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked the applicable box set forth in Section 10 of this Agreement.
3.2 INVESTMENT EXPERIENCE; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.
3.2.1 ACCESS TO INFORMATION. Investor or Investor's professional advisor has been granted the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the terms and conditions of this Offering, the Company and its business and prospects, and to obtain any additional information which Investor or Investor's professional advisor deems necessary to verify the accuracy and completeness of the information received.
3.2.2 RELIANCE ON OWN ADVISORS. Investor has relied completely on the advice of, or has consulted with, Investor's own personal tax, investment, legal or other advisors and has not relied on the Company or any of its affiliates, officers, directors, attorneys, accountants or any affiliates of any thereof and each other person, if any, who controls any of the foregoing, within the meaning of Section 15 of the Act for any tax or legal advice (other than reliance on information in the Disclosure Documents as defined in Section 3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not limit or modify Investor's right to rely upon covenants, representations and warranties of the Company in this Agreement.
3.2.3 CAPABILITY TO EVALUATE. Investor has such knowledge and experience in financial and business matters so as to enable such Investor to utilize the information made available to it in connection with the Offering in order to evaluate the merits and risks of the prospective investment, which are substantial, including without limitation those set forth in the Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 DISCLOSURE DOCUMENTS. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the year ended June 30, 2000,
(ii) the Company's quarterly report on Form 10-QSB for the quarters ended
December 31, 1999, and March 31, 2000, (iii) the Risk Factors, attached as
EXHIBIT J, (the "Risk Factors") (iv) the Capitalization Schedule, attached as
EXHIBIT K, (the "Capitalization Schedule") and (v) the Use of Proceeds Schedule,
attached as EXHIBIT L, (the "Use of Proceeds Schedule"); (b) Investor has read,
reviewed, and relied solely on the documents described in (a) above, the
Company's representations and warranties and other information in this
Agreement, including the exhibits, documents prepared by the Company which have
been specifically provided to Investor in connection with this Offering (the
documents described in this Section 3.2.4 (a) and (b) are collectively referred
to as the "Disclosure Documents"), and an independent investigation made by
Investor and Investor's representatives, if any; (c) Investor has, prior to the
date of this Agreement, been given an opportunity to review material contracts
and documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors; and
(d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other than
those contained in the Disclosure Documents or incorporated herein or therein.
The foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in Sections 5 and 6 of
this Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and Investor
has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 INVESTMENT EXPERIENCE; FEND FOR SELF. Investor has substantial experience in investing in securities and it has made investments in securities other than those of the Company. Investor acknowledges that Investor is able to fend for Investor's self in the transaction contemplated by this Agreement, that Investor has the ability to bear the economic risk of Investor's investment pursuant to this Agreement and that Investor is an "Accredited Investor" by virtue of the fact that Investor meets the investor qualification standards set forth in Section 3.1 above. Investor has not been organized for the purpose of investing in securities of the Company, although such investment is consistent with Investor's purposes.
3.3 EXEMPT OFFERING UNDER REGULATION D.
3.3.1 NO GENERAL SOLICITATION. The Investment Agreement was not
offered to Investor through, and Investor is not aware of, any form of general
solicitation or general advertising, including, without limitation, (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.2 RESTRICTED SECURITIES. Investor understands that the Investment Agreement is, the Common Stock issued at each Put Closing will be, and the Warrant Shares will be, characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction exempt from the registration requirements of the federal securities laws and that under such laws and applicable regulations such securities may not be transferred or resold without registration under the Act or pursuant to an exemption therefrom. In this connection, Investor represents that Investor is familiar with Rule 144 under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act.
3.3.3 DISPOSITION. Without in any way limiting the representations set forth above, Investor agrees that until the Securities are sold pursuant to an effective Registration Statement or an exemption from registration, they will remain in the name of Investor and will not be transferred to or assigned to any broker, dealer or depositary. Investor further agrees not to sell, transfer, assign, or pledge the Securities (except for any bona fide pledge arrangement to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), or to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Act and any applicable state securities laws covering such proposed disposition and such disposition is made in accordance with such registration statement and in compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of the Securities under the Act
or state securities laws. It is agreed that the Company will not require the
Investor to provide opinions of counsel for transactions made pursuant to Rule
144 provided that Investor and Investor's broker, if necessary, provide the
Company with the necessary representations for counsel to the Company to issue
an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and the 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, the 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.
3.4 DUE AUTHORIZATION.
3.4.1 AUTHORITY. The person executing this Investment Agreement, if executing this Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Agreement and each other document included herein for which a signature is required in such capacity and on behalf of the subscribing individual, partnership, trust, estate, corporation or other entity for whom or which Investor is executing this Agreement. Investor has reached the age of majority (if an individual) according to the laws of the state in which he or she resides.
3.4.2 DUE AUTHORIZATION. Investor is duly and validly organized, validly existing and in good standing as a limited liability company under the laws of Georgia with full power and authority to purchase the Securities to be purchased by Investor and to execute and deliver this Agreement.
3.4.3 PARTNERSHIPS. If Investor is a partnership, the representations, warranties, agreements and understandings set forth above are true with respect to all partners of Investor (and if any such partner is itself a partnership, all persons holding an interest in such partnership, directly or indirectly, including through one or more partnerships), and the person executing this Agreement has made due inquiry to determine the truthfulness of the representations and warranties made hereby.
3.4.4 REPRESENTATIVES. If Investor is purchasing in a representative or fiduciary capacity, the representations and warranties shall be deemed to have been made on behalf of the person or persons for whom Investor is so purchasing.
4. ACKNOWLEDGMENTS. Investor is aware that:
4.1 RISKS OF INVESTMENT. Investor recognizes that an investment in the Company involves substantial risks, including the potential loss of Investor's entire investment herein. Investor recognizes that the Disclosure Documents, this Agreement and the exhibits hereto do not purport to contain all the information, which would be contained in a registration statement under the Act;
4.2 NO GOVERNMENT APPROVAL. No federal or state agency has passed upon the Securities, recommended or endorsed the Offering, or made any finding or determination as to the fairness of this transaction;
4.3 NO REGISTRATION, RESTRICTIONS ON TRANSFER. As of the date of this Agreement, the Securities and any component thereof have not been registered under the Act or any applicable state securities laws by reason of exemptions from the registration requirements of the Act and such laws, and may not be sold, pledged (except for any limited pledge in connection with a margin account of Investor to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided
further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), assigned or otherwise disposed of in the absence of an effective registration of the Securities and any component thereof under the Act or unless an exemption from such registration is available;
4.4 RESTRICTIONS ON TRANSFER. Investor may not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Securities or any component thereof in the absence of either an effective registration statement or an exemption from the registration requirements of the Act and applicable state securities laws;
4.5 NO ASSURANCES OF REGISTRATION. There can be no assurance that any registration statement will become effective at the scheduled time, or ever, or remain effective when required, and Investor acknowledges that it may be required to bear the economic risk of Investor's investment for an indefinite period of time;
4.6 EXEMPT TRANSACTION. Investor understands that the Securities are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state law and that the representations, warranties, agreements, acknowledgments and understandings set forth herein are being relied upon by the Company in determining the applicability of such exemptions and the suitability of Investor to acquire such Securities.
4.7 LEGENDS. The certificates representing the Put Shares shall not bear a legend restricting the sale or transfer thereof ("Restrictive Legend"). The certificates representing the Warrant Shares shall not bear a Restrictive Legend unless they are issued at a time when the Registration Statement is not effective for resale. It is understood that the certificates evidencing any Warrant Shares issued at a time when the Registration Statement is not effective for resale, subject to legend removal under the terms of Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, nor the securities laws of any other jurisdiction. They may not be sold or transferred in the absence of an effective registration statement under those securities laws or pursuant to an exemption therefrom."
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes the following representations and warranties to Investor (which shall be true at the signing of this Agreement, and as of any such later date as specified hereunder) and agrees with Investor that, except as set forth in the "Schedule of Exceptions" attached hereto as EXHIBIT C:
5.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, USA and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would, in the Company's opinion, have a material adverse effect on the business or properties of the Company and its subsidiaries taken as a whole. The Company is not the subject of any pending, threatened or, to its knowledge, contemplated investigation or administrative or legal proceeding (a "Proceeding") by the
Internal Revenue Service, the taxing authorities of any state or local jurisdiction, or the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or any state securities commission, or any other governmental entity, which have not been disclosed in the Disclosure Documents. None of the disclosed Proceedings, if any, will, in the Company's opinion, have a material adverse effect upon the Company. The Company has the following subsidiaries: InfoPak, Inc.
5.2 CORPORATE CONDITION. The Company's condition is, in all material respects, as described in the Disclosure Documents (as further set forth in any subsequently filed Disclosure Documents, if applicable), except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the Company. Except for continuing losses, there have been no material adverse changes to the Company's business, financial condition, or prospects from the dates of such Disclosure Documents through the date of the Investment Commitment Closing. The financial statements as contained in the 10-KSB and 10-QSB have been prepared in accordance with generally accepted accounting principles, consistently applied (except as otherwise permitted by Regulation S-X of the Exchange Act, or Generally Accepted Accounting Principles, as applicable), subject, in the case of unaudited interim financial statements, to customary year end adjustments and the absence of certain footnotes, and fairly present the financial condition of the Company as of the dates of the balance sheets included therein and the consolidated results of its operations and cash flows for the periods then ended. Without limiting the foregoing, there are no material liabilities, contingent or actual, that are not disclosed in the Disclosure Documents (other than liabilities incurred by the Company in the ordinary course of its business, consistent with its past practice, after the period covered by the Disclosure Documents). The Company has paid all material taxes that are due, except for taxes that it reasonably disputes. There is no material claim, litigation, or administrative proceeding pending or, to the best of the Company's knowledge, threatened against the Company, except as disclosed in the Disclosure Documents. This Agreement and the Disclosure Documents do not contain any untrue statement of a material fact and do not omit to state any material fact required to be stated therein or herein necessary to make the statements contained therein or herein not misleading in the light of the circumstances under which they were made. No event or circumstance exists relating to the Company which, under applicable law, requires public disclosure but which has not been so publicly announced or disclosed.
5.3 AUTHORIZATION. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Common Stock being sold hereunder and the issuance (and/or the reservation for issuance) of the Warrants and the Warrant Shares have been taken, and this Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except insofar as the enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws affecting creditors' rights generally or by principles governing the availability of equitable remedies. The Company has obtained all consents and approvals required for it to execute, deliver and perform each agreement referenced in the previous sentence.
5.4 VALID ISSUANCE OF COMMON STOCK. The Common Stock and the Warrants, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein, will be validly issued, fully paid and nonassessable and, based in part upon the representations of Investor in this Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the terms of the Warrants, shall be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of Investor, will be issued in compliance with all applicable U.S. federal and state securities laws. The Put Shares, the Warrants and the Warrant Shares will be issued free of any preemptive rights.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws, each as amended and in effect on and as of the date of the Agreement, or of any material provision of any material instrument or material contract to which it is a party or by which it is bound or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which would, in the Company's opinion, have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement or the Registration Rights Agreement. The execution, delivery and performance of this Agreement and the other agreements entered into in conjunction with the Offering and the consummation of the transactions contemplated hereby and thereby will not (a) result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company, which would, in the Company's opinion, have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement, the Registration Rights Agreement, or (b) violate the Company's Certificate of Incorporation or By-Laws or (c) violate any statute, rule or governmental regulation applicable to the Company which violation would, in the Company's opinion, have a material adverse effect on the Company's business or prospects.
5.6 REPORTING COMPANY. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed or approved for quotation
on the O.T.C. Bulletin Board. The Company is not in violation of the listing
requirements of the O.T.C. Bulletin Board and does not reasonably anticipate
that the Common Stock will be delisted by the O.T.C. Bulletin Board for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 CAPITALIZATION. The capitalization of the Company as of the date hereof, subject to exercise of any outstanding warrants and/or exercise of any outstanding stock options, and after taking into account the offering of the Securities contemplated by this Agreement and all other share issuances occurring prior to this Offering, is as set forth in the Capitalization Schedule as set forth in EXHIBIT K. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities. Except as disclosed in the Capitalization Schedule, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Act (except the Registration Rights Agreement).
5.8 INTELLECTUAL PROPERTY. The Company has valid, unrestricted and exclusive ownership of or rights to use the patents, trademarks, trademark registrations, trade names, copyrights, know-how, technology and other intellectual property necessary to the conduct of its business. EXHIBIT M lists all patents, trademarks, trademark registrations, trade names and copyrights of the Company. The Company has granted such licenses or has assigned or otherwise transferred a portion of (or all of) such valid, unrestricted and exclusive patents, trademarks, trademark registrations, trade names, copyrights, know-how, technology and other intellectual property necessary to the conduct of its business as set forth in EXHIBIT M. The Company has been granted licenses, know-how, technology and/or other intellectual property necessary to the conduct of its business as set forth in EXHIBIT M. To the best of the Company's knowledge after due inquiry, the Company is not infringing on the intellectual property rights of any third party, nor is any third party infringing on the Company's intellectual property rights. There are no restrictions in any agreements, licenses, franchises, or other instruments that preclude the Company from engaging in its business as presently conducted.
5.9 USE OF PROCEEDS. As of the date hereof, the Company expects to use the proceeds from this Offering (less fees and expenses) for the purposes and in the approximate amounts set forth on the Use of Proceeds Schedule set forth as EXHIBIT L hereto. These purposes and amounts are estimates and are subject to change without notice to any Investor.
5.10 NO RIGHTS OF PARTICIPATION. No person or entity, including, but not limited to, current or former stockholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the financing contemplated by this Agreement which has not been waived.
5.11 COMPANY ACKNOWLEDGMENT. The Company hereby acknowledges that Investor may elect to hold the Securities for various periods of time, as permitted by the terms of this Agreement, the Warrants, and other agreements contemplated hereby, and the Company further acknowledges that Investor has made no representations or warranties, either written or oral, as to how long the Securities will be held by Investor or regarding Investor's trading history or investment strategies.
5.12 NO ADVANCE REGULATORY APPROVAL. The Company acknowledges that this Investment Agreement, the transaction contemplated hereby and the Registration Statement contemplated hereby have not been approved by the SEC, or any other regulatory body and there is no guarantee that this Investment Agreement, the transaction contemplated hereby and the Registration Statement contemplated hereby will ever be approved by the SEC or any other regulatory body. The Company is relying on its own analysis and is not relying on any representation by Investor that either this Investment Agreement, the transaction contemplated hereby or the Registration Statement contemplated hereby has been or will be approved by the SEC or other appropriate regulatory body.
5.13 UNDERWRITER'S FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to pay any compensation or other fees, costs or related expenditures in cash or securities to any underwriter, broker, agent or other representative in connection with this Offering.
5.14 AVAILABILITY OF SUITABLE FORM FOR REGISTRATION. The Company is currently eligible and agrees to maintain its eligibility to register the resale of its Common Stock on a registration statement on a suitable form under the Act.
5.15 NO INTEGRATED 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 of the Company's securities or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from registration under Regulation D of the Act or would require the issuance of any other securities to be integrated with this Offering under the Rules of the SEC. The Company has not engaged in any form of general solicitation or advertising in connection with the offering of the Common Stock or the Warrants.
5.16 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
5.17 KEY EMPLOYEES. As of the date of this Agreement, each "Key Employee" (as defined in EXHIBIT N) is currently serving the Company in the capacity disclosed in EXHIBIT N. No Key Employee, to the best knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the best knowledge of the Company and its subsidiaries, any intention to terminate his employment with, or services to, the Company or any of its subsidiaries.
5.18 REPRESENTATIONS CORRECT. The foregoing representations, warranties and agreements are true, correct and complete in all material respects, and shall survive any Put Closing and the issuance of the shares of Common Stock thereby.
5.19 TAX STATUS. The Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
5.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Disclosure Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
5.21 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under Delaware law which is or could become applicable to the Investor as a result of the transactions contemplated by this Agreement, including, without limitation, the issuance of the Common Stock, any exercise of the Warrants and ownership of the Common Shares and Warrant Shares. The Company has not adopted and will not adopt any "poison pill" provision that will be applicable to Investor as a result of transactions contemplated by this Agreement.
5.22 OTHER AGREEMENTS. The Company has not, directly or indirectly, made any agreements with the Investor under a subscription in the form of this Agreement for the purchase of Common Stock, relating to the terms or conditions of the transactions contemplated hereby or thereby except as expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 MAJOR TRANSACTIONS. There are no other Major Transactions currently pending or contemplated by the Company.
5.24 FINANCINGS. There are no other financings currently pending or contemplated by the Company.
5.25 SHAREHOLDER AUTHORIZATION. The Company shall, at its next annual shareholder meeting following its listing on either the Nasdaq Small Cap Market or the Nasdaq National Market, or at a special meeting to be held as soon as practicable thereafter, use its best efforts to obtain approval of its shareholders to (i) authorize the issuance of the full number of shares of Common Stock which would be issuable under this Agreement and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "20% Approval") and (ii) increase the number of authorized shares of Common Stock of the Company (the "Share Authorization Increase Approval") such that at least 25,000,000 shares can be reserved for this Offering. In connection with such shareholder vote, the Company shall use its best efforts to cause all officers and directors of the Company to promptly
enter into irrevocable agreements to vote all of their shares in favor of eliminating such prohibitions. As soon as practicable after the 20% Approval and the Share Authorization Increase Approval, the Company agrees to use its best efforts to reserve 25,000,000 shares of Common Stock for issuance under this Agreement.
5.26 ACKNOWLEDGMENT OF LIMITATIONS ON PUT AMOUNTS. The Company understands and acknowledges that the amounts available under this Investment Agreement are limited, among other things, based upon the liquidity of the Company's Common Stock traded on its Principal Market.
5.27 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, whenever the Company elects to initiate a Put, 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.
6. COVENANTS OF THE COMPANY.
6.1 INDEPENDENT AUDITORS. The Company shall, until at least the Termination Date, maintain as its independent auditors an accounting firm authorized to practice before the SEC.
6.2 CORPORATE EXISTENCE AND TAXES; CHANGE IN CORPORATE ENTITY. The Company shall, until at least the Termination Date, maintain its corporate existence in good standing and, once it becomes a "Reporting Issuer" (defined as a Company which files periodic reports under the Exchange Act), remain a Reporting Issuer and shall pay all its taxes when due except for taxes which the Company disputes. The Company shall not, at any time after the date hereof, enter into any merger, consolidation or corporate reorganization of the Company with or into, or transfer all or substantially all of the assets of the Company to, another entity unless the resulting successor or acquiring entity in such transaction, if not the Company (the "Surviving Entity"), (i) has Common Stock listed for trading on the OTC Bulletin Board, Nasdaq or on another national stock exchange and is a Reporting Issuer, (ii) assumes by written instrument the Company's obligations with respect to this Investment Agreement, the Registration Rights Agreement, the Transfer Agent Instructions, the Warrant Antidilution Agreement, the Warrants and the other agreements referred to herein, including but not limited to the obligations to deliver to the Investor shares of Common Stock and/or securities that Investor is entitled to receive pursuant to this Investment Agreement and upon exercise of the Warrants and agrees by written instrument to reissue, in the name of the Surviving Entity, any Warrants (each in the same terms, including but not limited to the same reset provisions, as the applicable Warrant originally issued or required to be issued by the Company) that are outstanding immediately prior to such transaction, making appropriate proportional adjustments to the number of shares represented by such Warrants and the exercise prices of such Warrants to accurately reflect the exchange represented by the transaction.
6.3 REGISTRATION RIGHTS. The Company will enter into a registration rights agreement covering the resale of the Common Shares and the Warrant Shares substantially in the form of the Registration Rights Agreement attached as EXHIBIT A.
6.4 ASSET TRANSFERS. The Company shall not (i) transfer, sell, convey
or otherwise dispose of any of its material assets to any subsidiary except for
a cash or cash equivalent consideration and for a proper business purpose or
(ii) transfer, sell, convey or otherwise dispose of any of its material assets
to any Affiliate, as defined below, during the Term of this Agreement. For
purposes hereof, "Affiliate" shall mean any officer of the Company, director of
the Company or owner of twenty percent (20%) or more of the Common Stock or
other securities of the Company.
6.5 CAPITAL RAISING LIMITATIONS AND RIGHTS OF FIRST REFUSAL.
6.5.1 CAPITAL RAISING LIMITATIONS. During the period from the
date of this Agreement until the date that is sixty (60) days after the
Termination Date, the Company shall not issue or sell, or agree to issue or sell
Equity Securities (as defined below), for cash in private capital raising
transactions without obtaining the prior written approval of the Investor of the
Offering (the limitations referred to in this subsection 6.5.1 are collectively
referred to as the "Capital Raising Limitations"). For purposes hereof, the
following shall be collectively referred to herein as, the "Equity Securities":
(i) Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering.
6.5.2 INVESTOR'S RIGHT OF FIRST REFUSAL. For any private capital
raising transactions of Equity Securities which close after the date hereof and
on or prior to the date that is sixty (60) days after the Termination Date of
this Agreement, not including any warrants issued in conjunction with this
Investment Agreement, the Company agrees to deliver to Investor, at least ten
(10) days prior to the closing of such transaction, written notice describing
the proposed transaction, including the terms and conditions thereof, and
providing the Investor and its affiliates an option (the "Right of First
Refusal") during the ten (10) day period following delivery of such notice to
purchase the securities being offered in such transaction on the same terms as
contemplated by such transaction.
6.5.3 EXCEPTIONS TO CAPITAL RAISING LIMITATIONS AND RIGHTS OF FIRST REFUSAL. Notwithstanding the above, neither the Capital Raising Limitations nor the Rights of First Refusal shall apply to any transaction involving issuances of securities by the Company to a company being acquired by the Company, as payment to such company for such acquisition, or in connection with the exercise of options by employees or directors of the Company, or a primary underwritten offering of the Company's Common Stock. The Capital Raising Limitations and Rights of First Refusal also shall not apply to (a) the issuance
of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (b) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan for the benefit of the Company's employees or directors, or (c) the issuance of debt securities, with no equity feature, incurred solely for working capital purposes.
6.6 FINANCIAL 10-KSB STATEMENTS, ETC. AND CURRENT REPORTS ON FORM 8-K. The Company shall deliver to the Investor copies of its annual reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor current reports on Form 8-K within two (2) days of filing for the Term of this Agreement.
6.7 OPINION OF COUNSEL. Investor shall, concurrent with the Investment Commitment Closing, receive an opinion letter from the Company's legal counsel, in the form attached as EXHIBIT B, or in such form as agreed upon by the parties, and shall, concurrent with each Put Date, receive an opinion letter from the Company's legal counsel, in the form attached as EXHIBIT I or in such form as agreed upon by the parties.
6.8 REMOVAL OF LEGEND. If the certificates representing any Securities
are issued with a restrictive Legend in accordance with the terms of this
Agreement, the Legend shall be removed and the Company shall issue a certificate
without such Legend to the holder of any Security upon which it is stamped, and
a certificate for a security shall be originally issued without the Legend, if
(a) the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Investor), to the effect that a public sale
or transfer of such Security may be made without registration under the Act, or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. Each Investor agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Act.
6.9 LISTING. Subject to the remainder of this Section 6.9, the Company shall ensure that its shares of Common Stock (including all Warrant Shares and Put Shares) are listed and available for trading on the O.T.C. Bulletin Board. Thereafter, the Company shall (i) use its best efforts to continue the listing and trading of its Common Stock on the O.T.C. Bulletin Board or to become eligible for and listed and available for trading on the Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in all material respects with the Company's reporting, filing and other obligations under the By-Laws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable.
6.10 THE COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"), by delivering instructions in the form of EXHIBIT T hereto, to issue certificates, registered in the name of each Investor or its nominee, for the Put Shares and Warrant Shares in such amounts as specified from time to time by the Company upon any exercise by the Company of a Put and/or exercise of the Warrants by the holder thereof. Such certificates shall not bear a Legend unless issuance with a Legend is permitted by the terms of this Agreement and Legend removal is not permitted by Section 6.8 hereof and the Company shall cause the Transfer Agent to issue such certificates without a Legend. Nothing in this Section shall affect in any way Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of applicable securities laws. If (a) an Investor provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration or (b) an Investor transfers
Securities, pursuant to Rule 144, to a transferee which is an accredited
investor, the Company shall permit the transfer, and, in the case of Put Shares
and Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Investor. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to an Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.10 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.10, that an
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.11 STOCKHOLDER 20% APPROVAL. Prior to the closing of any Put that would cause the Aggregate Issued Shares to exceed the Cap Amount, if required by the rules of NASDAQ because the Company's Common Stock is listed on NASDAQ, the Company shall obtain approval of its stockholders to authorize (i) the issuance of the full number of shares of Common Stock which would be issuable pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "Stockholder 20% Approval").
6.12 PRESS RELEASE. Any public announcement relating to this financing
(a "Press Release") shall be submitted to the Investor for review at least two
(2) business days prior to the planned release. The Company shall not disclose
the Investor's name in any press release or other public announcement without
the Investor's prior written approval. The Company shall obtain the Investor's
written approval of the Press Release prior to issuance by the Company.
6.13 CHANGE IN LAW OR POLICY. In the event of a change in law, or policy of the SEC, as evidenced by a No-Action letter or other written statements of the SEC or the NASD which causes the Investor to be unable to perform its obligations hereunder, this Agreement shall be automatically terminated and no Termination Fee shall be due, provided that notwithstanding any termination under this section 6.13, the Investor shall retain full ownership of the Commitment Warrant as partial consideration for its commitment hereunder.
6.14. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall immediately notify the Investor, but in no event later than two (2) business days by facsimile and by overnight courier, 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: (i) 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; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) 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; (iv) 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; (v) the declaration by the SEC of the effectiveness of a Registration Statement; and (vi) 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 the Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Put Notice during the continuation of any of the foregoing events.
6.15 ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF THE SECURITIES. The Company acknowledges and agrees that the Investor is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Investor or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor's purchase of the Securities. The Company further represents to the Investor that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives and advisors.
6.16. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the sums payable as Non-Usage Fees, Termination Fees and Ineffective Registration Payments shall each give rise to liquidated damages and not penalties. The parties further acknowledge that (a) the amount of loss or damages likely to be incurred by the Investor is incapable or is difficult to precisely estimate, (b) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investor, and (c) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length.
6.17. COPIES OF FINANCIAL STATEMENTS, REPORTS AND PROXY STATEMENTS. Promptly upon the mailing thereof to the shareholders of the Company generally, the Company shall deliver to the Investor copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders.
6.18. NOTICE OF CERTAIN LITIGATION. Promptly following the commencement thereof, the Company shall provide the Investor written notice and a description in reasonable detail of any litigation or proceeding to which the Company or any subsidiary of the Company is a party, in which the amount involved is $250,000 or more and which is not covered by insurance or in which injunctive or similar relief is sought.
7. MISCELLANEOUS.
7.1 REPRESENTATIONS AND WARRANTIES SURVIVE THE CLOSING; SEVERABILITY. Investor's and the Company's representations and warranties shall survive the Investment Date and any Put Closing contemplated by this Agreement notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. 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, or is altered by a term required by the Securities Exchange Commission to be included in the Registration Statement, this Agreement shall continue in full force and effect without said provision; provided that if the removal of such provision materially changes the economic benefit of this Agreement to the Investor, this Agreement shall terminate.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall not be assignable by either party.
7.3 EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument.
7.4 TITLES AND SUBTITLES; GENDER. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neuter pronoun shall be deemed to include a reference to the others.
7.5 WRITTEN NOTICES, ETC. Any notice, demand or request required or permitted to be given by the Company or Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally, or by facsimile or upon receipt if by overnight or two (2) day courier, addressed to the parties at the addresses and/or facsimile telephone number of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing; provided, however, that in order for any notice to be effective as to the Investor such notice shall be delivered and sent, as specified herein, to all the addresses and facsimile telephone numbers of the Investor set forth at the end of this Agreement or such other address and/or facsimile telephone number as Investor may request in writing.
7.6 EXPENSES. Except as set forth in the Registration Rights Agreement, each of the Company and Investor shall pay all costs and expenses that it respectively incurs, with respect to the negotiation, execution, delivery and performance of this Agreement.
7.7 ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This Agreement, including the Exhibits attached hereto, the Common Stock certificates, the Warrants, the Registration Rights Agreement, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties,
representations or covenants, whether oral, written, or otherwise except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 ACTIONS AT LAW OR EQUITY; JURISDICTION AND VENUE. The parties acknowledge that any and all actions, whether at law or at equity, and whether or not said actions are based upon this Agreement between the parties hereto, shall be filed in any state or federal court sitting in Atlanta, Georgia. Georgia law shall govern both the proceeding as well as the interpretation and construction of the Transaction Documents and the transaction as a whole. In any litigation between the parties hereto, the prevailing party, as found by the court, shall be entitled to an award of all attorney's fees and costs of court. Should the court refuse to find a prevailing party, each party shall bear its own legal fees and costs.
7.9 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on the Principal Market on any given Trading Day for the purposes of this Agreement shall be the Bloomberg L.P. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.
8. SUBSCRIPTION AND WIRING INSTRUCTIONS; IRREVOCABILITY.
(a) WIRE TRANSFER OF SUBSCRIPTION FUNDS. Investor shall deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire transfer, to the Company pursuant to a wire instruction letter to be provided by the Company, and signed by the Company.
(b) IRREVOCABLE SUBSCRIPTION. Investor hereby acknowledges and agrees, subject to the provisions of any applicable laws providing for the refund of subscription amounts submitted by Investor, that this Agreement is irrevocable and that Investor is not entitled to cancel, terminate or revoke this Agreement or any other agreements executed by such Investor and delivered pursuant hereto, and that this Agreement and such other agreements shall survive the death or disability of such Investor and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the Securities subscribed for are to be owned by more than one person, the obligations of all such owners under this Agreement shall be joint and several, and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators, successors, legal representatives and assigns.
9. INDEMNIFICATION AND REIMBURSEMENT.
(a) INDEMNIFICATION. In consideration of the Investor's execution
and delivery of the Investment Agreement, the Registration Rights Agreement and
the Warrants (the "Transaction Documents") and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless Investor and all of its stockholders, officers, directors, employees
and direct or indirect investors and any of the foregoing person's agents,
members, partners or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorney's fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or documents contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim,
derivative or otherwise, by any stockholder of the Company based on a breach or
alleged breach by the Company or any of its officers or directors of their
fiduciary or other obligations to the stockholders of the Company, or (d) claims
made by third parties against any of the Indemnitees based on a violation of
Section 5 of the Securities Act caused by the integration of the private sale of
common stock to the Investor and the public offering pursuant to the
Registration Statement.
To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which it would be required to make if such foregoing undertaking was enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim in respect thereof is to be made against the
other party (hereinafter "Indemnitor") under this Section 9, deliver to the
Indemnitor a written notice of the commencement thereof and the Indemnitor shall
have the right to participate in and to assume the defense thereof with counsel
reasonably selected by the Indemnitor, provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of such counsel to be paid by the Indemnitor, if
representation of such Indemnified Party by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential conflicts of
interest between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnified Party under this Section 9, but
the omission to so deliver written notice to the Indemnitor will not relieve it
of any liability that it may have to any Indemnified Party other than under this
Section 9 to the extent it is prejudicial.
(b) REIMBURSEMENT. If (i) the Investor, other than by reason of its gross negligence or willful misconduct, becomes involved in any capacity in any action, proceeding or investigation brought by any stockholder of the Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if the Investor is impleaded in any such action, proceeding or investigation by any person or entity, or (ii) the Investor, other than by reason of its gross negligence or willful misconduct, 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 the Investor is impleaded in any such action, proceeding or investigation by any person or entity, then in any such case, the Company will reimburse the 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 the Investor is a named party, the Company will pay the Investor the charges, as reasonably determined by the Investor, for the time of any officers or employees of the Investor devoted to appearing and preparing to appear as witnesses, assisting in preparation for hearing, 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 paragraph 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 the Investor who 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 the 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, the Investor and any such Affiliate and any such person or entity. The Company also agrees that neither the Investor nor any such Affiliate, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Transaction Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of the Investor or any inaccuracy in any representation or warranty of the Investor contained herein or any breach by the Investor of any of the provisions hereof.
10. ACCREDITED INVESTOR. Investor is an "accredited investor" because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of the Internal Revenue Code, or a corporation, limited duration company, limited liability company, business trust, or partnership not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of the issuer of the securities being offered or sold or a director, executive officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity described in a - b above or is an individual who could check one (1) of the last three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify] ___________________________________________.
The undersigned hereby subscribes the Maximum Offering Amount and acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify under penalty of perjury that the foregoing statements are true and correct and that Investor by the following signature(s) executed this Agreement.
Dated this 2nd day of MARCH, 2001.
SWARTZ PRIVATE EQUITY, LLC
By: /s/ Eric S. Swartz -------------------------------- Eric S. Swartz, Manager |
SECURITY DELIVERY INSTRUCTIONS:
Swartz Private Equity, LLC
c/o Eric S. Swartz
300 Colonial Center Parkway
Suite 300
Roswell, GA 30076
Telephone: (770) 640-8130
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING AMOUNT ON THE 2ND DAY OF MARCH, 2001.
DIMENSIONAL VISIONS INCORPORATED
By: /s/ John D. McPhilimy ------------------------------------- John D. McPhilimy, President |
Address:
Attn: John D. McPhilimy, President
2301 W. Dunlap Ave., Ste. 207
Phoenix, AZ 85021
Telephone (602) 997-1990
Facsimile (602) 997-5658
ADVANCE PUT NOTICE
DIMENSIONAL VISIONS INCORPORATED (the "Company") hereby intends, subject to the Individual Put Limit (as defined in the Investment Agreement), to elect to exercise a Put to sell the number of shares of Common Stock of the Company specified below, to _____________________________, the Investor, as of the Intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about March 2, 2001.
Date of Advance Put Notice: ___________________
Intended Put Date: ____________________________
Intended Put Share Amount: ____________________
Company Designation Maximum Put Dollar Amount (Optional):
--------------------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
--------------------------------------------------------.
DIMENSIONAL VISIONS INCORPORATED
Address:
Attn: John D. McPhilimy, President
2301 W. Dunlap Ave., Ste. 207
Phoenix, AZ 85021
Telephone (602) 997-1990
Facsimile (602) 997-5658
EXHIBIT E
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of DIMENSIONAL VISIONS INCORPORATED's (the "Company") Advance Put Notice on the Advance Put Date written below, and its intention to elect to exercise a Put to sell shares of common stock ("Intended Put Share Amount") of the Company to the Investor, as of the intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about March 2, 2001.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
------------------------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
------------------------------------------------------------.
INVESTOR(S)
EXHIBIT F
PUT NOTICE
DIMENSIONAL VISIONS INCORPORATED (the "Company") hereby elects to exercise a Put to sell shares of common stock ("Common Stock") of the Company to _____________________________, the Investor, as of the Put Date, at the Put Share Price and for the number of Put Shares written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about March 2, 2001.
Put Date: _________________
Intended Put Share Amount (from Advance Put Notice):
_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
------------------------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
------------------------------------------------------------.
Note: Capitalized terms shall have the meanings ascribed to them in this Investment Agreement.
DIMENSIONAL VISIONS INCORPORATED
Address:
Attn: John D. McPhilimy, President
2301 W. Dunlap Ave., Ste. 207
Phoenix, AZ 85021
Telephone (602) 997-1990
Facsimile (602) 997-5658
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of Dimensional Visions Incorporated (the "Company") Put Notice and election to exercise a Put to sell ___________________________ shares of common stock ("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about March 2, 2001.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Put Date: _________________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
------------------------------------------------------------.
Company Designation Minimum Put Share Price (Optional):
------------------------------------------------------------.
INVESTOR(S)
EXHIBIT G
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.
Warrant to Purchase
1,190,000 shares
WARRANT TO PURCHASE COMMON STOCK
OF
DIMENSIONAL VISIONS INCORPORATED
THIS CERTIFIES that Swartz Private Equity, LLC or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
DIMENSIONAL VISIONS INCORPORATED, a Delaware corporation (the "Company"), up to
1,190,000 fully paid and nonassessable shares of the Company's common stock,
$.001 par value per share ("Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price as defined in Section 3 below, at
any time beginning on the Date of Issuance (defined below) and ending at 5:00
p.m., New York, New York time the date that is seven (7) years after the Date of
Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this "Warrant") is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.
1. DATE OF ISSUANCE AND TERM.
This Warrant shall be deemed to be issued on September 5, 2000 ("Date of Issuance"). The term of this Warrant is seven (7) years from the Date of Issuance.
Of this Warrant to purchase one million one hundred ninety thousand (1,190,000) shares of Common Stock of the Company, the Warrant is exercisable as to three hundred ninety-six thousand (396,000) shares of Common Stock of the Company after the fifteen (15) business day document review period (the "Review Period") referenced in the Equity Line Letter of Agreement dated on or about September 5, 2000, between Holder and Company (the "Letter of Agreement") has ended, shall be further exercisable as to an additional three hundred ninety-six thousand (396,000) shares of Common Stock of the Company upon the execution by
the Company and Swartz Private Equity, LLC of an Investment Agreement, pursuant to the Letter of Agreement ("Investment Agreement") and shall be further exercisable as to the remaining three hundred ninety-eight (398,000) shares of Common Stock of the Company upon the earlier of (i) the date of effectiveness of Company's registration statement (the "Registration Statement") to be filed pursuant to the Investment Agreement and related documents, or (ii) March 5, 2001.
Anything in this Warrant to the contrary notwithstanding, if the Company delivers written notice to Swartz Private Equity, LLC prior to the expiration of the Review Period that the legal documents for the transaction are unacceptable and the Company wishes to terminate the transaction (a "Company Termination Notice"), Holder shall return this Warrant to the Company and all of Holder's rights under this Warrant shall be null and void and of no effect, provided that, if the Company has not delivered a Company Termination Notice to Swartz Private Equity, LLC, prior to the expiration of the Review Period, ownership of this Warrant shall irrevocably vest to the Holder, regardless of whether a Company Termination Notice is delivered anytime thereafter.
Notwithstanding anything to the contrary herein, the applicable portion of this Warrant shall not be exercisable during any time that, and only to the extent that, the number of shares of Common Stock to be issued to Holder upon such exercise, when added to the number of shares of Common Stock, if any, that the Holder otherwise beneficially owns at the time of such exercise, would equal or exceed 4.99% of the number of shares of Common Stock then outstanding, as determined in accordance with Section 13(d) of the Exchange Act (the "4.99% Limitation"). The 4.99% Limitation shall be conclusively satisfied if the applicable Exercise Notice includes a signed representation by the Holder that the issuance of the shares in such Exercise Notice will not violate the 4.99% Limitation, and the Company shall not be entitled to require additional documentation of such satisfaction.
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as Exhibit A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: John D. McPhilimy, President, Dimensional Visions
Incorporated, 2301 W. Dunlap Avenue, Suite 207, Phoenix, AZ 85021; Telephone:
(602) 997-1990, Facsimile: (602) 997-5658, or at such other office or agency as
the Company may designate in writing, by overnight mail, with an advance copy of
the Exercise Form sent to the Company and its Transfer Agent by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be defined as the date that the advance copy of the completed and executed Exercise Form is sent by facsimile to the Company, provided that the original Warrant and Exercise Form are received by the Company as soon as practicable thereafter. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not sent advance notice by facsimile.
(c) DELIVERY OF SHARES OF COMMON STOCK UPON EXERCISE. Upon any exercise of this Warrant, the Company shall use its reasonable best efforts to deliver, or shall cause its transfer agent to deliver, a stock certificate or certificates representing the number of shares of Common Stock into which this Warrant was exercised, within three (3) trading days of the date that all of the following have been received by the Company: (i) the original completed and executed Exercise Form, (ii) the original Warrant and (iii) the Exercise Price (if applicable)(collectively, the "Receipt Date"). Such stock certificates shall not contain a legend restricting transfer if a registration statement covering the resale of such shares of Common Stock is in effect at the time of such exercise or if such shares of Common Stock may be resold pursuant to an exemption from registration, including but not limited to Rule 144 under the Securities Act of 1933.
(d) ECONOMIC LOSS DUE TO LATE DELIVERY OF SHARES. If the Company fails for
any reason to deliver the requisite number of shares of Common Stock
(unlegended, if so required by the terms of this Warrant)(the "Warrant Shares")
to a Holder upon an exercise of this Warrant within fifteen (15) business days
of the Receipt Date (the "Late Delivery Deadline"), the Company shall pay such
Holder (in addition to any other remedies available to Holder) an amount equal
to ("Non-Delivery Payment") the number of Warrant Shares for which delivery is
late, multiplied by the difference of:
(x) the highest closing price for the Company's Common Stock for any trading day during the period beginning on and including the Date of Exercise and ending on the earlier of (i) the date that the Investor receives from the Company certificates (unlegended, if so required by the terms of this Warrant) representing the Warrant Shares of Common Stock issuable in conjunction with such Exercise, or (ii) the date that the Investor receives the full amount of the Non-Delivery Payment, whichever is earlier,
minus
(y) the Exercise Price per share (which, in the case of a Cashless Exercise, shall be deemed to equal zero), or, if the Investor has received the Warrant Shares (unlegended, if so required by the terms of this Warrant) from the Company prior to the payment of the Non-Delivery Payment, the lowest closing price of the Company's Common Stock for the five (5) trading days immediately preceding the date that such Warrant Shares are delivered to the Holder.
Non-Delivery Payments shall be payable, in cash or cash equivalent, within five (5) business days of the Late Delivery Deadline.
(e) LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the sums payable as Non-Delivery Payments shall give rise to liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by the Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and
are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investor, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length.
(f) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the Exercise of this Warrant, and, as soon as practical after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant, and if this Warrant is not exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock.
(g) HOLDER OF RECORD. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be the Holder of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant. Nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price per share ("Exercise Price") shall initially equal (the
"Initial Exercise Price") the lowest Closing Price for the five (5) trading days
immediately preceding September 5, 2000, which is $0.375. If the lowest Closing
Price of the Company's Common Stock for the five (5) trading days immediately
preceding the date, if any, that Swartz Private Equity, LLC executes an
Investment Agreement pursuant to the Letter of Agreement (the "Closing Market
Price") is less than the Initial Exercise Price, the Exercise Price shall be
reset to equal the Closing Market Price, or, if the Date of Exercise is more
than six (6) months after the Date of Issuance, the Exercise Price shall be
reset to equal the lesser of (i) the Exercise Price then in effect, or (ii) the
"Lowest Reset Price," as that term is defined below. The Company shall calculate
a "Reset Price" on each six-month anniversary date of the Date of Issuance which
shall equal the lowest Closing Price of the Company's Common Stock for the five
(5) trading days ending on such six-month anniversary date of the Date of
Issuance. The "Lowest Reset Price" shall equal the lowest Reset Price determined
on any six-month anniversary date of the Date of Issuance preceding the Date of
Exercise, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
For purposes hereof, the term "Closing Price" shall mean the closing price on the Nasdaq Small Cap Market, the National Market System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or if no longer traded on the Nasdaq Small Cap Market, the National Market System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, the "Closing Price" shall equal the closing price on the principal national securities exchange or the over-the-counter system on which the Common Stock is so traded and, if not available, the mean of the high and low prices on the principal national securities exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following, or a combination thereof, at the election of Holder:
(i) CASH EXERCISE: cash, bank or cashiers check or wire transfer; or
(ii) CASHLESS EXERCISE: The Holder, at its option, may exercise this Warrant in a cashless exercise transaction. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with notice of cashless election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(ii), the "Market Price" shall be defined as the average Closing Price of the Common Stock for the five (5) trading days prior to the Date of Exercise of this Warrant (the "Average Closing Price"), as reported by the O.T.C. Bulletin Board, National Association of Securities Dealers Automated Quotation System ("Nasdaq") Small Cap Market, or if the Common Stock is not traded on the Nasdaq Small Cap Market, the Average Closing Price in any other over-the-counter market; provided, however, that if the Common Stock is listed on a stock exchange, the Market Price shall be the Average Closing Price on such exchange for the five (5) trading days prior to the date of exercise of the Warrants. If the Common Stock is/was not traded during the five (5) trading days prior to the Date of Exercise, then the closing price for the last publicly traded day shall be deemed to be the closing price for any and all (if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.
(b) REGISTRABLE SECURITIES. In addition to any other registration rights of the Holder, if the Common Stock issuable upon exercise of this Warrant is not registered for resale at the time the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Act (other than a registration relating solely for the sale of securities to participants in a Company stock plan or a registration on Form S-4 promulgated under the Act or any successor or similar form registering stock issuable upon a reclassification, upon a business combination involving an exchange of securities or upon an exchange offer for securities of the issuer or another entity)(a "Piggyback Registration Statement"), the Company shall cause to be included in such Piggyback Registration Statement ("Piggyback Registration") all of the Common Stock issuable upon the exercise of this Warrant ("Registrable Securities") to the extent such inclusion does not violate the registration rights of any other securityholder of the Company granted prior to the date hereof. Nothing herein shall prevent the Company from withdrawing or abandoning the Piggyback Registration Statement prior to its effectiveness.
(c) LIMITATION ON OBLIGATIONS TO REGISTER UNDER A PIGGYBACK REGISTRATION. In the case of a Piggyback Registration pursuant to an underwritten public offering by the Company, if the managing underwriter determines and advises in writing that the inclusion in the registration statement of all Registrable Securities proposed to be included would interfere with the successful marketing of the securities proposed to be registered by the Company, then the number of such Registrable Securities to be included in the Piggyback Registration Statement, to the extent such Registrable Securities may be included in such Piggyback Registration Statement, shall be allocated among all Holders who had requested Piggyback Registration pursuant to the terms hereof, in the proportion that the number of Registrable Securities which each such Holder seeks to register bears to the total number of Registrable Securities sought to be included by all Holders. If required by the managing underwriter of such an underwritten public offering, the Holders shall enter into a reasonable agreement limiting the number of Registrable Securities to be included in such Piggyback Registration Statement and the terms, if any, regarding the future sale of such Registrable Securities.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a dividend payable in shares of Common Stock, then Holder, upon Exercise of this Warrant after the record date for the determination of holders of Common Stock entitled to receive such dividend, shall be entitled to receive upon Exercise of this Warrant, in addition to the number of shares of Common Stock as to which this Warrant is exercised, such additional shares of Common Stock as such Holder would have received had this Warrant been exercised immediately prior to such record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION.
(i) Stock Split. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger number of shares (a "Stock Split"), then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be increased in direct proportion to the increase in the number of shares of Common Stock by reason of such recapitalization, reclassification or similar transaction, and the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a smaller number of shares (a "Reverse Stock Split"), then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be proportionately decreased and the Exercise Price shall be proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no consideration to holders of Common Stock cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus or net profits for the current or preceding years) then, in any such case, Holder shall be entitled to receive, upon Exercise of this Warrant, with respect to each share of Common Stock issuable upon such exercise, the amount of cash or evidences of indebtedness or other securities or assets which Holder would have been entitled to receive with respect to each such share of Common Stock as a result of the happening of such event had this Warrant been exercised immediately prior to the record date or other date fixing shareholders to be affected by such event (the "Determination Date") or, in lieu thereof, if the Board of Directors of the Company should so determine at the time of such distribution, a reduced Exercise Price determined by multiplying the Exercise Price on the Determination Date by a fraction, the numerator of which is the result of such Exercise Price reduced by the value of such distribution applicable to one share of Common Stock (such value to be determined by the Board of Directors of the Company in its discretion) and the denominator of which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER AND WARRANT EXCHANGE. The Company shall not, at any time after the date hereof, effect a merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities or other assets of the Company or another entity or there is a sale of all or substantially all the Company's assets (a "Corporate Change"), unless the resulting successor or acquiring entity (the "Resulting Entity") assumes by written instrument the Company's obligations under this Warrant, including but not limited to the Exercise Price reset provisions as provided herein during the term of the resultant warrants, and agrees in such written instrument that this Warrant shall be exerciseable into such class and type of securities or other assets of the Resulting Entity as Holder would have received had Holder
exercised this Warrant immediately prior to such Corporate Change, and the Exercise Price of this Warrant shall be proportionately increased (if this Warrant shall be changed into or become exchangeable for a warrant to purchase a smaller number of shares of Common Stock of the Resulting Entity) or shall be proportionately decreased (if this Warrant shall be changed or become exchangeable for a warrant to purchase a larger number of shares of Common Stock of the Resulting Entity); provided, however, that Company may not affect any Corporate Change unless it first shall have given thirty (30) days notice to Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b), (c) or
(d) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of this Warrant. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $0.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $0.01 or more.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event that at any time, as a result of an adjustment made pursuant to this Section 5, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued in a transaction exempt from the registration requirements of the Act by virtue of Regulation D and exempt from state registration under applicable state laws. The Warrant and the Common Stock issuable upon the Exercise of this Warrant may not be pledged, transferred, sold or assigned except pursuant to an effective registration statement or unless the Company has received an opinion from the Company's counsel to the effect that such registration is not required, or the Holder has furnished to the Company an opinion of the Holder's counsel, which counsel shall be reasonably satisfactory to the Company, to the effect that such registration is not required; the transfer complies with any applicable state securities laws; and, if no registration covering the resale of the Warrant Shares is effective at the time the Warrant Shares are issued, the Holder consents to a legend being placed on certificates for the Warrant Shares stating that the securities have not been registered under the Securities Act and referring to such restrictions on transferability and sale.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably satisfactory evidence that the conditions of (a) above regarding registration or exemption have been satisfied, Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the person or persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within ten (10) days, and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the state of Georgia, without giving effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be given or made by the Company to or on Holder shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company's records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 13th day of October, 2000.
DIMENSIONAL VISIONS INCORPORATED
By: /s/ John D. McPhilimy
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John D. McPhilimy, President
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EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: DIMENSIONAL VISIONS INCORPORATED
The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of Common Stock (the "Common Stock") of DIMENSIONAL VISIONS INCORPORATED a Delaware corporation (the "Company"), evidenced by the attached warrant (the "Warrant"), and herewith makes payment of the exercise price with respect to such shares in full, all in accordance with the conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of the Common Stock obtained on exercise of the Warrant, except in accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued free of any restrictive legend, if appropriate, and a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below:
Dated: _________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the "Warrant") hereby sells, assigns and transfers unto the person or persons below named the right to purchase _______ shares of the Common Stock of DIMENSIONAL VISIONS INCORPORATED, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint _______________________ attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.
Dated: ________________________________________
Signature
Fill in for new registration of Warrant:
-----------------------------------
Name
-----------------------------------
Address
-----------------------------------
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Please print name and address of assignee
(including zip code number)
NOTICE
The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.
Warrant to Purchase
119,000 shares
WARRANT TO PURCHASE COMMON STOCK
OF
DIMENSIONAL VISIONS INCORPORATED
THIS CERTIFIES that SWARTZ PRIVATE EQUITY, LLC, or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
DIMENSIONAL VISIONS INCORPORATED, a Delaware corporation (the "Company"), up to
119,000 fully paid and nonassessable shares of the Company's common stock,
$0.001 par value per share ("Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price, as defined in Section 3 below,
at any time beginning on the Date of Issuance (defined below) and ending at 5:00
p.m., New York, New York time, on the date that is seven (7) years after the
Date of Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this "Warrant") is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein. This Warrant is issued in addition to, and not in the place of, the Warrant to Swartz Private Equity, LLC for 1,190,000 shares issued on or about September 5, 2000.
1. DATE OF ISSUANCE AND TERM.
This Warrant shall be deemed to be issued on March 2, 2001 ("Date of Issuance"). The term of this Warrant is seven (7) years from the Date of Issuance.
Of this Warrant to purchase one hundred nineteen thousand (119,000) shares of Common Stock of the Company, the Warrant is exercisable as to seventy-nine thousand three hundred thirty-four (79,334) shares of Common Stock of the Company anytime during the Exercise Period and shall be further exercisable as to the remaining thirty-nine thousand six hundred sixty-six (39,666) shares of Common Stock of the Company upon the earlier of (i) the date of effectiveness of Company's registration statement (the "Registration Statement") to be filed
pursuant to the Amended and Restated Investment Agreement executed by the Company and Swartz Private Equity, LLC ("Swartz") pursuant to the Equity Line Letter of Agreement dated on or about September 5, 2000, between the Company and Swartz, or (ii) March 5, 2001.
Notwithstanding anything to the contrary herein, the applicable portion of this Warrant shall not be exercisable during any time that, and only to the extent that, the number of shares of Common Stock to be issued to Holder upon such exercise, when added to the number of shares of Common Stock, if any, that the Holder otherwise beneficially owns at the time of such exercise, would equal or exceed 4.99% of the number of shares of Common Stock then outstanding, as determined in accordance with Section 13(d) of the Exchange Act (the "4.99% Limitation"). The 4.99% Limitation shall be conclusively satisfied if the applicable Exercise Notice includes a signed representation by the Holder that the issuance of the shares in such Exercise Notice will not violate the 4.99% Limitation, and the Company shall not be entitled to require additional documentation of such satisfaction.
2. EXERCISE.
(a) MANNER OF EXERCISE. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock covered
hereby (the "Warrant Shares") upon surrender of this Warrant, with the Exercise
Form attached hereto as EXHIBIT A (the "Exercise Form") duly completed and
executed, together with the full Exercise Price (as defined below) for each
share of Common Stock as to which this Warrant is exercised, at the office of
the Company, Attention: John D. McPhilimy, President, Dimensional Visions
Incorporated, 2301 W. Dunlap Avenue, Suite 207, Phoenix, AZ 85021; Telephone:
(602) 997-1990, Facsimile: (602) 997-5658, or at such other office or agency as
the Company may designate in writing, by overnight mail, with an advance copy of
the Exercise Form sent to the Company and its Transfer Agent by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) DATE OF EXERCISE. The "Date of Exercise" of the Warrant shall be defined as the date that the advance copy of the completed and executed Exercise Form is sent by facsimile to the Company, provided that the original Warrant and Exercise Form are received by the Company as soon as practicable thereafter. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not sent advance notice by facsimile.
(c) DELIVERY OF SHARES OF COMMON STOCK UPON EXERCISE. Upon any exercise of this Warrant, the Company shall use its reasonable best efforts to deliver, or shall cause its transfer agent to deliver, a stock certificate or certificates representing the number of shares of Common Stock into which this Warrant was exercised, within three (3) trading days of the date that all of the following have been received by the Company: (i) the original completed and executed Exercise Form, (ii) the original Warrant and (iii) the Exercise Price (if applicable)(collectively, the "Receipt Date"). Such stock certificates shall not contain a legend restricting transfer if a registration statement covering the resale of such shares of Common Stock is in effect at the time of such exercise
or if such shares of Common Stock may be resold pursuant to an exemption from registration, including but not limited to Rule 144 under the Securities Act of 1933.
(d) ECONOMIC LOSS DUE TO LATE DELIVERY OF SHARES. If the Company fails for
any reason to deliver the requisite number of shares of Common Stock
(unlegended, if so required by the terms of this Warrant)(the "Warrant Shares")
to a Holder upon an exercise of this Warrant within fifteen (15) business days
of the Receipt Date (the "Late Delivery Deadline"), the Company shall pay such
Holder (in addition to any other remedies available to Holder) an amount equal
to ("Non-Delivery Payment") the number of Warrant Shares for which delivery is
late, multiplied by the difference of:
(x) the highest closing price for the Company's Common Stock for any trading day during the period beginning on and including the Date of Exercise and ending on the earlier of (i) the date that the Investor receives from the Company certificates (unlegended, if so required by the terms of this Warrant) representing the Warrant Shares of Common Stock issuable in conjunction with such Exercise, or (ii) the date that the Investor receives the full amount of the Non-Delivery Payment, whichever is earlier,
minus
(y) the Exercise Price per share (which, in the case of a Cashless Exercise, shall be deemed to equal zero), or, if the Investor has received the Warrant Shares (unlegended, if so required by the terms of this Warrant) from the Company prior to the payment of the Non-Delivery Payment, the lowest closing price of the Company's Common Stock for the five (5) trading days immediately preceding the date that such Warrant Shares are delivered to the Holder.
Non-Delivery Payments shall be payable, in cash or cash equivalent, within five (5) business days of the Late Delivery Deadline.
(e) LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the sums payable as Non-Delivery Payments shall give rise to liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by the Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investor, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length.
(f) CANCELLATION OF WARRANT. This Warrant shall be canceled upon the Exercise of this Warrant, and, as soon as practical after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant, and if this Warrant is not exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock.
(g) HOLDER OF RECORD. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be the Holder of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant. Nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder of the Company.
3. PAYMENT OF WARRANT EXERCISE PRICE.
The Exercise Price per share ("Exercise Price") shall initially equal
$0.125 (the "Initial Exercise Price"). If the Date of Exercise is more than six
(6) months after the Date of Issuance, the Exercise Price shall be reset to
equal the lesser of (i) the Exercise Price then in effect, or (ii) the "Lowest
Reset Price," as that term is defined below. The Company shall calculate a
"Reset Price" on each six-month anniversary date of the Date of Issuance which
shall equal the lowest Closing Price of the Company's Common Stock for the five
(5) trading days ending on such six-month anniversary date of the Date of
Issuance. The "Lowest Reset Price" shall equal the lowest Reset Price determined
on any six-month anniversary date of the Date of Issuance preceding the Date of
Exercise, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
For purposes hereof, the term "Closing Price" shall mean the closing price on the Nasdaq Small Cap Market, the National Market System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, or if no longer traded on the Nasdaq Small Cap Market, the National Market System ("NMS"), the New York Stock Exchange, or the O.T.C. Bulletin Board, the "Closing Price" shall equal the closing price on the principal national securities exchange or the over-the-counter system on which the Common Stock is so traded and, if not available, the mean of the high and low prices on the principal national securities exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following, or a combination thereof, at the election of Holder:
(i) CASH EXERCISE: cash, bank or cashiers check or wire transfer; or
(ii) CASHLESS EXERCISE: The Holder, at its option, may exercise this Warrant in a cashless exercise transaction. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with notice of cashless election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(ii), the "Market Price" shall be defined as the average Closing Price of the Common Stock for the five (5) trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported by the O.T.C. Bulletin Board, National Association of Securities Dealers Automated Quotation System ("Nasdaq") Small Cap Market, or if the Common Stock is not traded on the Nasdaq Small Cap Market, the Average Closing Price in any other over-the-counter market; provided, however, that if the Common Stock is listed on a stock exchange, the Market Price shall be the Average Closing Price on such exchange for the five (5) trading days prior to the date of exercise of the Warrants. If the Common Stock is/was not traded during the five (5) trading days prior to the Date of Exercise, then the closing price for the last publicly traded day shall be deemed to be the closing price for any and all (if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon exercise of this Warrant in a cashless exercise transaction shall be deemed to have commenced on the date this Warrant was issued.
4. TRANSFER AND REGISTRATION.
(a) TRANSFER RIGHTS. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.
(b) REGISTRABLE SECURITIES. In addition to any other registration rights of the Holder, if the Common Stock issuable upon exercise of this Warrant is not registered for resale at the time the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Act (other than a registration relating solely for the sale of securities to participants in a Company stock plan or a registration on Form S-4 promulgated under the Act or any successor or similar form registering stock issuable upon a reclassification, upon a business combination involving an exchange of securities or upon an exchange offer for securities of the issuer or another entity)(a "Piggyback Registration Statement"), the Company shall cause to be included in such Piggyback Registration Statement ("Piggyback Registration") all of the Common Stock issuable upon the exercise of this Warrant ("Registrable Securities") to the extent such inclusion does not violate the registration
rights of any other securityholder of the Company granted prior to the date hereof. Nothing herein shall prevent the Company from withdrawing or abandoning the Piggyback Registration Statement prior to its effectiveness.
(c) LIMITATION ON OBLIGATIONS TO REGISTER UNDER A PIGGYBACK REGISTRATION. In the case of a Piggyback Registration pursuant to an underwritten public offering by the Company, if the managing underwriter determines and advises in writing that the inclusion in the registration statement of all Registrable Securities proposed to be included would interfere with the successful marketing of the securities proposed to be registered by the Company, then the number of such Registrable Securities to be included in the Piggyback Registration Statement, to the extent such Registrable Securities may be included in such Piggyback Registration Statement, shall be allocated among all Holders who had requested Piggyback Registration pursuant to the terms hereof, in the proportion that the number of Registrable Securities which each such Holder seeks to register bears to the total number of Registrable Securities sought to be included by all Holders. If required by the managing underwriter of such an underwritten public offering, the Holders shall enter into a reasonable agreement limiting the number of Registrable Securities to be included in such Piggyback Registration Statement and the terms, if any, regarding the future sale of such Registrable Securities.
5. ANTI-DILUTION ADJUSTMENTS.
(a) STOCK DIVIDEND. If the Company shall at any time declare a dividend payable in shares of Common Stock, then Holder, upon Exercise of this Warrant after the record date for the determination of holders of Common Stock entitled to receive such dividend, shall be entitled to receive upon Exercise of this Warrant, in addition to the number of shares of Common Stock as to which this Warrant is exercised, such additional shares of Common Stock as such Holder would have received had this Warrant been exercised immediately prior to such record date and the Exercise Price will be proportionately adjusted.
(b) RECAPITALIZATION OR RECLASSIFICATION.
(i) STOCK SPLIT. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a LARGER number of shares (a "Stock Split"), then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be increased in direct proportion to the increase in the number of shares of Common Stock by reason of such recapitalization, reclassification or similar transaction, and the Exercise Price shall be proportionally decreased.
(ii) REVERSE STOCK SPLIT. If the Company shall at any time effect a recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a SMALLER number of shares (a "Reverse Stock Split"), then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be proportionately decreased and the Exercise Price shall be proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(b).
(c) DISTRIBUTIONS. If the Company shall at any time distribute for no consideration to holders of Common Stock cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus or net profits for the current or preceding years) then, in any such case, Holder shall be entitled to receive, upon Exercise of this Warrant, with respect to each share of Common Stock issuable upon such exercise, the amount of cash or evidences of indebtedness or other securities or assets which Holder would have been entitled to receive with respect to each such share of Common Stock as a result of the happening of such event had this Warrant been exercised immediately prior to the record date or other date fixing shareholders to be affected by such event (the "Determination Date") or, in lieu thereof, if the Board of Directors of the Company should so determine at the time of such distribution, a reduced Exercise Price determined by multiplying the Exercise Price on the Determination Date by a fraction, the numerator of which is the result of such Exercise Price reduced by the value of such distribution applicable to one share of Common Stock (such value to be determined by the Board of Directors of the Company in its discretion) and the denominator of which is such Exercise Price.
(d) NOTICE OF CONSOLIDATION OR MERGER AND WARRANT EXCHANGE. The Company shall not, at any time after the date hereof, effect a merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities or other assets of the Company or another entity or there is a sale of all or substantially all the Company's assets (a "Corporate Change"), unless the resulting successor or acquiring entity (the "Resulting Entity") assumes by written instrument the Company's obligations under this Warrant, including but not limited to the Exercise Price reset provisions as provided herein during the term of the resultant warrants, and agrees in such written instrument that this Warrant shall be exerciseable into such class and type of securities or other assets of the Resulting Entity as Holder would have received had Holder exercised this Warrant immediately prior to such Corporate Change, and the Exercise Price of this Warrant shall be proportionately increased (if this Warrant shall be changed into or become exchangeable for a warrant to purchase a smaller number of shares of Common Stock of the Resulting Entity) or shall be proportionately decreased (if this Warrant shall be changed or become exchangeable for a warrant to purchase a larger number of shares of Common Stock of the Resulting Entity); provided, however, that Company may not affect any Corporate Change unless it first shall have given thirty (30) days notice to Holder hereof of any Corporate Change.
(e) EXERCISE PRICE ADJUSTED. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b), (c) or
(d) of this Section 5, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of this Warrant. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $0.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $0.01 or more.
(f) ADJUSTMENTS: ADDITIONAL SHARES, SECURITIES OR ASSETS. In the event that at any time, as a result of an adjustment made pursuant to this Section 5, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.
6. FRACTIONAL INTERESTS.
No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon exercise shall be the next higher number of shares.
7. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any person or entity.
8. RESTRICTIONS ON TRANSFER.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been issued in a transaction exempt from the registration requirements of the Act by virtue of Regulation D and exempt from state registration under applicable state laws. The Warrant and the Common Stock issuable upon the Exercise of this Warrant may not be pledged, transferred, sold or assigned except pursuant to an effective registration statement or unless the Company has received an opinion from the Company's counsel to the effect that such registration is not required, or the Holder has furnished to the Company an opinion of the Holder's counsel, which counsel shall be reasonably satisfactory to the Company, to the effect that such registration is not required; the transfer complies with any applicable state securities laws; and, if no registration covering the resale of the Warrant Shares is effective at the time the Warrant Shares are issued, the Holder consents to a legend being placed on certificates for the Warrant Shares stating that the securities have not been registered under the Securities Act and referring to such restrictions on transferability and sale.
(b) ASSIGNMENT. If Holder can provide the Company with reasonably satisfactory evidence that the conditions of (a) above regarding registration or exemption have been satisfied, Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to Company, substantially in the form of the Assignment attached hereto as EXHIBIT B, indicating the person or persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within ten (10) days, and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares.
9. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.
10. APPLICABLE LAW.
This Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the state of Georgia, without giving effect to conflict of law provisions thereof.
11. LOSS OF WARRANT.
Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
12. NOTICE OR DEMANDS.
Notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be given or made by the Company to or on Holder shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company's records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 2nd day of March, 2001.
DIMENSIONAL VISIONS INCORPORATED
By: /s/ John D. Mcphilimy
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John D. McPhilimy, President
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EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: DIMENSIONAL VISIONS INCORPORATED
The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of Common Stock (the "Common Stock") of DIMENSIONAL VISIONS INCORPORATED a Delaware corporation (the "Company"), evidenced by the attached warrant (the "Warrant"), and herewith makes payment of the exercise price with respect to such shares in full, all in accordance with the conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of the Common Stock obtained on exercise of the Warrant, except in accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued free of any restrictive legend, if appropriate, and a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below:
Dated: _________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the "Warrant") hereby sells, assigns and transfers unto the person or persons below named the right to purchase _______ shares of the Common Stock of DIMENSIONAL VISIONS INCORPORATED, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint _______________________ attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.
Dated: ________________________________________
Signature
Fill in for new registration of Warrant:
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Name
-----------------------------------
Address
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Please print name and address of assignee
(including zip code number)
NOTICE
The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of March 2, 2001, by and among Dimensional Visions Incorporated, a corporation duly incorporated and existing under the laws of the State of Delaware (the "Company"), and the investor as named on the signature page hereto (hereinafter referred to as "Investor") and amends and restates the Registration Rights Agreement between the parties dated on or about December 22, 2000.
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Twenty Million Dollars ($20,000,000) of Common Stock of the Company, pursuant to that certain Amemded and Restated Investment Agreement of even date herewith (the "Investment Agreement") between the Company and the Investor, the Company has agreed to sell and the Investor has agreed to purchase, from time to time as provided in the Investment Agreement, shares of the Company's Common Stock for a maximum aggregate offering amount as described above;
WHEREAS, pursuant to the terms of the Investment Agreement, the Company has agreed to issue to the Investor the Commitment Warrants and in certain events Additional Warrants (as defined in the Warrant Antidilution Agreement between the Company and the Investor) to purchase a number of shares of Common Stock, exercisable for ten (10) years from their respective dates of issuance (collectively, the "Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company has agreed to provide the Investor with certain registration rights with respect to the Common Stock to be issued in the Offering and the Common Stock issuable upon exercise of the Warrants as set forth in this Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement (including the Recitals above), the following terms shall have the following meanings (such meanings to be equally applicable to both singular and plural forms of the terms defined):
"Additional Registration Statement" shall have the meaning set forth in Section 3(b).
"Additional Warrants" shall have the meaning ascribed to it the Warrant Antidilution Agreement between the Company and the Investor.
"Additional Warrant Shares" shall mean shares of Common Stock issuable upon exercise of any Additional Warrant.
"Amended Registration Statement" shall have the meaning set forth in
Section 3(b).
"Business Day" shall have the meaning set forth in the Investment Agreement.
"Closing Bid Price" shall have the meaning set forth in the Investment Agreement.
"Commitment Warrant" shall have the meaning as set forth in the Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.01, of the Company.
"Due Date" shall mean the date that is one hundred twenty (120) days after the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
"Filing Deadline" shall mean March 7, 2001.
"Ineffective Period" shall mean any period of time after the Effective Date during the term hereof that the Registration Statement or any Supplemental Registration Statement (each as defined herein) becomes ineffective or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined herein) for any reason (or in the event the prospectus under either of the above is not current and deliverable).
"Investment Agreement" shall have the meaning set forth in the Recitals hereto.
"Investor" shall have the meaning set forth in the preamble to this Agreement.
"Holder" shall mean Investor, and any other person or entity owning or having the right to acquire Registrable Securities or any permitted assignee.
"Piggyback Registration" and "Piggyback Registration Statement" shall have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment Agreement.
"Register," "Registered," and "Registration" shall mean and refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule, and the declaration or ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall have the meaning set forth in Section 2.1.
"Registration Statement" shall have the meaning set forth in Section 2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
"Supplemental Registration Statement" shall have the meaning set forth in Section 3(b).
"Warrants" shall have the meaning set forth in the above Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable upon exercise of any Warrant.
2. REQUIRED REGISTRATION.
2.1 REGISTRABLE SECURITIES. "Registrable Securities" shall mean those shares of the Common Stock of the Company together with any capital stock issued in replacement of, in exchange for or otherwise in respect of such Common Stock, that are: (i) issuable or issued to the Investor pursuant to the Investment Agreement, or (ii) issuable or issued upon exercise of the Commitment Warrants; provided, however, that notwithstanding the above, the following shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to be Registrable Securities, if and to the extent that those shares of Common Stock may be resold in a public transaction without volume limitations or other material restrictions without registration under the Securities Act, including without limitation, pursuant to Rule 144 under the Securities Act; and
(b) any shares of Common Stock which have been sold in a private transaction in which the transferor's rights under this Agreement are not assigned.
2.2 FILING OF INITIAL REGISTRATION STATEMENT. The Company shall, by the Filing Deadline, file a registration statement ("Registration Statement") on Form SB-2 (or other suitable form, at the Company's discretion, but subject to the reasonable approval of Investor), covering the resale of a number of shares of Common Stock as Registrable Securities equal to at least Twenty Five Million (25,000,000) shares of Common Stock and shall cover, to the extent allowed by applicable law, such indeterminate number of additional shares of Common Stock that may be issued or become issuable as Registrable Securities by the Company pursuant to Rule 416 of the Securities Act. In the event that the Company has not filed the Registration Statement by the Filing Deadline, then the Company shall pay to INVESTOR an amount equal to $500, in cash, FOR EACH BUSINESS DAY AFTER THE FILING DEADLINE until such Registration Statement is filed, payable within ten (10) BUSINESS DAYS following the end of each calendar month in which such payments accrue. In addition, anytime the Company has issued Additional Warrants to the Investor totaling 250,000 shares which are not registered for resale, the Company shall promptly file a registration statement (on Form SB-2, or other suitable form, at the Company's discretion, but subject to the reasonable approval of Investor), covering the resale of a number of shares of
Common Stock as Registrable Securities equal to at least the number of Additional Warrant shares that are not registered for resale and shall cover, to the extent allowed by applicable law, such indeterminate number of additional shares of Common Stock that may be issued or become issuable as Registrable Securities by the Company pursuant to Rule 416 of the Securities Act.
2.3 REGISTRATION EFFECTIVE DATE. The Company shall use its best efforts to have the Registration Statement declared effective by the SEC (the date of such effectiveness is referred to herein as the "Effective Date") by the Due Date.
2.4 SHELF REGISTRATION. The Registration Statement shall be prepared as a "shelf" registration statement under Rule 415, and shall be maintained effective until all Registrable Securities are resold pursuant to the Registration Statement.
2.5 SUPPLEMENTAL REGISTRATION STATEMENT. Anytime the Registration Statement does not cover a sufficient number of shares of Common Stock to cover all outstanding Registrable Securities, the Company shall promptly prepare and file with the SEC such Supplemental Registration Statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all such Registrable Securities and shall use its best efforts to cause such Supplemental Registration Statement to be declared effective as soon as possible.
3. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective and to remain effective until the earlier of (i) the date that all Registrable Securities are resold pursuant to such Registration Statement, or (ii) the date that is one (1) year after the Termination Date (as defined in the Investment Agreement).
(b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement ("Amended Registration Statement") or prepare and file any additional registration statement ("Additional Registration Statement," together with the Amended Registration Statement, "Supplemental Registration Statements") as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Supplemental Registration Statements or such prior registration statement and to cover the resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus (if applicable), in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of the jurisdictions in which the Holders are located, of such other
jurisdictions as shall be reasonably requested by the Holders of the Registrable Securities covered by such Registration Statement and of all other jurisdictions where legally required, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.
(e) [Intentionally Left Blank].
(f) As promptly as practicable after becoming aware of such event, notify each Holder of Registrable Securities of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to each Holder as such Holder may reasonably request.
(g) Provide Holders with notice of the date that a Registration Statement or any Supplemental Registration Statement registering the resale of the Registrable Securities is declared effective by the SEC, and the date or dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and a reasonable amount of time, based upon reasonable notice delivered by the Company, to conduct a reasonable due diligence inquiry of Company's pertinent financial and other records and make available its officers and directors for questions regarding such information as it relates to information contained in the Registration Statement.
(i) Provide Holders and their representatives the opportunity to review the Registration Statement and all amendments or supplements thereto prior to their filing with the SEC by giving the Holder at least five (5) business days advance written notice prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the SEC or any state securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceeding for such purpose. The Company shall use its best efforts to prevent the issuance of any stop order and, if any is issued, to obtain the removal thereof at the earliest possible date.
(k) Use its best efforts to list the Registrable Securities covered by the Registration Statement with all securities exchanges or markets on which the Common Stock is then listed and prepare and file any required filing with the NASD, American Stock Exchange, NYSE and any other exchange or market on which the Common Stock is listed.
4. INEFFECTIVE PERIOD.
(a) Ineffective Period Payment. Within five (5) Business Days of the last day of any Ineffective Period, the Company will pay to the Investor in cash ("Ineffective Period Payments"), as liquidated damages for such suspension and
not as a penalty, an amount equal to the number of shares of Common Stock issued to the Investor in any Put with a Pricing Period End Date (as defined in the Investment Agreement) that is thirty (30) business days or less prior to the date that the Ineffective Period commences, multiplied by the difference of
(i) the highest closing price of the Company's Common Stock for any trading day during the Ineffective Period,
minus
(ii) the lowest closing price of the Company's Common Stock for the five (5) trading days including and immediately following the last trading day of such Ineffective Period.
(b) LIQUIDATED DAMAGES. The parties hereto acknowledge and agree that the sums payable as Ineffective Period Payments shall give rise to liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by the Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investor, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length.
5. PIGGYBACK REGISTRATION. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its Common Stock under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely for the sale of securities
to participants in a Company stock plan or a registration on Form S-4
promulgated under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, upon a business combination
involving an exchange of securities or upon an exchange offer for securities of
the issuer or another entity), the Company shall, at such time, promptly give
each Holder written notice of such registration (a "Piggyback Registration
Statement"). Upon the written request of each Holder given by fax within ten
(10) days after mailing of such notice by the Company, the Company shall cause
to be included in such registration statement under the Securities Act all of
the Registrable Securities that each such Holder has requested to be registered
("Piggyback Registration") and all of the Additional Warrant Shares that are
then unregistered, in each case to the extent such inclusion does not violate
the registration rights of any other security holder of the company granted
prior to the date hereof; provided, however, that nothing herein shall prevent
the Company from withdrawing or abandoning such registration statement prior to
its effectiveness.
6. LIMITATION ON OBLIGATIONS TO REGISTER UNDER A PIGGYBACK REGISTRATION. In the case of a Piggyback Registration pursuant to an underwritten public offering by the Company, if the managing underwriter determines and advises in writing that the inclusion in the related Piggyback Registration Statement of all Registrable Securities proposed to be included would interfere with the successful marketing of the securities proposed to be registered by the Company, then the number of such Registrable Securities to be included in such Piggyback Registration Statement, to the extent any such Registrable Securities may be included in such Piggyback Registration Statement, shall be allocated among all
Holders who had requested Piggyback Registration pursuant to the terms hereof, in the proportion that the number of Registrable Securities which each such Holder seeks to register bears to the total number of Registrable Securities sought to be included by all Holders. If required by the managing underwriter of such an underwritten public offering, the Holders shall enter into an agreement limiting the number of Registrable Securities to be included in such Piggyback Registration Statement and the terms, if any, regarding the future sale of such Registrable Securities.
7. DISPUTE AS TO REGISTRABLE SECURITIES. In the event the Company believes that shares sought to be registered under Section 2 or Section 5 by Holders do not constitute "Registrable Securities" by virtue of Section 2.1 of this Agreement, and the status of those shares as Registrable Securities is disputed, the Company shall provide, at its expense, an Opinion of Counsel, reasonably acceptable to the Holders of the Securities at issue (and satisfactory to the Company's transfer agent to permit the sale and transfer), that those securities may be sold immediately, without volume limitation or other material restrictions, without registration under the Securities Act, by virtue of Rule 144 or similar provisions.
8. FURNISH INFORMATION. At the Company's request, each Holder shall furnish to the Company such information regarding Holder, the Registrable Securities held by it, and the intended method of disposition of such securities to the extent required to effect the registration of its Registrable Securities or to determine that registration is not required pursuant to Rule 144 or other applicable provision of the Securities Act. The Company shall include all information provided by such Holder pursuant hereto in the Registration Statement, substantially in the form supplied, except to the extent such information is not permitted by law.
9. EXPENSES. All expenses, other than commissions and fees and expenses of counsel to the selling Holders, incurred in connection with registrations, filings or qualifications pursuant hereto, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, shall be borne by the Company.
10. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers, directors, partners, legal counsel, and accountants of each Holder, any underwriter (as defined in the Securities Act, or as deemed by the Securities Exchange Commission, or as indicated in a registration statement) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of Section 15 of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements or omissions: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, and the Company will reimburse each such Holder, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, officer, director, underwriter or controlling person; provided however, that the above shall not relieve the Company from any other liabilities which it might otherwise have.
(b) Promptly after receipt by an indemnified party under this Section 10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume, the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 10.
(c) To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which it would be required to make if such foregoing undertaking was enforceable which is permissible under applicable law.
(d) The obligations of the Company and Holders under this Section 10 shall survive the resale, if any, of the Common Stock, the completion of any offering of Registrable Securities in a Registration Statement under this Agreement, and otherwise.
11. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144; and
(b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act.
12. AMENDMENTS TO REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the written consent of each Holder affected thereby. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company. The Company will provide the Investor five (5) business days notice prior to filing any amendment to the Registration Statement or any amendment or supplement to the Prospectus and shall give the Investor the opportunity to review and comment on any such amendment or supplement. Failure of the Investor to comment within five (5) business days shall not preclude the Company from filing such amendment or supplement after such notice period has expired.
13. NOTICES. All notices required or permitted under this Agreement shall be made in writing signed by the party making the same, shall specify the section under this Agreement pursuant to which it is given, and shall be addressed if to (i) the Company at: Dimensional Visions Incorporated, Attn: John D. McPhilimy, President, 2301 W. Dunlap Ave., Ste. 207, Phoenix, AZ 85021; Telephone: (602) 997-1990, Facsimile: (602) 997-5658, (or at such other location as directed by the Company in writing) and (ii) the Holders at their respective last address as the party as shown on the records of the Company. Any notice, except as otherwise provided in this Agreement, shall be made by fax and shall be deemed given at the time of transmission of the fax.
14. TERMINATION. This Agreement shall terminate on the date all Registrable Securities cease to exist (as that term is defined in Section 2.1 hereof); but without prejudice to (i) the parties' rights and obligations arising from breaches of this Agreement occurring prior to such termination (ii) other indemnification obligations under this Agreement.
15. ASSIGNMENT. No assignment, transfer or delegation, whether by operation of law or otherwise, of any rights or obligations under this Agreement by the Company or any Holder, respectively, shall be made without the prior written consent of the majority in interest of the Holders or the Company, respectively; provided that the rights of a Holder may be transferred to a subsequent holder of the Holder's Registrable Securities (provided such transferee shall provide to the Company, together with or prior to such transferee's request to have such Registrable Securities included in a Registration, a writing executed by such transferee agreeing to be bound as a Holder by the terms of this Agreement), and the Company hereby agrees to file an amended registration statement including such transferee as a selling security holder thereunder; and provided further that the Company may transfer its rights and obligations under this Agreement to a purchaser of all or a substantial portion of its business if the obligations of the Company under this Agreement are assumed in connection with such transfer, either by merger or other operation of law (which may include without limitation a transaction whereby the Registrable Securities are converted into securities of the successor in interest) or by specific assumption executed by the transferee.
16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia applicable to agreements made in and wholly to be performed in that jurisdiction, except for matters arising under the Securities Act or the Exchange Act, which matters shall be construed and interpreted in accordance with such laws. Any dispute arising out of or relating to this Agreement or the breach, termination or validity hereof shall be finally settled by the federal or state courts located in FULTON COUNTY, GEORGIA.
17. EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument.
18. SPECIFIC PERFORMANCE. The Holder shall be entitled to the remedy of specific performance in the event of the Company's breach of this Agreement, the parties agreeing that a remedy at law would be inadequate.
19. INDEMNITY. Each party shall indemnify each other party against any and all claims, damages (including reasonable attorney's fees), and expenses arising out of the first party's breach of any of the terms of this Agreement.
20. ENTIRE AGREEMENT; WRITTEN AMENDMENTS REQUIRED. This Agreement, including the Exhibits attached hereto, the Investment Agreement, the Common Stock certificates, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein,
[INTENTIONALLY LEFT BLANK]
neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this 2nd day of MARCH, 2001.
DIMENSIONAL VISIONS INCORPORATED
By: /s/ John D. Mcphilimy
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John D. McPhilimy, President
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Address: 2301 W. Dunlap Ave.
Suite 207
Phoenix, AZ 85021
Telephone: (602) 997-1990
Facsimile: (602) 997-5658
INVESTOR:
SWARTZ PRIVATE EQUITY, LLC.
By: /s/ Eric S. Swartz
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Eric S. Swartz, Manager
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Address: 300 Colonial Center Parkway Suite 300 Roswell, GA 30076 Telephone: (770) 640-8130 Facsimile: (770) 640-7150
AMENDED AND RESTATED WARRANT ANTIDILUTION AGREEMENT
THIS AMENDED AND RESTATED WARRANT ANTIDILUTION AGREEMENT (the "Agreement") is entered into as of March 2, 2001, by and among DIMENSIONAL VISIONS INCORPORATED, a corporation duly organized and existing under the laws of the State of Delaware (the "Company") and Swartz Private Equity, LLC (hereinafter referred to as "Swartz"), and amends and restates the Warrant Antidilution Agreement between the parties dated on or about December 22, 2000.
RECITALS:
WHEREAS, pursuant to the Company's offering ("Equity Line") of up to Twenty Million Dollars ($20,000,000), excluding any funds paid upon exercise of the Warrants, of Common Stock of the Company pursuant to that certain Amended and Restated Investment Agreement (the "Investment Agreement") between the Company and Swartz dated on or about March 2, 2001, the Company has agreed to sell and Swartz has agreed to purchase, from time to time as provided in the Investment Agreement, shares of the Company's Common Stock for a maximum aggregate offering amount of Twenty Million Dollars ($20,000,000); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company has agreed, among other things, to issue to Swartz Commitment Warrants, as defined in the Investment Agreement, to purchase a number of shares of Common Stock, exercisable for seven (7) years from their respective dates of issuance.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. ISSUANCE OF COMMITMENT WARRANTS. As compensation for entering into the Equity Line, Swartz received a warrant convertible into 1,309,000 shares of the Company's Common Stock, in the form attached hereto as EXHIBIT A (the "Commitment Warrants").
2. ISSUANCE OF ADDITIONAL WARRANTS. On each six month anniversary of the date of execution by the Company and the Investor of the initial Commitment Warrants (each, a "Six Month Anniversary Date"), the Company shall issue to the Investor additional warrants (the "Additional Warrants"), to purchase a number of shares of Common Stock, if necessary, such that the sum of the number of Commitment Warrants and the number of Additional Warrants issued to Investor shall equal at least "Y%" of the number of fully diluted shares of Common Stock of the Company on such Six Month Anniversary Date (not including any shares issued or issuable to Swartz), where "Y" shall equal 7% for the first Six Month Anniversary Date, and shall be reduced by 0.5% for each Six Month Anniversary Date beginning on and following the second Six Month Anniversary Date. The Additional Warrants shall be in the form of EXHIBIT A hereto, and shall initially be exerciseable at the same price as the Commitment Warrants (as most recently reset), shall have the same reset provisions as the Commitment Warrants (which resets shall occur
on each six month anniversary of the date of issuance of the applicable Additional Warrant throughout the term of the applicable Additional Warrant), shall have piggyback registration rights and shall have a 7-year term.
3. OPINION OF COUNSEL. Concurrently with the issuance and delivery of the Commitment Opinion (as defined in the Investment Agreement) to the Investor, or on the date that is six (6) months after the date of this Agreement, whichever is sooner, the Company shall deliver to the Investor an Opinion of Counsel (signed by the Company's independent counsel) covering the issuance of the Commitment Warrants and the Additional Warrants, and the issuance and resale of the Common Stock issuable upon exercise of the Warrants and the Additional Warrants.
4. CHANGE IN CORPORATE ENTITY. The Company shall not, at any time after the date hereof, enter into any merger, consolidation or corporate reorganization of the Company with or into, or transfer all or substantially all of the assets of the Company to, another entity unless the resulting successor or acquiring entity in such transaction, if not the Company (the "Surviving Entity"), (i) has Common Stock listed for trading on Nasdaq or on another national stock exchange and is a Reporting Issuer, (ii) assumes by written instrument the Company's obligations with respect to this Warrant Antidilution Agreement and the Additional Warrants, including but not limited to the obligations to deliver to the Investor shares of Common Stock and/or securities that Investor is entitled to receive pursuant to this Investment Agreement and upon exercise of the Additional Warrants and agrees by written instrument to reissue, in the name of the Surviving Entity, any Additional Warrants (each in the same terms, including but not limited to the same reset provisions, as the Commitment Warrants originally issued or required to be issued by the Company) that are outstanding immediately prior to such transaction, making appropriate proportional adjustments to the number of shares represented by such Warrants and the exercise prices of such Warrants to accurately reflect the exchange represented by the transaction.
5. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia applicable to agreements made in and wholly to be performed in that jurisdiction, except for matters arising under the Act or the Securities Exchange Act of 1934, which matters shall be construed and interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this 2nd day of March, 2001.
DIMENSIONAL VISIONS SUBSCRIBER:
INCORPORATED SWARTZ PRIVATE EQUITY, LLC.
By: /s/ John D. Mcphilimy By: /s/ Eric S. Swartz
------------------------------ ------------------------------------
John D. McPhilimy, President Eric S. Swartz, Manager
2301 W. Dunlap Ave. 300 Colonial Center Parkway
Suite 207 Suite 300
Phoenix, AZ 85021 Roswell, GA 30076
Telephone: (602) 997-1990 Telephone: (770) 640-8130
Facsimile: (602) 997-5658 Facsimile: (770) 640-7150
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Exhibit 4.12
PORTFOLIO RESERVE LOAN AND COLLATERAL ACCOUNT AGREEMENT
This Agreement establishes the terms and conditions that will govern Borrower's Loan (the "Loan") from Merrill Lynch bank USA. The Loan is secured by a pledge of assets held in a special securities account established and maintained with Merrill Lynch, Pierce, Fenner & Smith Incorporated in accordance with this Agreement. This Agreement becomes effective only upon your sending notice to Borrower in writing that Borrower's Loan has been approved.
DEFINITIONS
In this Agreement, "Borrower" means the individual or individuals (individually and jointly, if more than one) or the corporation, partnership (general or limited), limited liabilitiy company, sole proprietorship or other legal entity which signs the Application as Applicant, "You," "your" and "Bank" means Merrill Lynch Bank USA. "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Merrill Lynch Group" means Merrill Lynch & Co., Inc. and its subsidiaries. "Loan Party" means, individually and collectively, Borrower and any person who guarantees to the Bank the payment and/or performance of Borrower's obligations under this Agreement and/or pledges collateral to the Bank to secure the Borrower's obligations under this Agreement. "Agreement" means this Portfolio Reserve Loan and Collateral Account Agreement, the Application, the Account Application, the Approval Letter, and any other documents or agreements identified by you as being part of the "Agreement." "Application" means the Merrill Lynch Bank USA Portfolio Reserve Loan Application Borrower has completed and submitted to you in connection with the Loan. "Approval Letter" means the letter the Bank will send to the loan parties if the Application is approved, which will contain the terms relating to my Loan described in paragraph 1 below. "Account Application" means the WCMA Collateral Account Application (or CMA Collateral Account Application if Borrower is an individual) Borrower has completed and submitted to MLPF&S and you in connection with the Securities Account.
"Securities Account" means the cash securities account, including the ISA account established pursuant to the Account Application and this Agreement. "ISA account" means the Insured Savings account, established pursuant to the Account Application and this Agreement. "Collateral" has the meaning given to that term in paragraph 17 below. "Security Interest" has the meaning given to that term in paragraph 17 below. "Borrowing Power" means the amount you are willing to lend against a fully paid for security, as determined by you from time to time in your discretion. "Maintenance Requirement" means the Value of Collateral which must be maintained in the Securities Account, as determined by you from time to time in your discretion. "Value" means the value assigned to the Collateral by you from time to time in accordance with your standard valuation procedures, as such procedures may be modified, amended or supplemented by you from time to time in your discretion.
"Periodic Payment" means the amount described in paragraph 4 below, to be paid by Borrower to you on a monthly, quarterly or other periodic basis, as indicated in the Approval Letter. "Principal Amount" means the principal amount of the Loam made by you to Borrower, as indicated in the Approval Letter. "Interest Rate" means the annual interest rate applied to my Outstanding Principal
Balance, as described in Paragraph 5 below and as indicated in the Approval Letter. "Fixed Rate," "LIBOR Rate," and "Prime Rate" have the meanings given those terms in Paragraph 5 below. "Outstanding Principal Balance" means the original Principal Amount, less the aggregate amount of any principal payments made by borrower under the Loan. "Outstanding Total Balance" means the Outstanding Principal Balance plus accrued but unpaid interest and all other amounts then owing by Borrower under this Agreement. "Loan Term" means the length of the term of the Loan, as indicated in the Approval Letter.
GENERAL TERMS
1. Borrower has applied for a Loan pursuant to the Application. If you approve Borrower's Application, you will send to Borrower a completed Approval Letter signed by you. Among other things, the Approval Letter will set forth the following terms of my Loan:
(a) the Principal Amount,
(b) the Interest Rate,
(c) the frequency and amounts (or the manner in which the amount is determined)
of the Periodic Payment, and
(d) the Loan Term.
Borrower acknowledges and agrees that the terms set forth in the Approval Letter are part of this Agreement.
LIMITATION ON USE OF LOAN PROCEEDS
2. UNLESS DISCLOSED IN WRITING TO YOU AT THE TIME OF THE APPLICATION, AND APPROVED BY YOU, BORROWER MAY NOT USE ANY PORTION OF THE LOAN PROCEEDS TO FINANCE THE PURCHASE OF SECURITIES, OR TO REPAY ANY DEBTS INCURRED (A) TO PURCHASE, CARRY OR TRADE SECURITIES OR (B) TO ANY MEMBER OR THE MERRILL LYNCH GROUP.
PROMISE TO PAY, PROMISE TO MAINTAIN COLLATERAL
3. Borrower promises to pay to you or your order when DUE THE principal Amount, interest, and all other amounts and charges permitted under and payable in accordance with this Agreement. Borrower also promises to maintain such Collateral in the Securities Account as you may require from time to time in accordance with your Maintenance Requirements.
PAYMENTS
4. Borrower's Periodic Payments must be made at the address indicated on Borrower's periodic billing statement. Unless you agree in writing otherwise, each Periodic Payment will be equal to all accrued but unpaid interest, any payment of the Outstanding Principal Balance then due, and any past due amounts. Borrower may elect to make its Periodic Payments by authorizing you to directly
debit its Merrill Lynch Working Capital Management Account (or the Borrower's Merrill Lynch Cash Management Account if Borrower is an individual), or such other account specified by Borrower, or deposit account at another institution on a periodic basis for the amount of the Periodic Payment. Borrower must pay each Periodic Payment by the payment due date shown on the periodic billing statement, even if Borrower has paid more than the Periodic Payment in any prior period. The Outstanding Total Balance will be due and payable with the final Periodic Payment.
Borrower's payments may be applied in any manner which you elect, although, generally, payments will first be applied to fees and charges Borrower owns under this Agreement, then to interest, and finally to reduce the Outstanding Principal Balance.
INTEREST RATE
5. The Interest Rate for the Loan will be calculated on the basis of a year of 365 days (366 days in the case of a leap year). Interest will begin to accrue on the date the Loan proceeds are disbursed to Borrower or, if different, the date indicated in the Approval Letter. The Interest Rate for the Loan will be one of the following, as requested by Borrower, approved by you, and specified in the Approval Letter:
a) Fixed Rate: the Interest Rate is fixed for the Loan Term.
b) Prime Rate: the floating "Prime Rate" as published in THE WALL STREET JOURNAL (U.S. Eastern Edition) plus an additional amount expressed as partial or whole percentage (%) points specified by the Bank and set forth in the Approval Letter. The Prime Rate will change as and when the Prime Rate as published in THE WALL STREET JOURNAL changes. In the event THE WALL STREET JOURNAL does not publish a Prime Rate, the Prime Rate shall be the rate as determined by the Bank in good faith.
c) LIBOR Rate: the LIBOR Rate, plus an additional amount expressed as partial or whole percentage (%) points specified by the Bank and set forth in the Approval Letter. The LIBOR Rate will be set by the Bank on the first business day of each week and will be equal to the three (3) month (or such other LIBOR period as may be specified in the Approval Letter) LIBOR Rate as published in THE WALL STREET JOURNAL "Money Rates" table on such day. If THE WALL STREET JOURNAL does not publish such a LIBOR Rate, the LIBOR Rate shall be: (i) the rate equal to the rate Merrill Lynch International Bank Limited ("MLIB") offers to take deposits from leading banks in the London Inter Bank Market, for the corresponding time period or (ii) if no such offers are being made by MLIB, the rate as determined by the Bank in good faith. In no event will the Interest Rate charged by the Bank, (including the default interest described in paragraph 7(b)) exceed the highest rate allowed by applicable state and federal law.
FIXED RATE LOANS PAID IN ADVANCE OF DUE DATE
6. With respect to Fixed Rate Loans, Borrower acknowledges that the Interest Rate is set by the Bank on the assumption that the entire principal amount of the Loan will remain outstanding for the entire Loan Term. Accordingly, Borrower agrees that in the event all or any portion of the Loan is paid in advance of
its due date, Borrower will pay to the Bank, upon request, such amount as the Bank shall determine will compensate it for any hardship (including loss of profit), cost of expense incurred by it as a result of such early payment. Borrower further agrees that the amount payable by Borrower under this paragraph will, in any event, be no less than an amount equal to 1% of the amount of the loan being paid in advance of its due date times the number of years (up to a maximum of 5 years) remaining in the Loan Term, with partial years counted as an entire year. The foregoing liability, if any, constitutes an obligation under this Agreement and is secured by the Collateral.
OTHER CHARGES; DEFAULT INTEREST
7. (a) You reserve the right to charge (a) any third party costs you may incur at Borrower's request, or (b) any stamp, documentary, registration or similar tax payable in connection with this Agreement or the Loan, together with any liability with respect to or resulting from any delay in paying or omission to pay any such tax. Such costs and charges may, at your option, be charged or added to the Outstanding Principal Balance or to Borrower's next Periodic Payment.
(b) To the extent permitted by applicable law, in the event the Borrower does not make any payment to the Bank when due, the interest Rate payable with respect to the outstanding amount of the Loan (both before and after judgement, if any) may, in the discretion of the Bank, increase, effective as of the date when such payment was due, by two percent (2.00%) until all payments due (including any late payments and any amounts accelerated) are paid to the Bank in full. Any default interest payable: (i) which is not paid when due may be added to the overdue sum and itself bear interest accordingly; and (ii) constitutes an obligation under this Agreement and is secured by the Collateral.
BANKRUPTCY
8. Borrower must first notify you in writing before filing any petition seeking the protection of any state or federal bankruptcy statutes, and Borrower must not take any action (or fail to take any necessary action) which may cause a petition in bankruptcy to be filed against Borrower.
DEFAULT
9. A default ("Default") will occur under this Agreement if: (a) Borrower fails to make any payment when it is due as required by this Agreement or breaches any other provision of this Agreement; (b) the Value of the Collateral in the Securities Account falls below the applicable Maintenance Requirement, and Borrower has not deposited additional Collateral or reduced the Outstanding Principal Balance as required under paragraph 21 below; (c) Borrower or any Loan Party makes, or you discover that Borrower or any Loan Party has made, a material misrepresentation in connection with the Application and the Loan; (d) Borrower or any Loan Party files, or there is filed against Borrower or any Loan Party, any petition seeking the protection of any state or federal bankruptcy statutes or the Borrower or any other Loan Party becomes insolvent or is generally unable to pay his, her or its debts when due; (e) an attachment is levied against all or any portion of the Securities Account or any other
collateral directly or indirectly securing the Loan; (f) you determine that there is a material adverse change in the Borrower's or any Loan Party's financial condition or prospects or the Collateral securing the loan; (g) a Loan Party or the sole proprietor, majority shareholder or controlling owner of a Loan Party dies or is declared incompetent or of unsound mind; or (h) Borrower or any other Loan Party fails to satisfy any obligation to you or any other member of the Merrill Lynch Group, or a default occurs under any other agreement the Borrower or any other Loan Party has entered into with you or any other member or the Merrill Lynch Group.
ACCELERATION UPON DEFAULT
10. If a Default occurs, you may declare due and payable the Outstanding Total Balance. With respect to Fixed Rate Loans, Borrower acknowledges and agrees that additional changes, calculated in accordance with paragraph 6 above, will be due and payable in connection with the acceleration of the Outstanding Principal Balance pursuant to this paragraph. If Borrower fails to pay the amounts described in the preceding two sentences in full upon your demand, you may, in addition to any other rights you may have, exercise all of your rights and remedies under this Agreement, including, but not limited to, those described in paragraph 21 below.
COSTS OF COLLECTION
11. If Borrower fails to make any payment under this Agreement as and when required, Borrower must pay, to the extent permitted by applicable law, your court and collection costs, any costs incurred in the disposition of the Collateral, and, if the Loan is referred for collection to any attorney not employed by you or one of your affiliates, your reasonable attorney fees and expenses.
DELAY IN ENFORCEMENT
12. You can choose to delay or not to enforce any of your rights under this Agreement without losing them.
NO WAIVER
13. If you choose not to exercise or enforce any of your rights, you are not waiving the right to enforce such rights at a later time or any of your other rights. Any waiver of your rights under this Agreement must be in writing.
STATEMENTS AND NOTICES
14. Statements and notices will be sent to the address shown on the Application, unless Borrower notifies you in writing of a change in address. Borrower must notify you of any change in address or name. Borrower must send correspondence to you at the address shown for notices appearing on the periodic billing statement unless you notify Borrower otherwise. If the Securities Account is
linked to a WCMA account, CMA account (each as defined in paragraph 16 below) or other securities account maintained with MLPF&S, Borrower authorizes MLPF&S to send all notices, monthly statements and other communications regarding the Securities Account to the address designated for such account or account from time to time.
WAIVERS
15. Borrower waives Borrower's rights to require you to do certain things, to the extent permitted by applicable law. Those things are: (a) to demand payments of amounts due (known as "presentment"); (b) to give notice that amounts due have not been paid (known as "notice of dishonor"); and (c) to obtain an official certification of nonpayment (known as "protest").
PARAGRAPHS 16 THROUGH 24 GOVERN THE ESTABLISHMENT AND MAINTENANCE OF THE SECURITIES ACCOUNT THE MLPF&S AND BORROWER'S PLEDGE AND GRANT TO YOU OF A SECURITY INTEREST IN THE COLLATERAL.
ESTABLISHMENT OF THE SECURITIES ACCOUNT
16. MLPF&S shall establish the Securities Account (which shall include an ISA account), which shall be known as "(Borrower's Name) Pledged Collateral Account for Merrill Lynch Bank USA," (or such other title, including abbreviations, acceptable to Bank), and Borrower agrees, as a condition to your obligation to extend the Loan, to place Collateral in the Securities Account with Borrowing Power sufficient to permit the Bank to make a Loan in the Principal Amount. Borrower agrees at all times to maintain Collateral in the Securities Account with Value sufficient to satisfy your Maintenance Requirements, until all of Borrower's obligations under this Agreement have been satisfied indefeasibly in full. Borrower acknowledges that in establishing and maintaining the Securities Account, MLPF&S is acting as your agent for purposes of perfecting your Security Interest, and shall be deemed a party to this Agreement as is relates to the Security Interest and the Securities Account.
Borrower understands that the Securities Account is a special, limited version of the Merrill Lynch Working Capital Management Account ("WCMA account") (or a Merrill Lynch Cash Management Account if Borrower is an individual ("CMA account")) financial service. In accordance with the terms of the Insured Savings Account Fact Sheet, available free credit balances in the Securities Account will be deposited in the ISA account at least once each week. Borrower understands that amounts Borrower may owe from time to time in connection with the Securities Account (such as payment for transactions) may be satisfied, subject to your Security Interest, by MLPF&S from amounts deposited in the ISA account.
SECURITY INTEREST
17. As security for Borrower's obligation to you under the Loan and this Agreement, Borrower hereby assigns, pledges, grants, and conveys to you a continuing first priority lien and security interest (the "Security Interest")
in (a) The Securities Account and all stocks, bonds, or other securities or securities entitlements or any other property or financial asset now or hereafter in the Securities Account; (b) all credit balances, accounts, contract rights, general intangibles, instruments, documents, money, certificates of deposit and all other property of whatever kind or description now or hereafter in the Securities Account; (c) any securities or other financial assets described in confirmations and other reports delivered by MLPF&S to Borrower or you in connection with the Securities Account, which securities are deemed to be in the Securities Account for purposes of this Agreement; (d) all dividends, interest and proceeds of any such property, including without limitation, proceeds or proceeds; and (e) all of Borrower's right, title and interest in and to all monies, debts, claims, securities, financial assets and other property deposited by Borrower with or owed or owing to Borrower by the Bank or any member of the Merrill Lynch Group (collectively, the "Collateral"). Terms used in this Agreement which are not defined shall have the meanings set forth in the Uniform Commercial Code, as in effect from time to time in New Your (the "UCC"). For purposes of this Agreement, the ISA account will be deemed to be included in and a part of the Securities Account. Borrower acknowledges that control over the Securities Account, and all Collateral in the Securities Account, shall be in the Bank and MLPF&S for all purposes, including establishing and perfecting a security interest therein.
All assets and property in or credited towards the Securities Account shall be treated as a "financial asset" as that term is defined in the UCC.
Borrower will take all action which you request or which is reasonably necessary to assure that you have a continuing perfected first priority Security Interest while this Agreement is in effect. Upon your request, Borrower will execute and deliver to you financing statement(s) conforming to the UCC and in a form you deem to be acceptable. Upon your request, Borrower also agrees to execute and deliver continuation statement(s) conforming to the UCC in a form you deem to be acceptable. If Borrower fails to deliver to you financing statements or continuation statements you request, you may, to the extent permitted by law and without limiting your other rights under this Agreement, execute and file in Borrower's name, as Borrower's attorney-in-fact, such documents. If the location of Borrower's chief executive office changes, Borrower will immediately notify you in writing to that effect and will execute and deliver to you any additional financing statements or similar documentation you may reasonably request to assure the continued effectiveness of your Security Interest. Once you agree that Borrower has fully and indefeasibly performed Borrower's obligations under this Agreement, your Security Interest in any Collateral in your possession will be terminated and any such Collateral will be returned to Borrower.
CERTAIN BANK RIGHTS IN THE SECURITIES ACCOUNT
18. You may provide MLPF&S entitlement orders or other instructions with respect to the Securities Account at any time. Your instructions may include instructions to liquidate Collateral and other property in the Securities Account, to pay credit balances from the Securities Account to you or your designees, or to move the Collateral from the Securities Account to you or into an account in your name or the name of your designees. In following your instructions, MLPF&S is under no duty to Borrower whatsoever to determine
whether a Default has occurred or is continuing. Borrower understands that you have ultimate control over all instructions made with respect to the Securities Account, and that if there is a conflict between the instructions you and Borrower give to MLPF&S with respect to the Securities Account, your instructions will prevail.
You are entitled to receive duplicates of any and all notices, confirmations and statements of account that Borrower is entitled to receive with respect to the Securities Account. MLPF&S is authorized to provide you with any and all information in its possession or control relating to the Securities Account, and to provide you with on-line access to MLPF&S systems relating to the Securities Account.
MY TRANSACTIONS IN THE SECURITIES ACCOUNT
19. Borrower may request withdrawals of Collateral from the Securities Account if the Value of the Collateral remaining in the Securities Account after the withdrawal continues to satisfy your Maintenance Requirement and applicable securities credit regulations. Borrower also may purchase, sell or substitute Collateral in the Securities Account if the Value of the Collateral remaining in the Securities Account after the purchase, sale or substitution continues to satisfy your Maintenance Requirement and applicable securities credit regulations. Borrower understands that Borrower will not be permitted to execute any transaction in the Securities Account if, following the transaction, Borrower will not be in compliance with your Maintenance Requirement and applicable securities credit regulations. Borrower also understands that transactions made in the Securities Account may be reversed if the transaction would result in Borrower's breach of this Agreement.
Borrower irrevocably waives for your benefit any right Borrower may have to instruct any depository institution holding Borrower's ISA account to register Borrower's deposit in Borrower's name on the books and records of the depository.
ELIGIBLE COLLATERAL
20. Subject to your rights under this Agreement (including without limitation
your right to change or limit the types of securities used as collateral as set
forth in this paragraph 20 and your rights under paragraph 18), the following
securities are eligible to be held as Collateral under this Agreement: (1)
securities and instruments which are traded on a national securities exchange,
NASDAQ or recognized over-the-counter markets; (2) mutual fund shares; (3) unit
investment trusts; (4) negotiable certificates of deposit acceptable to the
Bank; (5) United States Treasury notes, bills or bonds; (6) corporate or
municipal bonds; or (7) any other securities which you may approve in writing.
BORROWER ACKNOWLEDGES, HOWEVER, THAT DUE TO FEDERAL REGULATIONS, BORROWER MAY
NOT HOLD IN THE SECURITIES ACCOUNT ANY SECURITY ISSUED BY ANY MEMBER OF THE
MERRILL LYNCH GROUP, ANY SECURITY IN AN INVESTMENT COMPANY (MUTUAL FUND) AS TO
WHICH ANY MEMBER OF THE MERRILL LYNCH GROUP ACTS AS INVESTMENT ADVISOR, OR ANY
INTEREST IN A UNIT INVESTMENT TRUST SPONSORED AND ADVISED BY ANY MEMBER OF THE
MERRILL LYNCH GROUP. Borrower acknowledges that if Borrower violates any of the
restrictions on eligible Collateral provided for in this Agreement (including
the restrictions described in the preceding sentence), you may, in exercising
(and without limiting) your remedies under this Agreement, liquidate all or a
portion of any securities placed into the Securities Account in violation of
this Agreement.
You reserve the right to change or limit in your discretion the types of securities which Borrower may use as Collateral. In addition, Borrower may not borrow any amounts on margin (including short sales) using the Securities Account or any Collateral in the Securities Account. Borrower may not sell, assign, pledge or grant a Security Interest in the Securities Account or the Collateral in the Securities Account to anyone other than you, as provided in this Agreement, or MLPF&S. Any interest MLPF&S may have in the Securities Account and the Collateral is subordinated to your Security Interest.
REMEDIES
21. (a) Upon the occurrence of a Default, you may, at your option, instruct MLPF&S to cancel any open orders and close any and all outstanding contracts, liquidate the Collateral, withdraw and/or sell any such Collateral, and apply any such Collateral, as well as the proceeds of any such Collateral to all unpaid amounts owing under the Loan and this Agreement. Borrower will be responsible for any decrease in the Value of the Collateral occurring prior to or during liquidation. Upon the occurrence of a Default, you may also setoff, against any amount owing to you under this Agreement, any securities, cash or other property of Borrower (including without limitation any deposit account of Borrower with you, including any deposit with you made in connection with the ISA account) in your possession, directly or through MLPF&S as your agent or in the possession of any other member of the Merrill Lynch Group.
(b) You may exercise any or all of your rights under this paragraph 21 without further demand for additional Collateral, or notice of sale or purchase, or other notice or advertisement. If at any time the Value of the Collateral is les than the Maintenance Requirement and Borrower has not reduced the Outstanding Principal Balance or deposited in the Securities Account additional funds and/or securities eligible to be held as Collateral (as defined in Section 20 above) with a Value sufficient to increase the Value of the Collateral to at least the Maintenance Requirement, then you may, at your option, from time to time, and without any obligation on your part to give notice, instruct MLPF&S to cancel any open orders and close any or all outstanding contracts, liquidate the Collateral, withdraw and/or sell any or all Collateral and any proceeds of the Collateral and reduce the amount owing to you under the Loan. Any sales or purchases made pursuant to this paragraph 21 may be made at your discretion on any exchange or other market where such business is usually transacted, or at public auction or private sale, and you or your agent may be the purchaser for your or your agent's own account. It is understood that the giving of any prior demand or call or prior notice of the time and place of such sale or purchase by you or your agent will not be considered a waiver of your right to sell or buy without any such demand, call or notice as provided in this Agreement.
(c) With respect a Fixed Rate Loan, Borrower agrees to pay to you additional charges, if any, payable under paragraph 6 above, if the Outstanding Principal Balance is reduced pursuant to this paragraph.
(d) In addition to your rights and remedies described in this Agreement, you have the right to exercise any one or more of the rights and remedies of a secured creditor under the UCC. All the rights and remedies which are available
to you under this Agreement are cumulative and are in addition to any and all other rights and remedies which are otherwise available to you either at law, equity or otherwise. You may exercise any one or more of such rights and remedies simultaneously or successively.
OTHER ACCOUNT PROVISIONS
22. MLPF&S and Borrower each acknowledge that no VISA card, funds transfer service, wire transfer, check writing or margin capabilities exist or will be permitted with respect to the Securities Account without your prior written consent.
This Agreement does not create any obligations or duties on MLPF&S to Borrower
greater than or in addition to the customary and usual obligations and duties
which MLPF&S has as a stockbroker and custodian of securities, except to the
extent expressly provided in this Agreement.
All transactions in the Securities Account are subject to the constitution,
rules, regulations, customs and usages of the exchange or market and its
clearinghouse, if any, on which MLPF&S or its agents (including MLPF&S'
subsidiaries and affiliates) execute such transactions. Borrower agrees to pay
customary brokerage fees in connection with any transactions in the Securities
Account made in accordance with this Agreement.
23. Unless indicated otherwise on the Account Application, the Applicant shall be the legal owner (the "accountholder") of the Securities Account. If more than one natural person signs the Application as Applicant or Co-Applicant, each such person shall be account holder of the Securities Account. With respect to natural persons, the legal ownership of the Securities Account shall be in such form as the Borrower instructs in the Account Application. In the event no designation is made, the Bank and MLPF&S are authorized to deal with the accountholders as tenants in common (without right of survivorship).
Subject to the limitations in this Agreement, all accountholders agree that (i) with respect to Borrowers which are not natural persons, each person designated by accountholder from time to time shall have authority to transact any business on behalf of the Securities Account, (ii) with respect to a Securities Account in the name of more than one natural person, each accountholder has authority to transact any business on behalf of the Securities Account as fully and completely as if each accountholder were the sole owner of the Securities Account, and (iii) MLPF&S may accept orders and instructions, written or oral, with respect to the Securities Account from each such person or accountholder referred to in (i) and (ii) above, without notice to accountholder, for the receipt, transfer and withdrawal of funds and for the purchase, sale, exchange, transfer or other disposition of securities and other property.
Upon the occurrence of any event that causes a change in legal ownership of the Securities Account, (including, without limitation, death of an accountholder or divorce of married accountholders), all accountholders or the surviving accountholder, as the case may be, shall immediately give the Bank and MLPF&S written notice thereof, and the Bank or MLPF&S may, in such event, take such action, including requiring such documents or imposing such restrictions on the Securities Account, as the Bank or MLPF&S may deem necessary in the circumstances. Subject to the limitations in this Agreement, the accountholder, the estate of a deceased accountholder and a departing accountholder by assignment or divorce shall remain liable jointly and severally for any obligations to the Bank or MLPF&S arising in connection with the Loan or the Securities Account.
Subject to the limitations in this Agreement, in the event of any such change of ownership of the Securities Account, MLPF&S is authorized to divide or retitle the Securities Account in accordance with the form of legal ownership of the Securities Account as reflected on the records of MLPF&S or by written instructions of the Bank and the accountholder(s), or by obtaining a court order, as MLPF&S and the Bank may reasonably determine is appropriate in the circumstances. With respect to natural persons, unless agreed otherwise among the accountholders in a writing provided to MLPF&S, joint accounts designated "with right of survivorship" (e.g. JTWROS) shall, subject to your rights under this Agreement, vest the interest of a deceased accountholder in the surviving accountholder(s) and Securities Account designated "without right of survivorship" (e.g. TIC) shall, subject to your rights under this agreement, entitle the estate of a deceased accountholder and the surviving accountholder(s) to equal shares of the Securities Account. All accountholders agree to indemnify and hold harmless MLPF&S and you against any liability, loss or expense incurred from acting in accordance with this agreement in the event of a change in ownership of the Loan or Securities Account.
Borrower may not change ownership of the Securities Account except in accordance with this paragraph 23, and subject to your Security Interest. No change in ownership of the Securities Account will be effective until the change is consented to by you and reflected in the account records of MLPF&S. All statements, notices or other communications sent or given to one accountholder by your or MLPF&S shall be considered notice to all accountholders. Subject to the limitations in this Agreement, in the event MLPF&S receives inconsistent instructions from two or more accountholders, reasonably believes instructions received from one accountholder is not mutually agreeable to all accountholders, or receives a court order with respect to the Securities Account, MLPF&S may, but is not obligated to, restrict activity in the Securities Account, require that all instructions of any accountholder be in writing signed by all accountholders, suspend or terminate the service and/or file an interpleader action in an appropriate court at the expense of the accountholders.
HOLD HARMLESS; ARBITRATION WITH MLPF&S
24. Borrower hereby agrees to hold harmless MLPF&S, its affiliates (excluding you), and its employees from any and all claims, liabilities, and/or damages, in any way related to, or arising out of, or in connection with, Borrower's granting the Security Interest, your exercise of rights under this Agreement, including any action or inaction by MLPF&S in following your instructions regarding the Securities Account in accordance with this Agreement.
Borrower agrees that all controversies which may arise between MLPF&S and Borrower concerning the Securities Account, including, but not limited to, those involving any transaction or the construction, performance, or breach of this or any other agreement between MLPF&S and Borrower, whether entered into prior to, on or subsequent to the date hereof shall be determined by arbitration. Any
arbitration under this Agreement shall be conducted only before the New York Stock Exchange, Inc., the American Stock Exchange, Inc. or an arbitration facility provided by any other exchange, the National Association of Securities Dealers, Inc. or the Municipal Securities Rulemaking Board, and in accordance with its arbitration rules then in force. Borrower may elect in the first instance whether arbitration shall be conducted before the New York Stock Exchange, Inc., the American Stock Exchange, Inc., other exchanges, the National Association of Securities Dealers, Inc. or the Municipal Securities Rulemaking Board, but if Borrower fails to make such election, by registered letter or telegram addressed to you at the office where the Securities Account is maintained, before the expiration of five days after receipt of a written request from MLPF&S to make such election, then MLPF&S may make such election. Judgment upon the award of the arbitrators may be entered in any court, state or federal, having jurisdiction.
No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until:
I. The class certification is denied;
II. The class is decertified; or
III. The customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this Agreement except to the extent stated herein.
- Arbitration is final and binding on the parties.
- The parties are waiving their right to seek remedies in court, including
the right to jury trial.
- Pre-arbitration discovery is generally more limited than and different from
court proceedings.
- The arbitrator's award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
- The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
FINANCIAL AND CREDIT INFORMATION
25. Borrower agrees:
(a) To notify you immediately, in writing, of any change in Borrower's financial condition or prospects which would adversely affect Borrower's ability to repay any obligation(s) to you according to the Loan terms;
(b) To supply to you such current financial information or other information as you may reasonably request from time to time;
(c) That you and any member of the Merrill Lynch Group may share with one another and any affiliated companies, or any person authorized by Borrower, for legitimate business purposes, any information about Borrower which each may currently possess or obtain in the future, unless Borrower notifies you at the time of application for the Loan that Borrower does not agree to such sharing of information;
(d) That you, or anyone authorized by you, may obtain, from time to time, third party credit and investigative reports with respect to the Borrower, and may answer any questions about your credit experience with Borrower; and
(e) That there may be additional documentation required to be filed or executed by Borrower from time to time by applicable law or the policies and procedures of MLPF&S or the Bank, and Borrower agrees to comply with any requests for additional documents.
WARRANTIES AND COVENANTS
26. On a continuing basis, Borrower warrants and covenants to you that:
(a) Except for your rights established under this Agreement, Borrower owns the Collateral free of any interest or lien in favor of any third party (other than any subordinated interest MLPF&S may have in the Securities Account);
(b) The Security Interest is and shall remain a perfected and valid first priority lien and security interest upon the Collateral;
(c) Borrower will not pledge or hypothecate the Collateral or grant a security interest in the Collateral or grant a security interest in the Collateral to any third party during the term of this Agreement;
(d) With respect to the issuer of any securities in the Securities Account, Borrower and its affiliates, in the aggregate, are not the beneficial owners of more than three (3%) percent of the number of outstanding shares of any class of equity securities;
(e) With respect to any securities in the Securities Account, Borrower does not control the issuer of such securities;
(f) The Loan proceeds will be used only in accordance with paragraph 2 above;
(g) Borrower has been duly organized or formed under the jurisdiction of its organization or formation. Borrower is in good standing under the laws of the jurisdiction of its organization or formation and is duly qualified to do business in all jurisdictions in which the nature of its activities requires such qualification;
(h) Borrower has the full right, power and authority to make, execute, deliver and perform its obligations under this Agreement and the execution, delivery and performance of the documents contemplated by this Agreement and consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary action on the part of the Borrower;
(i) Neither the execution, delivery or performance by Borrower of this Agreement and the related documents, the consummation of the transactions contemplated by this Agreement, nor compliance with the provisions of this Agreement will (i) violate any law, regulation, order, judgment or decree binding on Borrower, (ii) violate or conflict with, as applicable, Borrower's articles or certificate of incorporation, by-laws, partnership agreement or other organizational or governing documents, (iii) conflict with, cause a breach of, constitute a default under, be cause for the acceleration of the maturity of, or create or result in the creation or imposition of any lien, charge or encumbrance (other than in your favor) on any of Borrower's property under, any agreement, note, indenture, instrument or other undertaking to which Borrower is a party;
(j) No order, consent, license, authorization, recording or registration is required to authorize or is required in connection with the execution, delivery, and performance of or the legality, validity, binding effect or enforceability of this Agreement, any documents executed in connection with this Agreement or any transactions contemplated by this Agreement;
(k) There are no actions, suits, litigations or investigations, pending or threatened, against Borrower that could (i) have a material adverse effect on the business, condition (financial or otherwise), obligations, operations, performance, properties or prospects of Borrower or (ii) affect Borrower's ability to enter into and perform its obligations under this Agreement or any of the transactions contemplated by this Agreement;
(l) The operations of Borrower are and have been in compliance in all respects with all federal, state and local laws and regulations, including, without limitation, tax, environmental and health and safety laws an regulation;
(m) Since the date of the most recent financial statements of Borrower delivered to you, there has been no material adverse change in the business, condition (financial or otherwise), obligations, operations, performance, properties or prospects of Borrower;
(n) After giving effect to the Loan, (i) the present fair value of Borrower's assets (plus, in the event Borrower is a partnership, the sum of the excess of the fair value of each general partner's nonpartnership assets over such general partner's nonpartnership debts) exceeds the total amount of Borrower's liabilities (including, without limitation, contingent liabilities), (ii) Borrower has capital and assets sufficient to carry on its business, (iii) Borrower is not engaged and is not about to engage in a business or a transaction for which its remaining assets are unreasonably small in relation to such business or transaction and (iv) Borrower does not intend to incur or believe that it will incur debts beyond its ability to pay as they become due. Borrower will not be rendered insolvent by the execution, delivery and performance of documents relating to this Agreement or by the consummation of the transactions contemplated under this Agreement; and
(o) The address of the chief executive office of Borrower is as set forth in the Application.
MISCELLANEOUS
27. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of all the parties to this Agreement. You may assign at your sole option all or part of your rights, obligations and remedies under this Agreement.
28. (a) Borrower's Application will be accepted by the Bank in the State of Utah, and all decisions made by the Bank with respect to the Loan will be made in Utah. The terms of this Agreement with respect to the Bank shall be governed by and interpreted under the federal laws of the United States and the State of Utah, except that: (1) with respect to the Securities Account and your Security Interest, this Agreement shall be governed by and interpreted under the laws of the State of New York; (ii) Notwithstanding the choice of law provisions of this paragraph which shall govern the contractual obligations of the parties under this Agreement, the legal ownership of the Securities Account shall be governed by and interpreted under the internal laws of the state where the chief executive office of the Borrower is located, with respect to a Borrower which is incorporated under the laws of a state in the United States. Nonresident aliens and foreign corporations agree that the form of ownership for the Securities Account shall be governed (notwithstanding the laws of any other jurisdiction to the contrary) by the internal laws of the State of New York.
(b) Borrower agrees to submit to the jurisdiction of the State Courts of Utah and the Federal Courts in Utah for the purposes of any suit, action or proceeding arising out of this Agreement and the Loan and Borrower consents to service of process by certified mail to Borrower's address of record.
(c) Except to the extent prohibited by applicable law which cannot be waived, Borrower waives, and covenants that Borrower will not assert any right to trial by jury in any forum in respect of any issue, claim, demand, action or cause of action arising out of this Agreement and the Loan.
29. No amendment of any provision of this Agreement shall be effective unless such amendment is in writing and signed by the Borrower and the Bank.
30. The heading of each provision of this Agreement is for descriptive purposes only and shall not be deemed to modify or qualify any of the rights or obligations described in each such provision.
31. If any provision of this Agreement is held to be invalid, illegal, void or unenforceable, by reason of any law, rule, administrative order or judicial or arbitral decision, such determination shall not affect the validity of the remaining provisions of this Agreement.
32. This Agreement constitutes the entire agreement between Borrower, you and MLPF&S regarding the matters contemplated by this Agreement, and supersedes any and all prior agreements (whether written or oral).
January 12, 2001
Dimensional Visions, Inc.
Attn: Dale Riker
2301 West Dunlap Ave. #207
Phoenix, AZ 85021
Dear Mr. Riker:
Merrill Lynch Bank USA (the "Bank") is pleased to advise you that your application for a securities-based loan (the "Loan") has been approved. Your Loan will be governed by the provisions of the Portfolio Reserve Loan and Collateral Account Agreement (Form #F5059 6/98) and is made on the following terms:
1. Maximum Principal Amount $500,000.00, of which $100,000.00 was disbursed on January 12, 2001 (the "Initial Disbursement Date") by wire transfer, in accordance with your instructions. Interest on that portion of the Loan will begin to accrue as of the Initial Disbursement Date. The remaining amount of the Loan will be disbursed to you in installments. For each requested loan disbursement, you must submit a Loan Disbursement Request in the form attached to this letter. In addition, each loan disbursement is subject to the following terms and conditions:
(i) there must be eligible collateral in the Securities Account in an amount sufficient to support the Outstanding Principal Amount after giving effect to the requested disbursement, and you must otherwise be in compliance with the terms and conditions of the Portfolio Reserve Loan and Collateral Account Agreement;
(ii) each disbursement request must be in an amount no less than $25, 001
(iii) the Loan Term for each disbursement shall end on the expiration of the Loan Term applicable to the initial disbursement.
2. Interest Rate: 3-Month LIBOR Rate (adjusted weekly), plus 2.5%
3. Loan Term: 1 year
4. Frequency of Periodic Payments: Monthly
5. All Periodic Payments, other than the final one, will consist of interest only. Your Periodic Payments (plus any fees or charges, if applicable) will be calculated at the end of each calendar month and are payable by the 15th day of the following month. The exact payment amount will depend on the number of days in the billing period and the Outstanding Principal Amount. The repayment of the Outstanding Principal Amount will be due and payable with your final Periodic Payment on January 13, 2002. We will send you a billing statement each billing cycle setting forth the exact amount of each Periodic Payment.
6. If you do not agree with the terms and conditions of your Loan as set forth in this Approval Letter, you may repay the amount disbursed to you on the Initial Disbursement Date in good funds no later than the fifth calendar day (excluding Saturdays, Sundays and legal holidays) following the Initial Disbursement Date. If you repay the outstanding portion of the Loan in accordance with this paragraph, the Bank's agreement to make the Loan stall terminate and no fees or interest due under the terms of the Portfolio Reserve Loan and Collateral Agreement will be charged to you.
Thank you for your interest in Merrill Lynch Bank USA. We look forward to serving you and providing you assistance in meeting your financing needs.
Sincerely,
/s/ Chris Greenhalgh ----------------------------------- Chris Greenhalgh Assistant Vice President Merrill Lynch Bank USA |
Exhibit 24.2
CONSENT OF GITOMER & BERENHOLZ, P.C.
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated October 7, 1999, in the Registration Statement on Form SB-2 of Dimensional Visions Incorporated appearing in the prospectus which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such prospectus.
/s/ Gitomer & Berenholz, P.C. Gitomer & Berenholz, P.C. Huntingdon Valley, Pennsylvania Dated: April 9, 2001 |
Exhibit 24.3
CONSENT OF KOPPLE & GOTTLIEB, LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated September 1, 2000, in the Registration Statement on Form SB-2 of Dimensional Visions Incorporated appearing in the prospectus which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such prospectus.
/s/ Kopple & Gottlieb, LLP Kopple & Gottlieb, LLP Jenkintown, Pennsylvania Dated: April 9, 2001 |