UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Klever Marketing, Inc.
(Name of Issuer)
Common Stock Par Value $ 0.01 per share
(Title of Class of Securities)
498589 10 0
(Cusip Number)
Seabury Investors III, Limited Partnership
Seabury Partners III, Limited Partnership
John E. Luth
Michael B. Cox
540 Madison Avenue, 17th floor
New York, New York 10022
Stamford, CT 06905
(212) 284-1133
(Name, Address and Telephone Number of
Person Authorized to Receive Notices and Communications)
September 25, 2000
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box: [ ]
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purposes of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 10
CUSIP No. 498589 10 0
1. NAME OF REPORTING PERSON: Seabury Investors III, Limited Partnership
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS: WC
5. CHECK BOX if disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e): [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION: Connecticut
Number of Shares
Beneficially Owned
By Each Reporting
Person With 7. SOLE VOTING POWER: 1,518,151
8. SHARED VOTING POWER: 0
9. SOLE DISPOSITIVE POWER: 1,518,151
10. SHARED DISPOSITIVE POWER: 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 9% (2)
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 9% (2)
14. TYPE OF REPORTING PERSON: PN
---------------------
(1) Represents (a) voting rights to 106,517 shares of Class A Preferred
Stock, Series 1 held by Seabury Investors III, Limited Partnership,
(assuming a conversion rate which would cause such shares to be
convertible within the next 60 days into 1,065,170 shares of Common
Shares), (b) 30,303 shares of Class C Preferred Stock held by Seabury
Investors III, Limited Partnership (convertible within the next 60 days
into 303,030 Common Shares), and (c) warrants covering 149, 951 Common
Shares exercisable within the next 60 days by Seabury Investors III,
Limited Partnership.
(2) Assumes that there are 17,094,967 shares outstanding.
Page 2 of 10
CUSIP No. 498589 10 0
1. NAME OF REPORTING PERSON: Seabury Partners III, Limited Partnership
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS: WC
5. CHECK BOX if disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e): [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION: Connecticut
Number of Shares
Beneficially Owned
By Each Reporting
Person With 7. SOLE VOTING POWER: 1, 518, 151 (1)
8. SHARED VOTING POWER: 0
9. SOLE DISPOSITIVE POWER: 1,518,151
10. SHARED DISPOSITIVE POWER: 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 9% (2)
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 9% (2)
14. TYPE OF REPORTING PERSON: PN
---------------------
(1) Represents (a) voting rights to 106,517 shares of Class A Preferred
Stock, Series 1 held by Seabury Investors III, Limited Partnership,
(assuming a conversion rate which would cause such shares to be
convertible within the next 60 days into 1,065,170 shares of Common
Shares), (b) 30,303 shares of Class C Preferred Stock held by Seabury
Investors III, Limited Partnership (convertible within the next 60 days
into 303,030 Common Shares), and (c) warrants covering 149, 951 Common
Shares exercisable within the next 60 days by Seabury Investors III,
Limited Partnership. Seabury Partners III may be deemed to be a
beneficial owner of such securities under Rule 13d-3 of the Exchange
Act, but it disclaims a beneficial interest other than its 43% economic
interest in Seabury Investors III, Limited Partnership, as disclosed in
Item 5(a)(b) herein.
(2) Assumes that there are 17,094,967 Common Shares outstanding.
Page 3 of 10
CUSIP No. 498589 10 0
1. NAME OF REPORTING PERSON: John E. Luth
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS: PF
5. CHECK BOX if disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e): [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION: United States of America
Number of Shares
Beneficially Owned
By Each Reporting
Person With 7. SOLE VOTING POWER: 1,638, 198 (1)
8. SHARED VOTING POWER: 0
9. SOLE DISPOSITIVE POWER: 1,638, 198
10. SHARED DISPOSITIVE POWER: 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 9% (2)
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 9% (2)
14. TYPE OF REPORTING PERSON: IN
---------------------
(1) Represents (a) voting rights to 106,517 shares of Class A Preferred
Stock, Series 1 held by Seabury Investors III, Limited Partnership,
(assuming a conversion rate which would cause such shares to be
convertible within the next 60 days into 1,017,340 shares of Common
Shares), (b) 30,303 shares of Class C Preferred Stock held by Seabury
Investors III, Limited Partnership (convertible within the next 60 days
into 303,030 Common Shares), (c) warrants covering 149,951 Common
Shares exercisable within the next 60 days by Seabury Investors III,
Limited Partnership, and (d) warrants covering 120,047 Common Shares
exercisable within the next 60 days by Seabury Securities LLC, an
entity Mr. Luth controls. Mr. Luth may be deemed to be a beneficial
owner of such securities under Rule 13d-3 of the Exchange Act, but he
disclaims a beneficial interest other than his 25% economic interest in
Seabury Partners III, Limited Partnership, and his 39% economic
interest in Seabury Investors III, Limited Partnership, as disclosed in
Item 5(a)(b) herein.
(2) Assumes that there are 17,094,967 Common Shares outstanding.
Page 4 of 10
CUSIP No. 498589 10 0
1. NAME OF REPORTING PERSON: Michael B. Cox
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS: PF
5. CHECK BOX if disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e): [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION: United States of America
Number of Shares
Beneficially Owned
By Each Reporting
Person With 7. SOLE VOTING POWER: 1,518,151 (1)
8. SHARED VOTING POWER: 0
9. SOLE DISPOSITIVE POWER: 1,518,151
10. SHARED DISPOSITIVE POWER: 0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 9% (2)
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 9% (2)
14. TYPE OF REPORTING PERSON: IN
---------------------
(1) Represents (a) 106,517 shares of Class A Preferred Stock, Series 1
held by Seabury Investors III, Limited Partnership, (assuming a
conversion rate which would cause such shares to be convertible within
the next 60 days into 1,065,170 shares of Common Shares), (b) 30,303
shares of Class C Preferred Stock held by Seabury Investors III,
Limited Partnership (convertible within the next 60 days into 303,030
Common Shares), and (c) warrants covering 149,951 Common Shares
exercisable within the next 60 days by Seabury Investors III, Limited
Partnership. Mr. Cox may be deemed to be a beneficial owner of such
securities under Rule 13d-3 of the Exchange Act, but he disclaims a
beneficial interest other than his 5% economic interest in Seabury
Partners III, Limited Partnership, and his 2% economic interest in
Seabury Investors III, Limited Partnership, as disclosed in Item
5(a)(b) herein.
(2) Assumes that there are 17,094,967 Common Shares outstanding.
Page 5 of 10
Item 1. Security and Issuer.
The class of equity securities to which this statement relates is the
Common Stock, par value $0.01 per share (the "Common Shares") of Klever
Marketing, Inc., a Delaware corporation (the "Company"). The principal executive
offices of the Company are located at 350 West 300 South, Suite 201, Salt Lake
City, Utah 84101.
Item 2. Identity and Background.
This statement is filed on behalf of Seabury Investors III, Limited
Partnership, a Connecticut limited partnership ("Seabury Investors III"),
Seabury Partners III, Limited Partnership, a Connecticut limited partnership
("Seabury Partners III"), John E. Luth ("Mr. Luth"), and Michael B. Cox ("Mr.
Cox") Seabury Partners III is the general partner of Seabury Investors III. The
general partners of Seabury Partners III are Mr. Luth and Mr. Cox. Seabury
Investors III, Seabury Partners III, and Messrs. Luth and Cox are sometimes
referred to herein as the "Seabury Parties." The Seabury Parties are making this
single, joint filing because they may be deemed to constitute a "group" within
the meaning of Section 13(d)(3) of the Act, although neither the fact of this
filing nor anything contained herein shall be deemed to be an admission by the
Seabury Parties that a group exists.
Seabury Investors III was formed to hold an interest in the Company.
The address of the principal executive offices and principal business of Seabury
Investors III is 3 Stamford Landing, Suite 250, Stamford, CT 06902. Seabury
Partners III was formed to hold an interest in Seabury Investors III. The
address of the principal executive offices and principal business of Seabury
Partners III is 3 Stamford Landing, Suite 250, Stamford, CT 06902.
The name, business address, and present principal occupation or
employment of each of the general partners of Seabury Partners III are as
follows: John E. Luth, 3 Stamford Landing, Suite 250, Stamford, CT 06902,
Chairman and CEO of The Seabury Group LLC; and Michael B. Cox, 3 Stamford
Landing, Suite 250, Stamford, CT 06902, Senior Vice President of The Seabury
Group LLC. Each of Mr. Luth and Mr. Cox are citizens of the United States of
America.
During the last five years, none of the Seabury Parties was a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violation of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
This statement is being filed as a result of a sale by the Company of
Class B preferred shares to a third party on September 25, 2000, which caused an
adjustment in the conversion rate of Seabury Investors III's 41,476 Class A
Preferred Shares, which at the time of purchase on February 14, 2000 were
convertible into 414,760 shares of Common Stock, or approximately 4% of the
Company's Common Stock. Additionally, Seabury Investors III acquired on May 25,
2001 (a) 30,303 shares of Class C Preferred Shares in the Company, which are
convertible within the next 60 days into 303,030 Common Shares as more
particularly described in Item 5 (a) below; and (b) the grant of warrants to
Seabury Investors III to purchase 20,000 Common Shares, as more particularly
described in Item 5(a) below.
Page 6 of 10
The source of funds for the Seabury Investors III is working capital.
The source of funds for Seabury Partners III is working capital. The source of
funds each of Mr. Luth and Mr. Cox is personal funds.
Item 4. Purpose of Transaction
Seabury Investors III acquired and continues to hold the Class A
Preferred Stock and the Class C Preferred Stock convertible within the next 60
days into Common Shares for investment purposes. Seabury Investors III acquired
its Class A Preferred Stock in connection with a private offering of Company
Class A Preferred Stock that was conducted by Seabury Securities LLC, an
affiliate of Seabury Investors III. That private offering was discontinued
shortly after Seabury Investors III acquired its Class A Preferred Stock. On or
about February 14, 2000, Seabury Investors III acquired from the Company 41,476
shares of Class A Preferred Stock, for a purchase price of $26 per share, which
was paid in cash. At the time of its acquisition of its Class A Preferred Stock,
the stock was convertible into approximately 414,760 shares of Company common
stock, or approximately 4% of the then issued and outstanding Company common
stock. Seabury Investors III intends to review continuously its preferred equity
position in the Company. Depending upon future evaluations of the business
prospects of the Company and upon other developments, including, but not limited
to, general economic and business conditions and money market and stock market
conditions, Seabury Investors III may determine (i) to convert or to not convert
the Class A Preferred Stock and/or the Class C Preferred Stock and/or (ii) to
increase or decrease its equity interest in the Company by acquiring common
shares or additional preferred shares (or other securities convertible or
exercisable into common shares) or by disposing of all or a portion of its
holdings, subject to any applicable legal and contractual restrictions on its
ability to do so.
An affiliate of Mr. Luth, Seabury Securities LLC, has been engaged by
the Company to conduct a "best efforts" private offering of Class D Preferred
Stock of the Company. The private offering involves equity capital estimated
between $2.5 million and $7.5 million.
Except as set forth in this Item 4, the Seabury Parties have no present
plans or proposals that relate to or that would result in (a) the acquisition by
any person of additional securities of the Company, or the disposition of
securities in the Company; (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the Company or any of its
subsidiaries; (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (d) any change in the present Board of
Directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
board; (e) any material change in the present capitalization or dividend policy
of the Company; (f) any other material change in the Company's business or
corporate structure; (g) changes in the Company's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by an person; (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association; (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g) (4)
of the Securities Exchange Act of 1934, as amended; or (j) any action similar to
any of those enumerated above.
The statements made in this Item 4 are applicable to Seabury Partners
III, Mr. Luth, and Mr. Cox.
Page 7 of 10
Item 5. Interest in Securities of the Issuer.
(a) and (b) As of the date hereof, Seabury Investors III owns (i)
106,517 shares of Class A Preferred Stock (convertible within the next 60 days
into approximately 1,065,170 Common Shares, depending upon conversion rates),
and (ii) 30,303 shares of Class C Preferred Stock (convertible within the next
60 days into approximately 303,030 Common Shares), and (iii) a warrant to
purchase 149,951 Common Shares.
Seabury Partners III, the general partner of Seabury Investors III,
owns, and has the sole power to vote or direct the vote, and to dispose of or
direct the disposition of shares owned by Seabury Investors III. Seabury
Partners III owns 43% of the partnership interests of Seabury Investors III.
Through their indirect ownership of Seabury Investors III, John E. Luth
and Michael B. Cox may, for purposes of Rule 13d-3 under the Exchange Act, be
deemed to beneficially own the Class A Preferred Stock (convertible into Common
Shares) and the Class C Preferred Stock (convertible into Common Shares) held by
Seabury Investors III.
John E. Luth and his affiliates are the beneficial owner of 25 % of the
partnership interests of Seabury Partners III, and a beneficial owner of 39% of
the partnership interests of Seabury Investors III. Michael B. Cox is the
beneficial owner of 5% of the partnership interests of Seabury Partners III, and
a beneficial owner of 2% of the partnership interests of Seabury Investors III.
In their capacity as a general partner of Seabury Partners III, both have the
power to vote and direct the disposition of all of the Class A Preferred Shares
and the Class C Preferred Shares held by Seabury Investors III. All of Seabury
Partners III, Mr. Luth, and Mr. Cox disclaim a beneficial ownership other than
their respective economic interest set forth in this paragraph.
(c) On or about May 25, 2001, Seabury Investors III acquired from the
Company 30,303 shares of newly issued Class C Preferred Stock, for a purchase
price of $6.60 per share, which was paid in cash pursuant to a private
transaction. Except as described herein, no transactions in the Class A
Preferred Stock or Class C Preferred Stock have been effected during the past 60
days by any of Seabury Investors III, Seabury Partners III, Mr. Luth, or Mr.
Cox.
(d) No person other than the persons listed is known to have the right
to receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, any securities owned by Seabury Investors III.
(e) Inapplicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Company.
The matters set forth in Item 2 are incorporated into this Item 6 by
reference as if fully set forth herein.
Pursuant to the Class C Convertible Preferred Stock Purchase agreement
entered into between the Company and Seabury Investors III as of May 25, 2001,
(i) the Company may repurchase from Seabury Investors III all of its holdings of
the Class C Preferred Stock at any time prior to August 15, 2001 (subject to the
terms and conditions set forth in the agreement) at a price stipulated in the
stock purchase agreement, and (ii) the Company has issued Seabury Investors III
equity warrants to purchase 20,000 of the Company's common shares at any time up
to May 25, 2006.
Page 8 of 10
A company indirectly controlled by Mr. Luth, Seabury Securities LLC,
entered into an agreement with the Company in December 2000 under which Seabury
has been engaged to render services as a placement agent, financial advisor and
possible business combination transactions to the Company in connection with one
or more potential future private financings. In exchange, Seabury would receive
contingent cash compensation and grant of warrants to purchase Company common
stock, based upon the level of financing, if obtained. In addition, the Company
would reimburse a certain amount of Seabury's expenses incurred in the course of
its engagement. The issuance of such warrants to purchase Company common stock
are contingent upon performance and have not been issued as of this date and it
is anticipated that they will not be issued in the next 60 days. Previously,
Seabury Securities LLC was granted equity warrants to purchase 120,047 of the
Company's common shares.
Except as set forth herein, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 and between such persons and any person with respect to any securities of
the Company.
Item 7. Material to be filed as Exhibits.
Exhibit 1: Class C Convertible Preferred Stock Purchase Agreement, with
Warrant Certificate, dated as of May 25, 2001.
Exhibit 2: Subscription Agreement dated as of February 11, 2000.
Exhibit 3: Letter Agreement between the Company and Seabury Securities
LLC dated December 1, 2000, as amended.
Exhibit 4: Joint Filing Statement among the Seabury Parties, dated June
26, 2001.
Page 9 of 10
SIGNATURES
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Date: June 26, 2001
SEABURY INVESTORS III, LIMITED PARTNERSHIP
By: SEABURY PARTNERS III, LIMITED PARTNERSHIP
By: ___/s/___________________________
John E. Luth, General Partner
SEABURY PARTNERS III, LIMITED PARTNERSHIP
By: ___/s/___________________________
John E. Luth, General Partner
By:____/s/____________________________
Michael B. Cox, General Partner
/s/
---------------------------------------
John E. Luth
/s/
---------------------------------------
Michael B. Cox
Page 10 of 10
Exhibit 1
CLASS C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Convertible Preferred Stock Purchase Agreement (the "Agreement")
is made as of May 25, 2001 between Klever Marketing, Inc., a Delaware
corporation (the "Company"), and each of the Investors listed on Schedule 1 (the
"Investors").
Recitals
--------
WHEREAS, the Company wishes to issue and sell to the Investors and the
Investors wish to purchase from the Company 30,303 shares of the Company's Class
C Convertible Preferred Stock, $0.01 par value per share (the "Class C Shares ")
for $6.60 per Class C Share (the "Class C Share Price") for a total aggregate
purchase price of $199,999.80 (the "Total Purchase Price");
WHEREAS, pursuant to an engagement agreement (the "Seabury Engagement
Agreement") dated December 1, 2000 between the Company and Seabury Securities
LLC ("Seabury"), the Company owes Seabury $25,249.44 (the "Seabury Expenses")
for certain expenses incurred by Seabury relating thereto as of the current date
hereof, and the Company wishes to repay the Seabury Expenses to Seabury from the
proceeds of this sale of the Class C Shares;
WHEREAS, prior to November 30, 2001, the Company intends to issue and
sell shares of a new class of convertible preferred stock for an aggregate
purchase price equal to at least $2.5 million (the "Class D Shares");
WHEREAS, as an inducement for Investors to enter into the transaction
contemplated herein the Company wishes to grant to Investors at no additional
cost equity warrants to purchase the Company's Common Shares in an aggregate
purchase price amount equal to 10% of the Total Purchase Price (i.e., covering
30,303 Common Shares) at a price per Common Share of $0.66; and
WHEREAS, the Board of Directors of the Company has approved this
Agreement and the transactions described herein.
Agreement
---------
Therefore, in consideration of the foregoing and the representations,
warranties, covenants and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Sale and Purchase of Class C Shares.
-----------------------------------
1.1. On the terms and subject to the conditions hereof, the Company
hereby agrees to sell to the Investors, and each Investor severally agrees to
purchase from the Company for investment, on the Closing Date hereinafter
referred to, such Investor's pro rata portion (as set forth on Schedule I
hereto) of the Company's Class C Shares for an aggregate purchase price of the
Total Purchase Price. The Certificate of Designation Of Rights, Privileges and
Preferences of Class C Share is attached hereto as Exhibit V.
1.2. On the terms, and subject to the conditions hereof, the Company
agrees to issue to Investors equity warrants at no additional cost to purchase
the Company's Common Shares in an aggregate purchase price amount equal to 10%
of the Total Purchase Price, or $20,000.00 at a price of $0.66 per share, and
having the terms and conditions set forth on Schedule II hereto (the
"Warrants").
1
1.3. On the terms and subject to the conditions hereof, Investors
hereby agree to pay Seabury the Seabury Expenses on behalf of the Company in
full satisfaction of the Company's obligations to Seabury for the Seabury
Expenses, and the Company therefore agrees to credit such payment against the
consideration payable by Investors hereunder and accept such payment plus the
payment of $174,750.36 (the "Net Proceeds") in satisfaction of the Total
Purchase Price.
1.4. The sale and purchase of the Class C Shares (the "Closing") shall
take place at 12:00 p.m. (EST) on May 25, 2001 or such later time or date as the
parties hereto may mutually agree (such date being referred to herein as the
"Closing Date").
1.5. At the Closing, against payment to the Company by delivery of
certified check or wire transfer of the Net Proceeds in good and immediately
available funds and proof of payment of the Seabury Expenses, the Company will
deliver to the Investors certificates representing the Class C Shares and the
Warrants issued, in each case, in the name of the Investors.
1.6. Upon the timely and full closing of the sale of the Class D Shares
(the "Class D Closing"), each Investor shall have a thirty (30) day option of
converting its Class C Shares purchased hereunder into such number of Class D
Shares that has an aggregate purchase price equal to such Investor's share of
the Total Purchase Price. For purposes of dividend accrual rights, Investor's
Class D Shares shall accrue dividends from the date hereof. An example of the
aforementioned conversion calculation is provided as Example 1 on Schedule III
attached hereto. The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by them under this Agreement, but
will at all times in good faith assist in carrying out all such action as may be
necessary or appropriate in order to protect the above conversion rights and
exchange rights of the Investors .
1.7. Class C Shares Repurchase Option
1.7.1. At any time prior to August 15, 2001, the Company may
repurchase from Investors, and Investors agree to sell to the Company,
all Class C Shares purchased by Investors pursuant to this Purchase
Agreement for a total aggregate purchase price (the "Total Repurchase
Price") equal to the sum of: (a) the Total Purchase Price; and (b) an
amount equal to 10.0% multiplied by the Total Purchase Price multiplied
by the quotient of: (i) the number of days between the Closing Date and
the date on which the Company exercises its repurchase option under
this Section 1.7; and (ii) 360; provided, however, the Company must
give the Investors ten (10) days' prior written notice of its intention
to repurchase the Class C Shares.
1.7.2. Section 1.71 shall be of no force or effect if:
(a) the Company shall not have conducted a closing with respect
to the sale of Class D Shares prior to August 15, 2001; or
(b) a sale of Class D Shares has occurred or will occur prior to
August 15, 2001, and within three (3) days' of receipt of
written notification by the Company of its intent to exercise
its repurchase option in Section 1.71, the Investors shall
provide the Company with written notice that they agree to
convert the Class C Shares purchased by Investors pursuant to
this Purchase Agreement into Class D Shares as per Section
1.6 above.
2
2. Representations and Warranties of the Company. The Company represents and
warrants to the Investors that:
2.1. Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to own its assets and to operate
and conduct its business as heretofore conducted and as proposed to be
conducted. Copies of its Amended and Restated Certificate of Incorporation and
By-laws as amended to date have been heretofore delivered to the Investors and
are accurate and complete. The Company is qualified to do business as a foreign
corporation in every jurisdiction in which it is required to be so qualified
except for those jurisdictions where the failure to be so qualified will not
have a material adverse effect on the Company.
2.2. Authorization of Transaction; Binding Effect and Enforceability.
The Company has full corporate power and authority to execute and deliver the
Agreements (as defined in Section 2.5) and to perform its obligations
thereunder. All corporate and other actions or proceedings to be taken by or on
the part of the Company to authorize and permit the execution and delivery of
the Agreements and the consummation by the Company of the transactions
contemplated thereby have been duly and properly taken. The Agreements have been
duly executed and delivered by the Company and constitute the legal, valid and
binding obligation of the Company, enforceable in accordance with their terms.
2.3. Noncontravention. Neither the execution and the delivery of the
Agreements, nor the consummation of the transactions contemplated thereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency or court to which the Company is subject or any provision of
the certificate of incorporation or by-laws, as amended to date, of the Company;
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any consent or notice (other than those obtained
or made) under any agreement, contract, lease, license, instrument or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any security
interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of,
any government or governmental agency in order for it to consummate the
transactions contemplated thereby.
2.4. Capitalization of the Company. Schedule IV hereto presents
accurately the capital stock of the Company as of 3/31/01 on both an actual
basis and a pro forma, fully diluted basis. The Company's capitalization will be
the same on the Closing Date except as follows
2.4.1. Changes in the number of Common Shares into which the
Company's convertible preferred stock or convertible debt may convert
due to the accrual of additional dividends or interest on such
preferred stock or debt as a result of the passage of time between
3/31/01 and the Closing Date;
2.4.2. Changes in the number of Common Shares into which the
Company's convertible preferred stock or convertible debt may convert
due to changes in the applicable conversion prices of such preferred
stock or debt resulting from the passage of time between 3/31/01 and
the Closing Date;
2.4.3. Changes in the ordinary course of business in the number of
outstanding options or warrants due to: (i) expiration; (ii)
forfeiture; or (iii) the granting by the Company of a nonmaterial
number of additional options or warrants; and
3
2.4.4. Other changes in the Company's capital stock resulting from
actions taken by the Company in the ordinary course of business,
provided the effect of each such action and the aggregate effect of all
such actions do not represent material changes to Schedule IV.
2.5. Issuance of the Securities. The Class C Shares, when issued and
upon payment of the Total Purchase Price in accordance with Section 1.3, will be
duly authorized, validly issued, fully paid and non-assessable, and the
Warrants, when issued and upon payment of the Total Purchase Price in accordance
with Section 1.3 will be duly authorized, executed and delivered and all of the
Class C Shares will be free of liens and other encumbrances of any nature other
than such restrictions on transfer as may be expressly set forth in this
Agreement, a stockholders agreement to which Investors are or may hereafter
become a party (together with this Agreement, the " Agreements") and under
applicable state and federal securities laws. When and if issued pursuant to
each Investor's option to convert its Class C Shares into Class D Shares, the
Class D Shares will be duly authorized, validly issued, fully paid and
non-assessable shares of the Company, and will be free of liens and other
encumbrances of any nature other than such restrictions on transfer as may be
expressly set forth in the Agreements and under applicable state and federal
securities laws. Upon the exercise of the Warrants to purchase Common Shares and
payment of the exercise price therefor, such Common Shares will be duly
authorized, validly issued, fully paid and non-assessable shares of the Company
and will be free of liens and other encumbrances of any nature other than
restrictions on transfer as may be expressly set forth in the Agreements and
under applicable state and federal securities laws.
2.6. Financial Statements. The Company has provided the Investors with
its audited consolidated financial statements at and for the years ended
December 31, 1999 and December 30, 2000, and with its unaudited balance sheet at
March 31, 2001 (collectively, the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered thereby
and present fairly the financial condition of the Company as of such dates and,
where applicable, the results of operations of the Company for such periods,
except that the unaudited balance sheet does not contain footnotes.
2.7. Absence of Undisclosed Liabilities. The Company does not have any
material accrued or contingent liabilities except (i) as contemplated by the
Agreements, (ii) as set forth in the Financial Statements, and (iii) for
liabilities incurred in the ordinary course of business since March 31, 2001.
2.8. Business; Compliance with Laws. The Company has all material
franchises, permits, licenses and other rights necessary to permit it to own its
property and to conduct its business as currently conducted. The Company is not
in material violation of any law, regulation, authorization or order of any
public authority relevant to the ownership of its properties or the carrying on
of its business as it is currently conducted.
2.9. Information Supplied to the Investors. Neither the Agreements nor
any document, certificate or statement (other than any projections) furnished to
the Investors by or on behalf of the Company: (i) contain any untrue statement
of a material fact; or (ii) omit any material fact that a reasonable person
would deem to be materially relevant to Investors' decisions to enter into this
Agreement.
3. Representations and Warranties of the Investors. Each Investor, solely as to
itself, represents and warrants to the Company that:
3.1. Organization and Authority of such Investor. Such Investor has
full power and authority to execute and deliver this Agreement and to perform
such Investor's obligations hereunder. All actions or proceedings to be taken by
or on the part of such Investor to authorize and permit the execution and
delivery by such Investor of this Agreement and the consummation by such
4
Investor of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by such Investor and
constitutes the legal, valid and binding obligation of such Investor,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
moratorium, reorganization and similar laws of general applicability affecting
the rights and remedies of creditors and to general principles of equity,
regardless of whether enforcement is sought in proceedings in equity or at law.
3.2. Investment Intent. Such Investor has been advised that the offer
and sale of the Class C Shares, Warrants and the Common Stock that may result
therefrom (collectively "Securities") has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws and, therefore, the Securities cannot be resold without
registration under the Securities Act and applicable state securities laws or an
exemption from such registration requirements. Such Investor is an "accredited
investor," as defined in Regulation D under the Securities Act. Such Investor is
aware the Company is not under any obligation to effect any such registration
with respect to the Class C Shares (except solely to the extent provided in the
Stockholders Agreements) or to file for or comply with any exemption from
registration except for the Company's filings of Forms D or similar and
associated documents with the Securities and Exchange Commission and applicable
state securities authorities. Such Investor is purchasing the Class C Shares for
such Investor's own account for investment and not with a view to, or for resale
in connection with, the distribution thereof. Such Investor has such knowledge
and experience in financial and business matters that such Investor is capable
of evaluating the merits and risks of such investment, is able to incur a
complete loss of such investment and is able to bear the economic risk of such
investment for an indefinite period of time. The residence address of such
Investor is as set forth in Schedule I hereto.
3.3. Access and Information. Such Investor has been given access to all
information regarding the financial condition and the business and operations of
the Company that it has requested in order to evaluate its investment in the
Company. Prior to the date hereof, the Company has made available to such
Investor the opportunity to ask questions of, and to receive answers from,
persons acting on behalf of the Company concerning the financial condition and
the business and operations of the Company, and the terms and conditions of this
Agreement and the transactions contemplated hereby and to obtain any additional
information desired by such Investor with respect to the Company. Such Investor
acknowledges that such Investor has been advised by counsel satisfactory to it
with respect to this Agreement and the transactions contemplated hereby.
3.4. Capitalization of the Company. Subject to the accuracy and
completeness of information provided by the Company to Investors, Investors
warrant that they have reviewed and agree that Schedule IV hereto presents
accurately the capital stock of the Company as of March 31, 2001 on both an
actual basis and a pro forma, fully diluted basis.
4. Conditions Precedent to the Obligations of the Investors. The Investors'
obligation to purchase the Class C Shares is subject to the satisfaction on or
prior to the Closing Date of each of the following conditions, unless expressly
waived by the Investors at or prior to the Closing:
4.1. Representations and Warranties. The representations and warranties
made by the Company shall be true and correct in all material respects as of the
Closing Date.
4.2. Adverse Proceedings. No action, suit or proceeding by or before
any court or other governmental body shall have been instituted by any
governmental body or other person which seeks to restrain, prohibit or
invalidate any transaction contemplated hereby.
5
4.3. General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Investors, and the
Investors shall have received counterpart originals, or certified or other
copies, of all documents, including without limitation records of corporate
proceedings and opinions of counsel, that it may reasonably request in
connection therewith.
5. Conditions Precedent to Obligations of the Company. The obligation of the
Company to sell the Securities is subject to the satisfaction on or prior to the
Closing Date of each of the following conditions, unless expressly waived by the
Company at or prior to Closing:
5.1. Representations and Warranties. The representations and warranties
made by each Investor in this Agreement shall be true and correct as of the
Closing Date.
5.2. Adverse Proceedings. No action, suit or proceeding by or before
any court or other governmental body shall have been instituted by any
governmental body or other person which seeks to restrain, prohibit or
invalidate any transaction contemplated hereby.
6. Miscellaneous.
-------------
6.1. Amendment. This Agreement may be terminated, changed, modified or
extended only by an agreement in writing signed by all of the parties hereto or
any successors and assigns.
6.2. Assignment. Neither this Agreement nor any interests or duties
hereunder may be assigned (by operation of law or otherwise) by any party (other
than to such party's affiliates) without the express written consent of each
other party.
6.3. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
6.4. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable, such provision shall, to the extent
permitted under applicable law, be construed by modifying or limiting it so as
to be valid and enforceable to the maximum extent possible under applicable law,
unless such unenforceability impairs the fundamental purpose or expectations of
the parties hereto. The provisions of this Agreement are severable, and in the
event that any provision hereof should be held invalid or unenforceable in any
respect, it shall not invalidate, render unenforceable or otherwise affect any
other provision hereof, unless such unenforceability impairs the fundamental
purpose or expectations of the parties hereto.
6.5. Waiver. It is understood and agreed that no failure or delay by
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof, or the exercise of any other right, power or
privilege hereunder. No waiver of any term or condition of this Agreement shall
be deemed to be a waiver of any subsequent breach of any term or condition. All
waivers must be in writing and signed by the parties sought to be bound.
6.6. Entire Agreement. This Agreement constitutes the entire agreement
among the parities hereto pertaining to the subject matter hereof and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties with respect to such
subject matter. Without limiting the foregoing, neither party hereunder has
relied on any representation or warranty made by the other party that is not
contained in this Agreement.
6
6.7. Survival. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery hereof and the
issuance and transfer of Securities at the Closing hereunder.
6.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of the State of Delaware,
without giving effect to any choice or conflict of laws provision or rule that
would cause the application of the domestic substantive laws of any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
by the terms hereof, have caused this Agreement to be executed, under seal, as
of the date first above written by their officers or other representatives
thereunto duly authorized.
The Company: KLEVER MARKETING, INC.
/s/
By:---------------------------------------
Name: Corey Hamilton
Title: Chief Executive Officer
Investors: SEABURY INVESTORS III, LIMITED PARTNERSHIP
/s/
By: --------------------------------------
Name: John E. Luth
Title: General Partner
Seabury Partners III, Limited Partnership
7
SCHEDULE I
List of Investors and Pro Rata Investment Amounts
Investor Total Purchase Price
--------------------------------------------------- --------------------
Seabury Investors III, Limited Partnership $199,999.80
Address: 2 Stamford Landing
Suite 220
Stamford, CT 06902
8
SCHEDULE II
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE LAWS OF ANY STATE. THEY MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
Warrant No. 1
No. of Warrants: 20,000
KLEVER MARKETING, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received SEABURY INVESTORS III, LIMITED PARTNERSHIP or registered assigns
(the "Holder") is the owner of the number of warrants ("Warrants") specified
above, each of which entitles the Holder thereof to purchase, at any time or
from time to time hereafter, but not later than on or before the Expiration Date
(defined in Section 2.2 below) one fully paid and non-assessable share of Common
Stock, $.01 par value ("Common Stock"), of Klever Marketing, Inc., a Delaware
corporation (the "Company"), at a purchase price of $0.66 per share of Common
Stock in lawful money of the United States of America in cash or by certified or
cashier's check or a combination of cash and certified or cashier's check,
subject to adjustment as hereinafter provided.
1. Warrant; Purchase Price
1.1. Each Warrant shall entitle the Holder to purchase one share of
Common Stock of the Company and the purchase price payable upon exercise of the
Warrants shall initially be $0.66 per share of Common Stock, subject to
adjustment as hereinafter provided (the "Purchase Price"). The Purchase Price
and number of shares of Common Stock issuable upon exercise of each Warrant are
subject to adjustment as provided in Article 6.
2. Exercise; Expiration Date
2.1. The Warrants are exercisable in increments of at least 5,000
shares, at the option of the Holder, at any time hereafter, and on or before the
Expiration Date, upon surrender of this Warrant Certificate to the Company
together with a duly completed Notice of Exercise, in the form attached hereto
as Exhibit A, and payment of an amount equal to the Purchase Price times the
number of Warrants to be exercised. In the case of exercise of less than all the
Warrants represented by this Warrant Certificate, the Company shall cancel the
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate for the balance of such Warrants.
2.2. The term "Expiration Date" shall mean 5:00 p.m. New York time on
May 25, 2006 or if such date shall in the State of New York be a holiday or a
day on which banks are authorized to close, then 5:00 p.m. New York time the
next following date which in the State of New York is not a holiday or a day on
which banks are authorized to close.
9
3. Registration and Transfer on Company Books
3.1. The Company shall maintain books for the registration and transfer
of the Warrants and the registration and transfer of the shares of Common Stock
issued upon exercise of the Warrants.
3.2. The Registered Holder may not transfer this warrant without the
prior written consent of the Company except for transfers to affiliates of such
Holder.
3.3. Prior to due presentment for registration of transfer of this
Warrant Certificate, or the shares of Common Stock issued upon exercise of the
Warrants, the Company may deem and treat the registered Holder as the absolute
owner thereof.
3.4. Neither this Warrant nor the shares of Common Stock issuable upon
exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Act"). The Company will not transfer this Warrant or issue or
transfer the shares of Common Stock issuable upon exercise hereof unless (i)
there is an effective registration covering such Warrant or such shares, as the
case may be, under the Act and applicable states securities laws, (ii) it first
receives a letter from an attorney, acceptable to the Company's board of
directors or its agents, stating that in the opinion of the attorney the
proposed issue or transfer is exempt from registration under the Act and under
all applicable state securities laws, or (iii) the transfer is made pursuant to
Rule 144 under the Act. Subject to the foregoing, this Warrant Certificate, the
Warrants represented hereby, and the shares of Common Stock issued upon exercise
of the Warrants, may be sold, assigned or otherwise transferred voluntarily by
the Holder to officers or directors of the Holder, to members of such persons'
immediate families, or to the Holder's parent, affiliated or subsidiary
corporations or other legal entities. The Company shall register upon its books
any permitted transfer of a Warrant Certificate, upon surrender of same to the
Company with a written instrument of transfer duly executed by the registered
Holder or by a duly authorized attorney. Upon any such registration of transfer,
new Warrant Certificate(s) shall be issued to the transferee(s) and the
surrendered Warrant Certificate shall be canceled by the Company. A Warrant
Certificate may also be exchanged, at the option of the Holder, for new Warrant
Certificates representing in the aggregate the number of Warrants evidenced by
the Warrant Certificate surrendered. The Company shall pay all expenses, taxes
(including transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery of the Warrants, including any transfer or
exchange thereof.
4. Reservation of Shares
The Company covenants that it, or if appointed, the transfer agent for
Common Stock, and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company will keep a copy of this Warrant Certificate on file with the transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall be duly and validly issued and, upon payment for such shares as
set forth herein, fully paid and non-assessable, free of all preemptive rights,
and free from all taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each national securities
exchange, if any, on which the other shares of outstanding Common Stock of the
Company are then listed.
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5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the ownership of
and the loss, theft, destruction or mutilation of any Warrant Certificate and,
in the case of loss, theft or destruction, of indemnity reasonably satisfactory
to the Company, or, in the case of mutilation, upon surrender and cancellation
of the mutilated Warrant Certificate, the Company shall execute and deliver in
lieu thereof a new Warrant Certificate representing an equal number of Warrants.
6. Adjustment of Purchase Price and Number of Shares Deliverable
6.1. The number of shares of Common Stock purchasable upon the exercise
of each Warrant (such shares being referred to in this Section 6 as the "Warrant
Shares") and the Purchase Price with respect to the Warrant Shares shall be
subject to adjustment as follows:
6.1.1. In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, the number and/or nature of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph 6.1.1 shall
become effective retroactively as of the record date of such event.
6.1.2. In case the Company shall issue rights, options or warrants
or securities convertible into Common Stock to the holders of its
shares of Common Stock generally, entitling them (for a period expiring
within forty-five (45) days after the record date referred to below in
this paragraph 6.1.2) to subscribe for or purchase shares of Common
Stock at a price per share which (together with the value of the
consideration, if any, paid for such rights, options, warrants or
convertible securities) is lower on the record date referred to below
than the then Market Price Per Share of Common Stock (as determined
pursuant to Section 9.2) the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares immediately theretofore
purchasable upon exercise of each Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares which the aggregate offering
price of the total number of shares of Common Stock so offered would
purchase at the then Market Price Per Share of Common Stock. Such
adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective
retroactively as of the record date for the determination of
shareholders entitled to receive such rights, options, warrants or
convertible securities.
6.1.3. In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
11
in paragraph 6.1.1 above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness (other than any rights, options, warrants
or convertible securities referred to in paragraph 6.1.2 above), then
in each case the number of Warrant Shares thereafter purchasable upon
the exercise of each Warrant shall be determined by multiplying the
number of Warrant Shares theretofore purchasable upon the exercise of
each Warrant, by a fraction, of which the numerator shall be the then
Market Price Per Share of Common Stock (as determined pursuant to
Section 9.2) on the record date mentioned below in this paragraph
6.1.3, and of which the denominator shall be the then Market Price Per
Share of Common Stock on such record date, less the then fair value per
share (as determined by the Board of Directors of the Company, in good
faith) of the portion of the shares of the Company's capital stock
other than Common Stock, evidences of indebtedness, or of such rights,
options, warrants or convertible securities, distributable with respect
to each share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective retroactively
as of the record date for the determination of shareholders entitled to
receive such distribution.
6.1.4. In the event of any capital reorganization or any
reclassification of the capital stock of the Company or in case of the
consolidation or merger of the Company with another corporation (other
than a consolidation or merger in which the outstanding shares of the
Company's Common Stock are not converted into or exchanged for other
rights or interests), or in the case of any sale, transfer or other
disposition to another corporation of all or substantially all the
properties and assets of the Company, the Holder of each Warrant shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition that
appropriate provisions shall be made so that such Holder shall
thereafter be entitled to purchase) the kind and amount of shares of
stock and other securities and property (including cash) which the
Holder would have been entitled to receive had such Warrants been
exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition; and in any such case appropriate adjustments
shall be made in the application of the provisions of this Article 6
with respect to rights and interest thereafter of the Holder of the
Warrants to the end that the provisions of this Article 6 shall
thereafter be applicable, as near as reasonably may be, in relation to
any shares or other property thereafter purchasable upon the exercise
of the Warrants. The provisions of this Section 6.1.4 shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, sales, transfers or other dispositions.
6.1.5. Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1,
the Purchase Price with respect to the Warrant Shares shall be adjusted
by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
6.2. In the event the Company shall declare a dividend, or make a
distribution to the holders of its Common Stock generally, whether in cash,
property or assets of any kind, including any dividend payable in stock or
securities of any other issuer owned by the Company (excluding regularly payable
cash dividends declared from time to time by the Company's Board of Directors or
any dividend or distribution referred to in Sections 6.1.1 or 6.1.3 above), the
Purchase Price of each Warrant shall be reduced, without any further action by
the parties hereto, by the Per Share Value (as hereinafter defined) of the
dividend. For purposes of this Section 6.2, the "Per Share Value" of a cash
dividend or other distribution shall be the dollar amount of the distribution on
12
each share of Common Stock and the "Per Share Value" of any dividend or
distribution other than cash shall be equal to the fair market value of such
non-cash distribution on each share of Common Stock as determined in good faith
by the Board of Directors of the Company.
6.3. In case the Company shall at any time or from time to time after
issuance issue any shares of Common Stock or rights to acquire Common Stock
(other than shares issued in any transactions covered by paragraph 6.1.1
hereof), for a consideration per share less than the Purchase Price with respect
to the Warrant Shares in effect on the date of such issue, then, forthwith upon
such issue, the Purchase Price with respect to the Warrant Shares shall be
reduced to a price determined by dividing (a) the sum of (i) the number of
shares of Common Stock of the Company outstanding immediately prior to such
issue multiplied by the Purchase Price of the Warrant Shares in effect
immediately prior to such issue, plus (ii) the consideration, if any, received
by the Company upon such issue, by (b) the number of shares of Common Stock of
the Company outstanding immediately after such issue. In addition to such
adjustment to the Purchase Price, the number of Warrant Shares purchasable under
each Warrant shall be increased to a number determined by dividing (x) the
number of Warrant Shares purchasable under such Warrant immediately prior to
such issue, multiplied by the Purchase Price in effect immediately prior to such
issuance, by (y) the Purchase Price of the Warrant Shares in effect immediately
after the foregoing adjustment. For the purpose of the above determination, the
following provisions shall be applicable:
6.3.1. In case the Company shall in any manner issue any options,
warrants or other rights to subscribe for or to purchase shares of
Common Stock, then, for the purposes of this Section 6.3, (i) all
shares which the holders of such rights shall be entitled thereby to
subscribe for or purchase shall be deemed to be issued as of the date
of issue of such rights, and (ii) the minimum aggregate consideration
payable pursuant to such rights for the shares covered thereby, plus
the consideration, if any, received by the Company for such rights,
shall be deemed to be the consideration actually received by the
Company (as of the date of the issue of such rights) for the issue of
the total number of shares underlying such rights.
6.3.2. In case the Company shall in any manner issue any
securities or obligations directly or indirectly convertible into or
exchangeable for shares of Common Stock, then, for the purposes of this
Section 6.3, (i) all shares to which holders of such securities or
obligations shall thereby be entitled upon conversion or exchange shall
be deemed to be issued as of the date of issue of such securities or
obligations, and (ii) the aggregate amount received or receivable by
the Company in consideration for the issue of such securities or
obligations, plus the minimum aggregate amount of additional
consideration, if any, payable upon conversion or exchange of such
securities or obligations, shall be deemed to be the consideration
actually received (as of the date of the issue of such securities or
obligations) for the issue of the total number of shares issuable upon
conversion or exchange of such securities or obligations. 6.3.3. The
consideration received by the Company for any shares of Common Stock,
or rights to acquire Common Stock, shall be deemed to be the proceeds
received for such shares or rights, excluding cash received on account
of accrued interest or accrued dividends and after deducting therefrom
any and all commissions paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issue of such
shares or rights.
6.3.4. No adjustment of the Purchase Price of the Warrant Shares
shall be made as a result of or in connection with the issuance of (i)
any shares of Common Stock issuable upon the exercise or conversion of
any options, convertible securities or other rights outstanding on the
date of original issuance of this Warrant Certificate or (ii) any
shares of Common Stock or options to purchase Common Stock hereafter
issued in connection with any duly authorized employee stock option
plan, stock purchase plan or restricted stock award plan of the
Company.
13
6.3.5. For the purposes of this Section 6.3, (i) the term "issue"
of shares or securities by the Company shall be deemed to include any
issuance, sale or other disposition of shares or securities of the
Company, including shares held in the treasury of the Company, (ii) the
term "Common Stock" shall include any capital stock of the Company
other than preferred stock with a fixed limit on dividends and a fixed
amount payable in the event of any liquidation, and (iii) in no event
shall the Purchase Price with respect to the Warrant Shares be
increased, or the number of Warrant Shares purchasable under any
Warrant be decreased, as a result of the provisions of this Section
6.3.
6.4. No adjustment in the number of Warrant Shares purchasable under
the Warrants, or in the Purchase Price with respect to the Warrant Shares, shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the number of Warrant Shares issuable upon the exercise of such
Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.4 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
6.5. Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company, who may be the regular auditors of the Company, , which sets forth the
number of Warrant Shares purchasable upon the exercise of each Warrant and the
Purchase Price of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.6. In the event that at any time prior to the expiration of the
Warrants and prior to their exercise:
6.6.1. the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
6.6.2. the Company shall offer for subscription to the holders of
the Common Stock any additional shares of stock of any class or any
other securities convertible into Common Stock or any rights to
subscribe thereto; or
6.6.3. the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock, regardless of the effect of any such event on the
outstanding number of shares of Common Stock; or
14
6.6.4. the Company shall declare a dividend, other than a dividend
payable in shares of the Company's own Common Stock; or
6.6.5. there shall be any capital change in the Company as set
forth in Section 6.1.4; or
6.6.6. there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification
Event"), the Company shall cause to be mailed to the Holder, not less
than twenty (20) days prior to the record date, if any, in connection
with such Notification Event (provided, however, that if there is no
record date, or if twenty (20) days prior notice is impracticable, as
soon as practicable) written notice specifying the nature of such event
and the effective date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such
event. Such notice shall also set forth facts indicating the effect of
such action (to the extent such effect may be known at the date of such
notice) on the Purchase Price and the kind and amount of the shares of
stock or other securities or property deliverable upon exercise of the
Warrants. For purposes here of, a business day shall mean any day other
than a Saturday, Sunday or any other day in which commercial banks are
authorized by law to be closed in New York, New York.
6.7. The form of Warrant Certificate need not be changed because of any
change in the Purchase Price, the number of Warrant Shares issuable upon the
exercise of a Warrant or the number of Warrants outstanding pursuant to this
Section 6, and Warrant Certificates issued before or after such change may state
the same Purchase Price, the same number of Warrants, and the same number of
Warrant Shares issuable upon exercise of Warrants as are stated in the Warrant
Certificates theretofore issued pursuant to this Agreement. The Company may,
however, at any time, in its sole discretion, make any change in the form of
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed. Failure to mail the
notice or any defect in it shall make the transaction invalid and of no effect.
7. Conversion Rights
7.1. In lieu of exercise of any portion of the Warrants as provided in
Section 2.1 hereof, the Warrants represented by this Warrant Certificate (or any
portion thereof) may, at the election of the Holder, be converted into the
nearest whole number of shares of Common Stock equal to: (1) the product of (a)
the number of Warrants to be so converted, (b) the number of shares of Common
Stock then issuable upon the exercise of each Warrant and (c) the excess, if
any, of (i) the Market Price Per Share (as determined pursuant to Section 9.2)
with respect to the date of conversion over (ii) the Purchase Price in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2. The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company, at its offices, this Warrant Certificate
accompanied by a duly completed Notice of Conversion in the form attached hereto
as Exhibit B. The Warrants (or so much thereof as shall have been surrendered
for conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Warrant Certificate for
conversion in accordance with the foregoing provisions. As promptly as
15
practicable on or after the conversion date, the Company shall issue and shall
deliver to the Holder (i) a certificate or certificates representing the number
of shares of Common Stock to which the Holder shall be entitled as a result of
the conversion, and (ii) if the Warrant Certificate is being converted in part
only, a new certificate in principal amount equal to the unconverted portion of
the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of the
Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants. Whenever such a voluntary adjustment is made,
the Company shall mail to the Holder a notice of the change, specifying the
change and the period it will be in effect, at least 15 days prior to the date
the change takes effect.
9. Fractional Shares and Warrants; Determination of Market Price Per Share
9.1. Anything contained herein to the contrary notwithstanding, the
Company shall not be required to issue any fraction of a share of Common Stock
in connection with the exercise of Warrants. Warrants may not be exercised in
such number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2. As used herein, the "Market Price Per Share" with respect to any
date shall mean the closing price per share of Company's Common Stock on that
day. The closing price for each such day shall be the last sale price regular
way or, in case no such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the principal securities
exchange on which the shares of Common Stock of the Company are listed or
admitted to trading, the last sale price, or in case no sale takes place on such
day, the average of the closing bid and asked prices of the Common Stock on
NASDAQ or any comparable system, or if the Common Stock is not reported on
NASDAQ, or a comparable system, the average of the closing bid and asked prices
as furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose. If such bid and
asked prices are not available, then "Market Price Per Share" shall be equal to
the fair market value of the Company's Common Stock as determined in good faith
by the Board of Directors of the Company, on the basis of such relevant factors
as it in good faith considers appropriate, and evidenced by a Board resolution.
10. Registration Rights
10.1. No sale, transfer, assignment, hypothecation or other disposition
of the Warrant Shares shall be made unless any such transfer, assignment or
other disposition will comply with the rules and statutes administered by the
Securities and Exchange Commission and (i) a registration statement under the
Act, including such shares is currently in effect, or (ii) in the opinion of
counsel satisfactory to the Company a current registration statement is not
required for such disposition of the shares.
10.2. The Company agrees that, at any time or times hereafter, as and
when it intends to register any of its securities under the Act, whether for its
own account and/or on behalf of selling stockholders (except in connection with
an offering on Form S-8 or an offering solely related to an acquisition or
16
exchange on a Form S-4 or any subsequent similar form) the Company will notify
the Holder in writing of such intention (a "Registration Notice") at least 30
days before the anticipated filing date for such registration statement, and,
upon request from the Holder, will cause the Warrant Shares designated by the
Holder to be registered under the Act. The number of Warrant Shares to be
included in such offering may be reduced if and to the extent that the
underwriter of securities included in the registration statement and offered by
the Company shall be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company therein; provided,
however, that the percentage of the reduction of such Warrant Shares shall be no
greater than the percentage reduction of securities of other selling
stockholders, as such percentage reductions are determined in the good faith
judgment of the Company. The Company will use its reasonable best efforts to
keep each such registration statement current for such period of time as is not
otherwise burdensome to the Company, in no event to be less than 90 days.
10.3. Any registration statement referred to in subsection 10.2 hereof
shall be prepared and processed in accordance with the following terms and
conditions:
10.3.1. the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company and that is
available to the Holder in connection with the preparation, filing and
processing of such registration statement.
10.3.2. To the extent requested by an underwriter of securities
included in a registration statement referred to in Subsection 10.2
hereof and offered by the Company, the Holder will defer the sale of
Warrant Shares for a period commencing twenty (20) days prior and
terminating one hundred eighty (180) days after the effective date of
the registration statement, provided that any principal shareholders of
the Company who also have shares included in the registration statement
will also defer their sales for a similar period.
10.3.3. The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
10.3.4. The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Act or otherwise, arising out of or based
upon any untrue or alleged untrue statement of any material facts
contained in any registration statement filed pursuant hereto, or any
document relating thereto, including all amendments and supplements, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein contained not misleading, and will
reimburse the Holder (or such other aforementioned parties) or such
underwriters for any legal and all other expenses reasonably incurred
in accordance with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will
not be liable where the untrue or alleged untrue statement or omission
or alleged omission is based upon information furnished in writing to
the Company by the Holder or any underwriter obtained by the Holder
expressly for use therein, or as a result of the Holder's or any such
underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein. This indemnity agreement shall be in addition to any other
liability the Company may have. The indemnity agreement of the Company
contained in this paragraph 10.3.4 shall remain operative and in full
17
force and effect regardless of any investigation made by or on behalf
of any indemnified party and shall survive the delivery of and payment
for the Warrant Shares.
10.3.5. The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Act or otherwise, arising out of or based
upon any untrue or alleged untrue statement filed pursuant hereto, or
any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph 10.3.5 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
10.3.6. Promptly after receipt by an indemnified party under this
subsection 10.3 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
10.3.7. Except as set forth in subsection 10.3.8, the Company
shall bear all costs and expenses incident to any registration pursuant
to this Section 10.
10.3.8. The Holder shall pay any and all underwriters' discounts,
commissions, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any attorneys or accountants or
other advisors retained by it.
10.3.9. The provisions of Section 3.3 of this Agreement shall not
apply to any registration of securities made pursuant to this Section
10.
18
11. Governing Law
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
12. Notices to Company and Holder.
------------------------------
Any notice or demand authorized by this Agreement to be given or made
by the Holder to or on the Company shall be sufficiently given or made when and
if deposited in the mail, first class or registered, postage prepaid, or when
sent by nationally recognized overnight courier, in each case addressed as
follows:
If to the Company, to it at:
350 West 300 South, Suite 201
Salt Lake City, Utah 84101
Attn: President
with a copy to:
Jay Bell
Fabian & Clendenin
215 South State Street, 12th Floor
Salt Lake City, UT 84111
If to Holder, to them at:
John Luth
Seabury Capital LLC
540 Madison Avenue, 17th Floor
New York, NY 10022
With a copy to:
Stephen L. Ganis, Esq.
1234 Summer Street, 4th floor
Stamford, CT 06905
13. Binding Effect, Etc. This Warrant Certificate constitutes the entire
agreement of the parties with respect to its subject matter, and shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, representatives, successors and permitted assigns.
14. Counterparts. This Agreement and Warrant Certificate may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute on instrument.
19
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its officers thereunto duly authorized and its corporate
seal to be affixed hereon, as of this 24th day of May 2001.
KLEVER MARKETING, INC.
By: ____/d\s/___________________________
Name: Corey A. Hamilton
Title: President
[SEAL]
Attest:
Name:
--------------------------------------
Title:
Accepted and Agreed to:
SEABURY INVESTORS III, LIMITED PARTNERSHIP
By: _______/s/____________________________
Name: John E. Luth
Title: General Partners
Seabury Partners III, Limited Partnership
20
EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise, pursuant to Section 2 of
the Warrant Certificate accompanying this Notice of Exercise, to receive
________ shares of Common Stock and herewith makes payment of the Purchase Price
of such shares in full. The undersigned requests that a certificate for such
shares be registered in the name of __________________________________, whose
address is ____________________________, and that such shares be delivered to
_____________________ whose address is _____________________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of
__________________________, whose address is _________________, and that such
Warrant Certificate be delivered to _________________, whose address is
_________________________________________.
Dated: ____________________
------------------------------
Name of Holder
------------------------------
Signature
Address:
------------------------------
------------------------------
------------------------------
21
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _______ Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
Dated:_________________________________
--------------------------------
Name of Holder
--------------------------------
Signature
Address:
--------------------------------
--------------------------------
--------------------------------
+
22
SCHEDULE III
Sample Calculations
Share of Total Purchase Price $200,000
Divided by Class D per share price $8.50
# of Class D Shares owned by Investor subsequent
to conversion (Investor would use the date of
this Agreement for purposes of accruing dividends
payable on the Class D Shares) 23,530
23
SCHEDULE IV
Capitalization
TABLE I
KLEVER MARKETING, INC.
PRINCIPAL SHAREHOLDERS
As of March 31, 2001 on a Pre-Offering Basis 1
Common Shares Issuable
Upon Conversion of:
Fully Fully
Outstanding Convertible Option & Diluted Diluted
Common Preferred Convertible Warrant Common Ownership
Shares Shares 2,3,4 Debt 5 Shares 6 Shares Percentage
Olson Farms & Affiliated Entities 2,029,809 1,304,176 152,778 112,000 3,598,762 18.62%
Paul Begum & Affiliated Entities 3,303,660 39,510 0 100,000 3,443,170 17.82%
Presidio Investors 0 0 1,908,836 0 1,908,836 9.88%
Seabury Investors III, L.P. 0 1,065,159 0 249,998 1,315,157 6.81%
Warner Family & Affililiated Entities 902,540 0 0 0 902,540 4.67%
Ashton Family Trust 421,504 0 0 0 421,504 2.18%
Corey Hamilton 0 0 0 400,000 400,000 2.07%
Other Existing Shareholders 5,505,561 108,658 0 1,719,331 7,333,550 37.95%
TOTAL 12,163,074 2,517,502 2,061,614 2,581,329 19,323,519 100.0%
TABLE II
KLEVER MARKETING, INC.
PRINCIPAL SHAREHOLDERS
As of March 31, 2001 on a Pro Forma, Post-Offering Basis
Common Shares Issuable
Upon Conversion of:
Fully Fully
Outstanding Convertible Option & Diluted Diluted
Common Preferred Convertible Warrant Common Ownership
Shares Shares 2,3,4 Debt 5 Shares 6 Shares Percentage
Olson Farms & Affiliated Entities 2,029,809 1,375,920 152,778 112,000 3,670,507 14.40%
Paul Begum & Affiliated Entities 3,303,660 43,375 0 100,000 3,447,035 13.53%
Presidio Investors 0 0 1,908,836 0 1,908,836 7.49%
Seabury Investors III, L.P. 0 1,169,355 0 338,484 1,507,839 5.92%
Warner Family & Affililiated Entities 902,540 0 0 0 902,540 3.54%
Ashton Family Trust 421,504 0 0 0 421,504 1.65%
Corey Hamilton 0 0 0 400,000 400,000 1.57%
Other Existing Shareholders 5,505,561 119,287 0 1,719,331 7,344,179 28.82%
Class D Convertible Preferred Stock 0 5,882,353 0 0 5,882,353 23.08%
TOTAL 12,163,074 8,590,290 2,061,614 2,669,815 25,484,793 100.00%
Table III
KLEVER MARKETING, INC.
EQUITY CAPITALIZATION SUMMARY
As of March 1, 2001 on a Pre-Offering Basis
# of
Shares
Common Shares Outstanding 12,163,074
Class A Convertible Preferred Shares Outstanding 53,014
Class B Convertible Preferred Shares Outstanding 41,177
Class C Convertible Preferred Shares Outstanding 43,940
Options and Warrants 2,581,329
24
1 The reader should be aware that the beneficial ownership figures set forth
in this Schedule are not prepared in the format called for by, or pursuant
to the rules of, the Commission and therefore do not conform to the
presentation in the Company's reports filed with the Commission. If
prospective investors desire clarification, an explanation of the
differences in the presentation will be available by the Company on
request.
2 Convertible preferred shares contain anti-dilution provisions that, among
other things, provide for the adjustment of applicable conversion prices if
the Company issues Additional Stock (as defined) at prices below the
conversion prices then in effect. Table I reflects fully adjusted
conversion prices for the existing preferred shares as of March 31, 2001
prior to the Offering. Table II reflects fully adjusted conversion prices
for the existing preferred shares on a pro forma, post-offering basis
assuming an Offering size of $5mm with a conversion price of $0.85 per
share. However, the actual post-Offering conversion prices of the existing
preferred shares will be determined by the actual size and price at which
the Offering is completed.
3 The calculations of the conversion prices at which the Company's existing
preferred shares are converted into common equity in the above tables
include the impact of the assumed conversion of the Company's existing
convertible debt into equity. If the convertible debt is repaid rather than
converted into equity, the existing preferred shares would convert into
fewer Common Shares, resulting in less dilution than shown above (see Note
4 below for additional information regarding the Company's convertible
debt).
4 Excludes approximately $146,000 in accrued but undeclared and unpaid
preferred dividends on existing preferred shares as of March 31, 2001. The
Company has the option of paying these dividends in cash or by issuing
additional preferred shares if and when dividends are declared.
5 For conservatism, analysis assumes that all existing convertible debt is
converted into equity. The Company believes that the holders of this debt
would agree to extend the maturity dates to 2002, and give the Company the
option of repaying the debt rather than converting it into equity. This
debt consists of two notes, both of which bear interest at the rate of 10%
per annum. The first note is in the principal amount of $1,500,000 and
currently matures on October 1, 2001. The second note is in the principal
amount of $150,000, and currently matures on August 26, 2001.
6 Represents total outstanding options and warrants, both vested and
unvested, and both in-the-money and out-of-the money. The weighted average
exercise/strike price of existing options and warrants is approximately
$1.37.
7 Assumes Offering Size of $5 million at an effective common stock conversion
price of $0.85.
25
SCHEDULE V
Certificate of Designation Of Rights, Privileges and
Preferences of Class C Shares
The undersigned, Corey A. Hamilton, hereby certifies that:
A. He is the duly elected and acting President and Chief Executive
Officer of Klever Marketing, Inc., a Delaware corporation (hereafter the
"Corporation");
B. The following resolutions of the Board of Directors of the
Corporation, duly adopted as of January 2, 2001 pursuant to Section 151 of the
General Corporation Law of the State of Delaware and Article IV of the
Corporation's Certificate of Incorporation set forth the rights, preferences and
privileges of the various series of Corporation's Class C Voting Preferred
Stock.
Pursuant to the provisions of its Certificate of Incorporation, the
Corporation hereby authorizes and establishes a series of its preferred stock,
par value $.01 per share, consisting of 125,000 shares, to be known as "Class C
Voting Preferred Stock," having the following designations, rights and
preferences:
1. Designation and Amount. Of the 2,000,000 shares of preferred stock
of the Corporation, par value $.01 per share, as authorized by Article IV of the
Corporation's Certificate of Incorporation, 125,000 shares are hereby designated
"Class C Voting Preferred Stock" (the "Class C Shares").
2. Definitions. For purposes of this Certificate, the following terms
shall have the following definitions:
2.1 "Class C Shares" shall mean the Class C Voting Preferred Stock.
2.2 "Preferred Stock" shall mean the Class C Shares and all other
authorized Preferred Shares, collectively.
2.3 "Common Stock" shall mean the Corporation's authorized shares of
Common Stock.
2.4 "Liquidation Preference" for Class C Shares shall be the Original
Issue Price, plus in each case any accrued but unpaid dividends on such shares,
if any, appropriately adjusted for combinations, splits, dividends or
distributions of shares of stock (a "Share Combination or Division") with
respect to such shares.
2.5 "Redemption Price" for the Class C Shares, are set forth in Section
6.1 hereof.
2.6 "Original Issue Date" shall mean January 2, 2001.
2.7 "Original Issue Price" of the Class C Shares is Six Dollars and
sixty cents ($6.60) per share.
2.8 "Act" shall mean the General Corporation Law of the State of
Delaware, as amended.
26
3. Dividends. The holders of Class C Shares shall be entitled to
receive when and as declared by the Board of Directors of the Corporation out of
any funds at the time legally available therefore dividends at the rate of the
Original Issue Price divided by 11.8181818 per share per annum, payable
semi-annually on the first day of January and July of each year. Such dividends
shall accrue on each such share from the date of its original issuance and shall
accrue from day to day, whether or not earned or declared. Such dividends shall
be cumulative and may be paid in cash or in kind through the distribution of
.0425 Class C Shares for each outstanding Class C Share, on each dividend
payment date; provided, that if such dividends in respect of any period shall
not have been paid or declared and set apart for payment for all outstanding
Class C Shares by each payment date, then until all unpaid dividends thereon
shall be paid or set apart for payment to the holders of such shares, the
Corporation may not pay, declare or set apart any dividend or other distribution
on its shares of Common Stock or other shares junior to the Class C Shares, nor
may any other distributions, redemptions or other payments be made with respect
to the shares of Common Stock or other junior shares. In addition to the
foregoing, each holder of a Class C Share shall be entitled to receive, when and
as declared, a dividend equal to each dividend declared and paid on the shares
of Common Stock, on a share for share basis, so the holders of the Class C
Shares shall be entitled to participate equally on a share for share basis with
the holders of the shares of Common Stock. If there is a share split or dividend
on the Common Stock, then the Class C Share dividends shall be adjusted as if a
similar split or dividend had occurred with respect to the Class C Shares. No
other right to dividends shall accrue to holders of Class C Shares as a result
of a failure to declare or pay dividends with respect to any period.
4. Voting Rights. Except as otherwise expressly provided herein or as
required by law, and unless the Act provides for the holders of Class C Shares
to vote separately from the holders of shares of Common Stock on a matter, the
holder of each Class C Share shall be entitled to one vote for each share of
Common Stock into which such Class C Shares could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded up or
down to the nearest whole share) and shall have voting rights and powers equal
to the voting rights and powers of a holder of shares of Common Stock. The
holders of Class C Shares shall vote with the holders of shares of Common Stock
and not as a separate class, and shall be entitled to notice of any shareholders
meeting in accordance with the Bylaws of the Corporation.
5. Liquidation Rights. In the event of any liquidation, dissolution, or
winding up of the Corporation, either voluntary or involuntary, distributions to
the shareholders of the Corporation shall be made in the following manner.
5.1 Class C Shares. The holders of Class C Shares shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of shares of Common Stock or any
other Preferred Stock that are not expressly deemed to be on a par with or
senior to the Class C Shares, an amount equal to their Liquidation Preference
for each Class C Share then held by them. For this purpose, Preferred Stock
Classes A and B, shall be on a par with Class C Shares. If such assets and funds
are insufficient to permit the payment to the holders of Class C Shares of such
full preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed pro-rata among the
holders of the Class C Shares and Preferred Stock Classes A and B in the
proportion to their ownership of Class C Shares based upon their respective
Liquidation Preferences.
27
5.2 Remaining Liquidation Rights. After payment to the holders of Class
C Shares and other Preferred Stock on a par with or senior to Class C Shares of
the amounts set forth in Section 5.1 above, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of all outstanding shares of Common Stock
pro-rata, based on the number of shares of Common Stock held by each holder.
5.3 Consolidation, Merger, Sale of Assets. Neither the consolidation or
the merger of the Corporation into or with any other entity or entities, nor the
sale or transfer by the Corporation of all or substantially all of its assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this Section 5, unless such
sale, lease or conveyance shall be in connection with a plan of liquidation,
dissolution, or winding up of the Corporation.
6. Redemption. The Class C Shares shall be redeemable by the
Corporation, in whole or in part, at the option of the Board of Directors of the
Corporation, at any time and from time to time on or after July 2, 2004.
6.1 Redemption Price. The Redemption Price of the Class C Shares shall
be the Original Issue Price, together with accrued but unpaid dividends on such
shares, if any. The date fixed by the Corporation for any such redemption is
herein called the "Redemption Date". In the event of a redemption of only a part
of the Class C Shares then outstanding, the Corporation shall effect a
redemption of Class C Shares pro-rata among the holders of such Shares .
6.2 Redemption Procedure. At least thirty (30) days prior to each
Redemption Date, the Corporation shall give written notice of such redemption to
each holder of record of the Class C Shares. Written notice shall be by
certified mail enclosed in a postage paid envelope addressed to such holder at
such holder's address as the same shall appear on the books of the Corporation.
Such notice shall (i) state that the Corporation has elected to redeem such
shares pursuant to Section 5.1 hereof, (ii) state the Redemption Date, and (iii)
call upon such holder to surrender to the Corporation on or after such date at
its principal office in Salt Lake City, Utah (or at such other place as may be
designated by the Corporation) certificate or certificates representing the
number of Class C Shares to be redeemed in accordance with such notice. On or
after the Redemption Date, each holder of Class C Shares to be so redeemed shall
present or surrender the certificate or certificates for such shares to the
Corporation at the place designated in such notice and, thereupon, the
Redemption Price of such shares shall be paid to, or to the order of, the person
whose name appears on such certificate or certificates as the owner thereof.
From and after the Redemption Date, unless default shall be made by the
Corporation in providing for the payment of the Redemption Price pursuant to
such notice, all rights of the holders of the Class C Shares so redeemed, except
the right to receive the Redemption Price (but without interest thereon) shall
cease and terminate.
6.3 Reissue of Redeemed Shares. Unless the Board of Directors of the
Corporation shall determine otherwise with respect to a specific transaction,
Class C Shares redeemed by the Corporation shall not be retired but shall
constitute authorized but unissued shares that may be reissued by the
Corporation as it sees fit.
7. Conversion. The holders of the Class C Shares shall have conversion
rights as follows (the "Conversion Rights"):
28
7.1 Right to Convert/Automatic Conversion.
(a) Each Class C Share shall be convertible, at the option of the
holder thereof, at any time after the Original Issue Date, at the office of the
Corporation or any transfer agent for the Class C Shares, into such number of
fully paid and non-assessable shares of Common Stock as is determined by
dividing the Original Issue Price by the Conversion Price for the Class C Shares
at the time in effect. The initial Conversion Price for the Class C Shares shall
be the Original Issue Price divided by ten (10); provided, however, that the
Conversion Price shall be subject to adjustment as set forth in this Section 7.
(b) Each Class C Share shall automatically be converted into shares of
Common Stock at the then effective Conversion Price (i) immediately prior to the
closing of the Corporation's sale of shares of its Common Stock to the public in
a bona fide, underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, in which (a) the aggregate price
paid for such shares by the public is at least $25 million and (b) the price
paid by the public for such shares (before deduction of underwriting discounts
and registration expenses) results in a market valuation of the Corporation of
at least $200 million, or (ii) promptly upon receipt of the affirmative vote of
the holders of two-thirds of the outstanding Class C Shares.
7.2 Mechanics of Conversion.
(a) To convert Class C Shares, the holder thereof shall surrender the
certificate or certificates representing such shares, duly endorsed, at the
principal corporate office of the Corporation or of any transfer agent for the
Class C Shares, and shall give written notice to the Corporation at its
principal corporate office of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for Common
Shares are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Class C Shares,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid, and a check payable to the holder in the amount of any cash amounts
payable to the holder in lieu of fractional shares, as provided in Section 7.7.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate representing the
Class C Shares to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.
(b) In the event of an automatic conversion pursuant to Section 7.1(b)
the Class C Shares shall not be deemed to be converted until immediately prior
to the closing of such sale of securities or one business day after the
completion of the vote referenced in clause (ii) of Section 7.1(b). Upon the
closing of such an offering or the day after the completion of the vote, the
outstanding Class C Shares shall be converted automatically without further
action by the holders of said shares and whether or not the certificates
representing said shares are surrendered to the Corporation or its transfer
agent; provided, however, the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any Class C Shares unless certificates evidencing such Class C Shares are either
29
delivered to the Corporation or any transfer agent, or the holder notifies the
Corporation that said certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation against any loss incurred by it in connection therewith. Upon the
occurrence of the automatic conversion, the holders of Class C Shares shall
surrender the certificates representing the shares at the office of the
Corporation or of any transfer agent for the Class C Shares. Thereupon, there
shall be issued and delivered to such holder, promptly at such office and in
such holder's name as shown on such surrendered certificate or certificates (or
such other name as such holder may designate), a certificate or certificates for
the number of shares of Common Stock into which the Class C Shares surrendered
were convertible on the date on which the event effecting the automatic
conversion occurred.
7.3 Conversion Price Adjustment. The Conversion Price of the Class C
Shares shall be subject to adjustment from time to time as follows:
(a) (i) If the Corporation shall issue any "Additional Stock" (as
defined in Section 7.3(b) below) for a consideration per share less than the
Conversion Price of the Class C Shares in effect immediately prior to the
issuance of such Additional Stock, then the applicable Conversion Price for the
Class C Shares in effect immediately prior to each such issuance shall forthwith
be adjusted to a price determined by dividing the aggregate consideration
received by the Corporation for all Additional Stock issued by the Corporation
during the preceding 12 month period, including the consideration to be received
by the Corporation for the issuance of such Additional Stock, by the aggregate
number of shares of Additional Stock issued during such preceding 12 month
period, including the number of shares of Additional Stock to be issued in the
new issuance. Immediately after any shares of Additional Stock are deemed to be
issued pursuant to Section 7.3(a)(v), such shares of Additional Stock shall be
deemed to be outstanding.
(ii) No adjustment of the applicable Conversion Price shall be made in
an amount less than one cent ($.01) per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of one cent
($0.01) per share or more in the Conversion Price. Except to the limited extent
provided for in Sections 7.3(a)(v)(3) and 7.3(a)(v)(4), no adjustment of such
Conversion Price pursuant to this Section 7.3(a) shall have the effect of
increasing such Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(iii) In the case of the issuance of shares of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefore before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(iv) In the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
30
(v) In the case of the issuance of options to purchase or rights to
subscribe for shares of Common Stock, securities by their terms convertible into
or exchangeable for shares of Common Stock, or options to purchase or rights to
subscribe for such convertible or exchangeable securities (that are not
expressly excluded from the definition of Additional Stock), the following
provisions shall apply:
(1) The aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for shares of
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections 7.3(a)(iii) and 7.3(a)(iv)), if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
shares of Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or exchangeable
securities, or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion of or
exchange thereof, shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration, if any, received by the Corporation for any such securities, or
for any such options or rights, plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of
related securities, for such shares of Common Stock (the consideration in each
case to be determined in the manner provided in Sections 7.3(a)(iii) and
7.3(a)(iv)).
(3) In the event of any change in the number of shares of Common Stock
deliverable or any increase in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Class C Shares obtained with respect to the adjustment which was made upon the
issuance of such options, rights or securities, and any subsequent adjustments
based thereon, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of shares of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such related securities.
(4) Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, the Conversion
Price of the Class C Shares obtained with respect to the adjustment which was
made upon the issuance of such options, rights or securities or options or
rights related to such securities, and any subsequent adjustments based thereon,
shall be recomputed to reflect the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such securities or upon the exercise of the
options or rights and conversion or exchange of such related securities.
(b) "Additional Stock" shall mean any shares of Common Stock issued
either directly or upon exercise or conversion of a derivative instrument (or
deemed to have been issued pursuant to Section 7.3(a)(v)) by the Corporation
after the Original Issue Date other than:
31
(i) Shares of Common Stock issued pursuant to a transaction described
in subsection 7.3(c) hereof;
(ii) Shares of Common Stock issuable or issued to employees, officers,
directors or consultants of the Corporation directly or pursuant to a stock
option plan or agreement or restricted stock plan or agreement approved by the
Board of Directors of the Corporation, when the total number of shares of Common
Stock so issuable or issued does not exceed seven hundred fifty thousand
(750,000) shares (appropriately adjusted to reflect subsequent Share
Combinations or Divisions, and net of any such shares repurchased by the
Corporation at cost upon termination of employment or services, and net of any
such options which may expire unexercised);
(iii) Shares of Common Stock issued or issuable in connection with debt
or lease financings approved by the Board of Directors;
(iv) Shares of Common Stock issued or issuable in connection with any
acquisition approved by the Board of Directors;
(v) Shares of Common Stock issued or issuable upon conversion of the
Preferred Stock Classes A or B or C;
(vi) Common Stock issued or issuable as dividend payments or accruals;
or (vii) Shares of Common Stock issued prior to the Original Issue Date or
pursuant to subscription agreements entered into by the Corporation prior to the
Original Issue Date.
(c) In the event the Corporation should at any time or from time to
time after the Original Issue Date fix a record date to effect a split of the
outstanding shares of Common Stock or the determination of holders of shares of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such split, dividend or distribution if no record date is
fixed), the Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each Class C Share shall be
increased in proportion to such increase of outstanding shares (and/or shares
deemed to be outstanding as determined in accordance with Section 7.3(a)(v)).
(d) If the number of shares of Common Stock outstanding at any time
after the Original Issue Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each Class C Share shall be decreased
in proportion to such decrease in the number of outstanding shares of Common
Stock .
7.4 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Original Issue Date, the shares of
Common Stock issuable upon the conversion of the Class C Shares are changed into
the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a share
combination or division provided for elsewhere in this Section 7), in any such
32
event each holder of the Class C Shares shall have the right thereafter to
convert such shares into the kind and amount of securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the shares of Common Stock into which such Class C Shares could have
been converted immediately prior to such recapitalization, reclassification or
change. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7 with respect to the rights of
holders of Class C Shares after such recapitalization, reclassification or the
like to the end that the provisions of this Section 7 (including adjustment of
the Conversion Price then in effect and the number of shares of Common Stock
receivable upon conversion of the Class C Shares) shall be applicable after that
event and be as nearly equivalent as possible.
7.5 Reorganizations, Mergers, Sale of Assets. If at any time or from
time to time after the Original Issue Date the Corporation effects a merger,
sale or conveyance of all or substantially all of the assets of the Corporation,
or similar reorganization (other than a reclassification, exchange or
substitution provided for in Section 7.4), then as a part of such merger, sale
or conveyance of assets, or other reorganization provision shall be made so that
the holders of Class C Shares shall thereafter be entitled to receive upon
conversion of the Class C Shares the number of shares of stock or other
securities or property of the Corporation to which a holder of the number of
shares of Common Stock deliverable upon conversion of such Class C Shares would
have been entitled upon such merger, sale or conveyance of assets or other
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 7 with respect to the rights of
the holders of Class C Shares after the merger, sale or conveyance of assets or
other reorganization to the end that the provisions of this Section 7 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Class C Shares) shall be applicable after
that event and be nearly equivalent as practicable.
7.6 No Impairment. The Corporation will not, without the approval of
the holders of Class C Shares as required under Section 8, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 7 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights against
impairment.
7.7 No Fractional Shares. No fractional shares shall be issued upon
conversion of any of the Class C Shares, and the number of shares of Common
Stock to be issued upon conversion shall be rounded down to the nearest whole
share. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay the holder cash equal to the fraction
multiplied by the fair market value of one share of Common Stock immediately
prior to the conversion, as determined by the Board of Directors in good faith.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of Class C Shares the holder is at
the time converting into shares of Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
33
8. Protective Provisions for Class C Shares. As long as at least an
aggregate of fifty thousand (50,000) of the Class C Shares (as appropriately
adjusted for Share Combinations or Divisions) shall be outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of not less than a majority of the
total number of Class C Shares then outstanding, voting together as one class:
8.1 Certain Class C Share Changes. Amend or repeal any provision of, or
add any provision to, the Corporation's certificate of incorporation or bylaws,
if such action would alter or change the rights, preferences, privileges or
restrictions of the Class C Shares;
8.2 Senior or Parity Securities. Issue shares of any series or class of
stock having any preference or priority as to dividends, assets or other rights
superior to or on a parity with any such preference or priority enjoyed by the
holders of the Class C Shares.
8.3 Dividends. Declare or pay any dividends on account of shares of
Common Stock, except for share dividends issued pro rata to the holders of
shares of Common Stock;
8.4 Redemption. Purchase or redeem any capital stock of the Corporation
except pursuant to Section 6 hereof or through a purchase or redemption of
shares of Common Stock from an officer, employee, director or consultant of the
Corporation upon termination of employment or services pursuant to the terms of
a stock purchase or stock option plan or agreement.
9. Notices. Subject to any rights that may be conferred upon any shares
of Preferred Stock, each outstanding share of Common Stock shall be entitled to
one vote on each matter to be voted on by the shareholders of the Corporation
and the holders of the shares of Common Stock shall be entitled to receive the
net assets of the Corporation upon dissolution.
9.1 Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, or right to
purchase or otherwise acquire any securities or property of the Corporation, or
any other right (other than the right to vote shares), the Corporation shall
mail to each holder of the Class C Shares at least fifteen (15) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or rights,
and the amount and character of such dividend, distribution or right.
9.2 Manner of Notice. Any notice required or permitted to be given by
the provisions of this Certificate of Incorporation to the holders of Class C
Shares (or any Class thereof) shall be given in writing and shall be deemed to
have been duly given if delivered personally or when mailed by registered or
certified mail, postage prepaid, to each such holder of record of Class C Shares
at such holder's address appearing on the books of this Corporation.
34
IN WITNESS WHEREOF, Klever Marketing, Inc., has caused this Certificate
to be executed this 2nd day of January, 2001, by its undersigned duly authorized
officer.
KLEVER MARKETING, INC.
By: /s/Corey A. Hamilton
--------------------------------
Corey A. Hamilton
Its: President/CEO
35
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement') is entered into and
effective as of the 11th day of February, 2000, by and among Klever Marketing,
Inc., a Delaware corporation (the "Company"), and the persons and entities
executing the "Investor Signature Page" attached as Exhibit "A" to this
Agreement. The persons and entities which invest in the Company pursuant to this
Agreement are hereinafter collectively referred to as the "Investors" and
severally as an "Investor."
SECTION 1
SUBSCRIPTION AND SALE
---------------------
1 1 Subscription and Sale. Each Investor hereby subscribes for and
agrees to purchase from the Company, and the Company shall issue and sell to
each Investor which has received the prior approval of the Board of Directors of
the Company, the number of shares of Class A Voting Preferred Stock of the
Company, Series 1, par value $.0l per share (the "Class A Preferred Shares") set
forth on the Investor Signature Page executed by such Investor, on the terms and
subject to the conditions set forth in this Agreement, free and clear of all
assessments, security interests, claims, options, or other charges or
restrictions (collectively, the "Liens"). The Company's agreements with each of
the Investors is an independent agreement, and each of sale of the Class A
Preferred Shares to an Investor is an independent sale.
1.2 Purchase Price. Simultaneously with the execution of this Agreement
by an Investor and in frill consideration of the issuance by the Company of the
number of Class A Preferred Shares set forth on the Investor Signature Page
executed by such Investor, said Investor shall wire to the Company pursuant to
the wire instructions set forth in Exhibit "B" attached hereto an amount equal
to the number of Class A Preferred Shares purchased by said Investor multiplied
by US$26.00 (the "Purchase Price&').
1.3 Closing. The purchase and sale of the Shares and the consummation
of the other transactions contemplated by this Agreement (the "Closing") shall
occur at the offices of Parsons Behle & Latimer, 201 South Main Street, Suite
1
1800, Salt Lake City, Utah, or at such other location as the parties shall agree
upon, as soon after the date hereof as is feasible following the satisfaction or
waiver of all conditions to the obligations of the parties hereto to consummate
the transactions contemplated by this Agreement (other than conditions with
respect to actions the respective parties will take at the Closing). 1.4
Deliveries. 1.4.1. At the Closing, the Company shall deliver or cause to be
delivered to each Investor (i) a certificate or certificates representing the
Class A Preferred Shares being sold by the Company to such Investor hereunder;
and (ii) all of the documents, certificates and instruments required to be
delivered, or caused to be delivered, by the Company or an officer of the
Company pursuant to this Agreement, and each Investor shall deliver or cause to
be delivered to the Company all of the documents, if any, required to be
delivered by each Investor pursuant to this Agreement.
SECTION 2
REPRESENTATIONS AND WARRANTIES
------------------------------
CONCERNING THE COMPANY
----------------------
The Company represents and warrants to, and covenants and agrees with,
each Investor, with the understanding that each Investor is relying on such
representations, warranties and covenants in entering into this Agreement, that,
except as described in (i) the Private Placement Memorandum of 'clever
Marketing, Inc., dated January, 2000, (including the most recent Forms 10-KSB
and 10-QSB of the Company, the "PPM"), or (ii) a letter from Seabury Securities
LLC dated January 20, 2000 addressed to 'clever Marketing, Inc., Attn; Paul 0.
Begum, the following statements are true and correct:
2.1 Organization and Good Standing. The Company has been duly organized
and is existing as a corporation in good standing under the laws of the State of
Delaware with frill power and authority (including frill corporate power and
authority) to own and lease its properties and to conduct its business as
currently conducted. The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
2
laws of each jurisdiction where the ownership or lease of its assets or the
operation of its business requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the business,
operations, property or financial condition of the Company.
2.2 Authorization of Transaction. The Company has frill power and
authority (including frill corporate power and authority) to execute and deliver
this Agreement and the instruments to be delivered pursuant to this Agreement
and to perform its obligations hereunder. Without limiting the generality of the
foregoing, the board of directors of the Company has duly authorized the
execution, delivery, and performance of this Agreement by the Company. This
Agreement constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms and conditions.
2.3 Noncontravention. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) conflict with or result in a breach or violation of any term or provision Of
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased rights
or termination or nonperformance under, any loan or credit agreement, lease,
license or other agreement or instrument to which the Company is a party or by
which the Company is bound or affected or to which any of the property or assets
of the Company is bound or affected, (ii) result in the violation of the
provisions of the Certificate of Incorporation or Bylaws of the Company or any
legal requirement applicable to or binding upon it, (ii) result in the creation
or imposition of any lien upon any property or asset of the Company or (iv)
otherwise materially adversely affect the contractual or other legal rights or
privileges of the Company.
2.4 Capitalization. The authorized capital stock of the Company
consists solely of 20,000,000 shares of common stock, of which 11,909,252 shares
are, and as of the Closing Date, will be, issued and outstanding, and 2,000,000
shares of preferred stock, none of which are issued or outstanding prior to the
issuances contemplated herein. All of the Class A Preferred Shares have been
duly authorized and validly issued and are frilly paid and nonassessable. There
are no existing options, warrants, right, calls or commitments of any character
3
relating to the Class A Preferred Shares or any other capital stock or
securities of the Company, and there are no outstanding securities or other
instruments convertible into or exchangeable for the Class A Preferred Shares or
any other capital stock or securities of the Company and no commitments to issue
such securities or instruments and no person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any Class
A Preferred Shares or any other capital stock or securities of the Company,
other then as set forth in the Stockholders Agreement, dated the 1l~ day of
February, 2000, by and among the parties hereto.
2.5 Financial Statements. The financial statements contained in the PPM
(the "Financial Statements") present fairly and accurately the financial
condition of the Company on the dates and for the periods specified therein, and
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis. The Financial Statements, the PPM and the interim
unaudited financial statements in the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1999 are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state a material fact; provided, that the Company makes no representations or
warranties with respect to the future results of the Company's operations
because various risks and uncertainties may impact the accuracy of the PPM, and
actual operating results may differ materially from those projected by the
Company.
2.6 Subsequent Events. Since September 30, 1999, there has not been (i)
any material and adverse change in the condition (financial or otherwise),
operations, results of operations, assets, liabilities, business, or prospects
of the Company taken as a whole; (ii) any material liability or obligation
(contingent or otherwise) incurred by the Company, other than current
liabilities or obligations or capital leases incurred in the ordinary course of
business; or (iii) any change in the accounting methods or practices followed by
the Company.
2.7 Disclosure. The PPM when issued and as amended or supplemented will
not contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that the
4
Company makes no representation or warranty as to information contained in the
PPM which was furnished by the Investor in writing specifically for inclusion
therein.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
Each of the Investors severally hereby represents and warrants to, and
covenants and agrees with, the Company, as to such Investor only, with the
understanding that the Company is relying on such representations, warranties
and covenants in entering into this Agreement, that:
3.1 Authorization of Transaction. The Investor has frill power and
authority (and if an entity, frill power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Investor,
enforceable in accordance with its terms and conditions.
3.2 Noncontravention. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) conflict with or result in a breach or violation of any term or provision of
or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any person a basis for accelerated or increased rights
or termination or nonperformance under, any loan or credit agreement, lease,
license or other agreement or instrument to which the Investor is a party or by
which the Investor is bound or affected or to which any of the property or
assets of the Investor is bound or affected, (ii) if the Investor is an entity,
result in the violation of the provisions of the Investor's charter or any legal
requirement applicable to or binding upon it, (ii) result in the creation or
imposition of any lien upon any property or asset of the Investor or (iv)
otherwise materially adversely affect the contractual or other legal rights or
privileges of the Investor.
3.3 Receipt of Information. The Investor has received from the Company,
and has reviewed, the PPM, the Company's Annual Report on Form 1 0-KSB for the
5
year ended December 31, 1998, and the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999.
3.4 Investment Intent. The Investor is acquiring the Shares for
investment purposes only, for its own account and not as a nominee or agent for
any other person, and not with a view to or for resale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Act"). If this subscription is being made on behalf of an employee
benefit plan or for a person's individual retirement account, to the best of the
knowledge of the person executing this subscription (i) neither the Company nor
any of its affiliates is a fiduciary within the meaning of Section 3(21) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to such plan or account, (ii) the Company is not a "party-in-interest"
or a "disqualified person" as defined in ERISA Section 3(14) and Section
4975(e)(2) of the Internal Revenue Code of 1986, respectively, with respect to
such plan or account, and (iii) the person executing this subscription has taken
into account the requirements of prudence, diversification and other fiduciary
responsibilities contained in ERISA, to the extent applicable.
3.5 Disclosure of Information. The Investor has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Shares to be purchased by it hereunder. Each Investor has had an
opportunity to ask questions and receive answers from the Company and its
officers and directors regarding the Company, the Financial Statements, the
documents filed by the Company with the Securities and Exchange Commission, the
PPM, and the terms and conditions of the offering of the Shares.
3.6 Accredited Investor. The Investor is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated by the
Securities and Exchange Commission under the Act.
3.7 Investment Experience. The Investor has experience as an investor
in securities of companies in the development stage and acknowledges that it has
no need for liquidity in the Shares, is frilly able to bear the economic risk of
making an investment in the Shares for an indefinite period of time and has such
knowledge and experience in financial or business matters that it is capable of
6
evaluating the merits and risks of this investment in the Shares.
3.8 Restricted Securities. The Investor understands that the Shares are
"restricted securities" as defined by and under the Act and that such Shares may
be resold without registration under the Act only in certain limited
circumstances. In this connection, the Investor is familiar with Rule 144
promulgated under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.9 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:
3.9.1 there is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
3.9.2 (i) such 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, and (ii) such 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 Shares under the Act.
3.10 Legends. The Investor acknowledges and understands that the
certificates evidencing the Shares may bear the legend set forth below, together
with other legends required by the laws of the State of Utah or any other state:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
7
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
The legend set forth above shall be removed by the Company from any
certificate evidencing the Shares upon delivery to the Company of an opinion by
counsel, in form and substance reasonably satisfactory to the Company, that a
registration statement under the Act is at that time in effect with respect to
the legended security or that such security can be freely transferred in a
public sale without such a registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Shares were issued.
3.11 Placement Agent. The Investors acknowledge that the Company has
retained the services of Seabury Securities, LLC ("Seabury") in connection with
the transactions contemplated by this Agreement.
SECTION 4
SURVIVAL
--------
4.1 Survival of Representations and Warranties. The representations,
warranties and covenants made herein by any party and in any document or
certificate delivered by any party pursuant to this Agreement shall be deemed to
have been relied upon by the appropriate party, shall survive until the
expiration of the applicable statute of limitations, or any extensions thereof,
and shall be and continue in effect notwithstanding any investigation made by
any party.
SECTION 5
CONDITIONS PRECEDENT
--------------------
5.1 Conditions to the Investors' Obligations. The obligation of the
Investor to purchase the Shares is subject to the satisfaction, prior to or at
the Closing, of the following conditions, any of which may be waived in whole or
in part by each Investor:
8
5.1.1 Accuracy of Representations and Warranties. The
representations and warranties made by the Company in this Agreement, or in any
certificate or document delivered pursuant to the provisions hereof shall be
correct in all material respects on or as of Closing, and the Company shall have
performed all of its covenants set forth herein.
5.1.2 Litigation. The Company shall not be a party to, or be
threatened by, any litigation, claim or proceeding of whatever type or
description relating to this Agreement or the transactions contemplated herein,
which seeks to restrain, prohibit, or otherwise challenge this Agreement or the
transactions contemplated herein, or which in the reasonable judgment of the
Purchaser would materially affect the desirability of carrying out this
Agreement.
5.1.3 No Material Change. No event shall have occurred, and no
condition shall exist, which has a material adverse effect on the Company.
5.1.4 Deliveries. The Company shall have delivered to the Investor
the instruments, agreements, documents and schedules required by this Agreement.
SECTION 6
INDEMNIFICATION
---------------
6.1 Indemnification of Investor. The Company hereby indemnifies and
holds the Investor, and its agents, consultants, partners and advisors harmless
from and against, any and all losses, claims, damages, taxes (of any nature), or
other liabilities which arise out of or result from any misrepresentation or
breach of any warranty, representation or covenant of the Company in this
Agreement.
6.2 Indemnification of the Company. The Investor hereby severally
indemnifies and holds the Company and its directors, officers, representatives,
employees, agents, consultants and advisors harmless from and against any and
all losses, claims, damages, taxes (of any nature), or other liabilities which
9
arise out of or result from any misrepresentation or breach of any warranty,
representation or covenant of the Investor m this Agreement.
6.3 Indemnification Procedure. If any action is commenced against, or
claim is made by, an indemnified party under this Section 6, the indemnified
party shall give notice to the indemnifying party of such action or claim
covered by this indemnity within thirty (30) days following the indemnified
party's knowledge thereof To the extent that failure to give such notice unduly
prejudices the indemnifying party and causes additional damages to be incurred,
the indemnifying party shall not be liable for such additional damages. The
failure to give such notice will not relieve the indemnifying party from any
liability which it may otherwise have to the indemnified party whether arising
hereunder or otherwise. With respect to each such notice, the indemnifying party
shall immediately retain counsel satisfactory to the indemnified party and take
such other actions as are necessary to defend the indemnified party or to
discharge the indemnity obligations hereunder. The affected Investor and the
Company shall participate in all decisions regarding the defense of any action
to be taken concerning the indemnified obligations or the discharge thereof
SECTION 7
COVENANTS
---------
7.1 Financial Statements. From the date hereof through December 31,
2004, the Company shall deliver to each Investor, for so long as such Investor
is a holder of the Class A Preferred Shares, (i) as soon as available, and in
any event within one hundred twenty (120) days after the dose of each fiscal
year, consolidated balance sheets of the Company and its subsidiaries, if any,
as at the end of such year, and consolidated statements of income, shareholders'
equity and changes in financial position of the Company for such year, setting
forth in comparative form the figures for such year and for the preceding year,
all in reasonable detail, and duly audited by a firm of independent certified
public accountants.
7.2 Inspection Rights. For so long as such Investor is a holder of the
Class A Preferred Shares, the Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
10
and accounts with its officers, all at such reasonable times as may be requested
by the Investor. At the Company's request, an Investor will sign a
non-disclosure agreement.
SECTION 8
GENERAL PROVISIONS
------------------
8.1 Access to Records. The Company has given the Investor, its counsel,
agents, accountants and representatives reasonable access during normal business
hours up to and for the period through the Closing, to all of the Company's
properties, books, contracts, commitments and records relating to the Company,
and shall furnish the Investor or make available to the Investor at the
Company's offices during such period with all information concerning the
business which the Investor may reasonably request.
8.2 Waiver Remedies. No failure on the part of any party to exercise,
and no delay in exercising a right, remedy, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege,
and no waiver whatever shall be valid, unless in writing signed by the other
party or parties to be charged and then only to the extent specifically set
forth in such writing. All remedies, rights, powers and privileges, either under
this Agreement or by law or otherwise afforded to the parties to this Agreement,
shall be cumulative and shall not be exclusive of any remedies, rights, powers
and privileges provided by law. Each party hereto may exercise all such remedies
afforded to it in any order of priority.
8.3 Notices. Any notice required or permitted under this Agreement
shall be in writing and sufficient if delivered personally, by facsimile or
mailed by registered or certified mail, postage prepaid and return receipt
requested, addressed to the appropriate recipient, or at such other address as
the recipient shall designate by written notice, as herein provided, from time
to time as follows:
11
If to any Investor: If to the Company':
Seabury Securities, LLC Klever Marketing, Inc.
540 Madison Avenue, 17th Floor P.O. Box 2935
New York, NY 10022 Salt Lake City, UT 84110
Fax (212) 284-1144 Fax: (801) 322-1230
Attn:John E. Luth, President Attn: Paul G. Begum, Chairman and CEO
With copy' to: With a copy to:
Law Offices of Stephen L. Ganis J. Gordon Hansen
1234 Summer Street, 4th Floor Parsons Behle & Latimer
Stamford, CT 06905 201 South Main Street, Suite 1800
Attn: Stephen L. Ganis, Esq. Salt Lake City, UT 84111
Phone: (203) 977-2465 Phone: (801) 532-1234
Fax: (203) 348-0196 Fax: (801) 536-6111
Any notice which is personally delivered or delivered by facsimile
shall be deemed effective upon the date of delivery (or refusal to accept
delivery). Any notice which is mailed shall be deemed delivered on the second
day after mailing.
8.4 Successors. This Agreement shall be binding upon and inure to the
benefit of the respective heirs, personal representatives, successors and
assigns of the parties. No party shall delegate its or their duties or
obligations hereunder without the written consent of the other parties, which
consent shall not be unreasonably withheld.
8.5 Governing Law. The rights and obligations of the parties pursuant
to this Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice or conflict of law
rule or provision (whether of the State of Delaware or other jurisdiction) which
would cause the application of any law or rule other than of the State of
Delaware.
8.6 Severability. Should any term or provision of this Agreement or the
application thereof to any circumstance, in any jurisdiction and to any extent,
be invalid or unenforceable, such term or provision shall be ineffective as to
such jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable such term or provision in any other
jurisdiction, the remaining terms and provision of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or unenforceable.
8.7 Incorporation of Exhibits and Schedules. All exhibits attached to
this Agreement are incorporated herein as though fully set forth.
12
8.8 Entire Agreement. This Agreement, together with its exhibits and
Schedules, constitutes the entire agreement among the parties pertaining to the
subject matter herein and supersedes all prior and contemporaneous agreements,
representation and understandings of the parties in connection with the
transactions contemplated hereby. No supplement, modification or amendment shall
be binding unless executed in writing by all parties.
8.9 Counterparts. This Agreement may be executed m one or more
counterparts, each of which shall be considered an original instrument and all
of which together shall be considered one and the same agreement. Delivery and
receipt of executed pages by facsimile transmission shall constitute effective
and binding executing and delivery of this Agreement.
8.10 Expenses. Except as otherwise expressly provided herein, the
parties shall bear their own expenses, including the fees and expenses of any
attorneys, accountants or others engaged by them incurred in connection with
this Agreement and the transaction contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have signed or caused this
Agreement to be signed in their respective names as of the day and date first
above written.
KLEVER MARKETING, INC.
By: /s/
Name: Paul G. Begum,
Its: Chairman of the Board of Directors and CEO
(Investor signature on the following page)
13
EXHIBIT "A"
INVESTOR SIGNATURE PAGE
The undersigned party hereby agrees to the terms of this Subscription
Agreement and subscribes for and agrees to purchase from the Company the
following Shares:
Number of Class A Preferred Shares at $26.00 per share: 41,476
Total purchase price of Class A Preferred Shares: $1,078,376
DATED this 14th day of February 2000.
Seabury Investors III, Limited Partnership
------------------------------------------
(Name - Please Print)
/s/ John Luth
------------------------------------------
John Luth
General Partner
Seabury Partners III, Limited Partnership
(Signature of Joint Owner if any)
540 Madison Avenue
------------------------------------------
(Primary Place of Residence)
New York, New York 10017
------------------------------------------
(City, State and ZIP Code)
212-284-1133
------------------------------------------
(Telephone Number - Business)
06-157115
------------------------------------------
(Social Security or Taxpayer I.D. No.)
ACCEPTED this 14th day of February, 2000
Klever Marketing, Inc.
By:___________/s/____________________
Name: StacyAnn Royal
Title: Corporate Secretary
December 1, 2000
Klever Marketing, Inc.
P.O. Box 2935
Salt Lake City, UT 84110
Attn: Corey A. Hamilton
President & COO
Dear Corey:
We are pleased to propose the arrangements for Seabury Securities LLC,
an NASD-registered broker dealer and an affiliate of Seabury Technology LLC
(collectively, "Seabury"), to act as the financial advisor to Klever Marketing,
Inc., a Delaware corporation (collectively with its subsidiaries and affiliates,
the "Company") with respect to investment banking and other corporate matters as
they may arise on the terms set forth herein (the "Agreement"). This Agreement
supersedes any prior engagement of Seabury by the Company.
Section 1. Scope of Engagement.
-------------------
To the extent requested by the Company, Seabury shall use its
commercially reasonable best efforts to provide the Company investment banking,
financial advisory and management consulting services, including, but not
limited to, the following services:
(i) assisting the Company in refining its business and capital
raising strategies;
(ii) assisting the Company in preparing and/or refining projected
financial statements;
(iii) analyzing the Company and advising of the potential range of
values that could be expected in proposed transaction(s);
(iv) soliciting capital funding for the Company, including
preparing an offering memorandum and other appropriate
presentation materials;
(v) identifying and contacting institutional companies and other
potential investors;
(vi) preparing Company's management for investor and board
presentations;
(vii) arranging for potential investors to conduct investigations of
the Company's business and assisting Company with such
investigations;
(viii) assisting in the origination and negotiation of the financial
and legal aspects of proposed equity-type transactions,
including any common stock transaction, any preferred stock
2
transaction or any quasi-equity transaction, such as
convertible debt or unsecured debt with significant equity
kickers acceptable to the Company (collectively, an "Equity
Transaction");
(ix) assisting in the origination and negotiation of the financial
aspects and legal of any proposed sale, merger or acquisition
of or by the Company acceptable to the Company (collectively,
an "M&A Transaction");
(x) assisting in the origination and negotiation of the financial
aspects of the proposed secured debt or equipment lease
transactions acceptable to the Company (collectively, a
"Debt/Lease Transaction"); and
(xi) assisting in completing the documentation and closing of the
above described transactions.
Section 2. Conditions Precedent
--------------------
The Company agrees that as part of any Equity Transaction, the Company
may need to take the actions required to delist and become a private
corporation. The Equity Transaction(s) authorized by this Agreement may
determine the value of the Company.
Section 3. Exclusive Authorization.
------------------------
During the term of this engagement, the Company agrees to retain
Seabury as its exclusive financial advisor and investment banker with the
exceptions listed below.
Section 4. Compensation.
-------------
(i) In connection with any Equity Transactions involving funds
provided by individual (non-institutional) investors, no fees
will be payable to Seabury unless the investors are introduced
by Seabury in which case, success fees simultaneous with the
closing of the funding commitment ("Closing") will be payable
as specified in Section 4(ii) below.
(ii) In connection with any other Equity Transactions except for
funds from four (4) investors specified in Section 4(iii)
below, including funds for acquisitions, success fees
simultaneous with the closing of the funding commitment
("Closing") as follows:
(a) ten percent (10%) of the first $2.5 million of the
capital funds raised, seven and one-half (7.5%) percent
of the next $2.5 million of capital funds raised and
five percent (5.0%) of any further capital funds raised
in connection with such Equity Transaction; plus
(b) equity warrants in an amount equal to the total success
fees paid in Section 4 (ii)(a) above having a five-year
life (the "Warrants"); the Warrant's strike price will
be calculated based on the buy-in price of such Equity
Transaction and the number of shares of stock subject to
the Warrants will be calculated based on the present
value of the success fee in Section 4(i)(a) above,
divided by the post-money valuation of the Company and
multiplied by the number of then issued shares (i.e., so
3
called "full warrant coverage"), such Warrants are in
addition to any warrants issued to Seabury or its
affiliates prior to execution of this Agreement.
(iii) In connection with any funds from the following four (4)
investors, success fees simultaneous with the closing of the
funding commitment ("Closing") equal to 50% of the fees
specified in Section 4(ii) above. These four (4) investors
include: The Yucaipa Companies, ObjectSoft and associated
investors, Advertising Display Company, and Sands Bros. &
Company Ltd.
(iv) In connection with any closed M&A Transaction, the Company
shall pay to Seabury an M&A Transaction success fee as set
forth in Schedule 1 attached hereto.
(v) In connection with any closed Debt/Lease Transaction with any
single party in an amount of at least $500,000 of principal
value or net present value of future lease payments, the
Company shall pay to Seabury a success fee equal to three and
one-half percent (3.5%) of the amount of the debt/lease.
(vi) Notwithstanding all of the provisions in Section 4(i-iv)
above, the Company will pay to Seabury cash success fees of
not less than $500,000 provided that the Company secures
financing of at least $3,000,000 million in any combination of
Equity, or debt Transactions from any institutional source
during the term of this Agreement, and from any individual
investor directly sourced by Seabury.
Section 5. Further Investment.
-------------------
Seabury has the right, but not the obligation, to participate in any
Equity Transaction completed during the term of Seabury's engagement, on the
same terms as the other investors to such Equity Transaction. The amount of
Seabury's participation in any such Equity Transaction shall be limited,
however, to 10% of the total capital raise from such Equity Transaction.
Section 6. Expense Reimbursement.
----------------------
The Company will reimburse Seabury within fifteen (15) days of receipt
of written notice for its reasonable out-of-pocket expenses associated with the
services to be rendered under the Agreement. The Company and its representatives
shall be entitled to review and/or audit Seabury's records of such expenses
during normal business hours. In addition, Seabury will make every effort to
utilize any travel and hotel discounts available to the Company where schedule,
availability, and details of such arrangements are appropriate. Upon termination
of this Agreement, the Company shall reimburse Seabury only for such
reimbursable expenses incurred or accrued prior to termination of such
Agreement. Prior to any reimbursement, Seabury shall present the Company with
invoices of such expenses, which invoices will include an itemized summary and
adequate detail including employee name, date of expense charge, business
purpose, amount and relevant vendor utilized. In addition, Seabury must provide
the Company with the copied receipts for such expenses prior to reimbursement.
Section 7. Term.
-----
The Company shall retain Seabury for an initial period of twelve (12)
months from the date hereof, and such engagement may be extended, as the parties
4
shall mutually agree, subject to the establishment of mutually agreeable
arrangements for compensation and other appropriate terms for such extension.
Notwithstanding the foregoing, Sections 8 and 9 of this Agreement shall survive
such expiration.
Section 8. Termination.
------------
(i) The Company may terminate this Agreement by written notice to
Seabury without further liability or obligation on the part of
the Company if (x) at any time the Company determines in good
faith that Seabury has materially defaulted in the performance
of its obligations hereunder; and (y) the Company provides
Seabury thirty (30) days' prior written notice of its
intention to cancel unless Seabury remedies any failure to
perform, and (z) Seabury fails to remedy such performance
within thirty (30) days of receipt of such notice.
(ii) Except for termination under Section 8(i) hereof, upon
termination of this Agreement, the Company shall pay Seabury
both any fees owed through the date of termination and shall
pay when earned one hundred percent (100%) of the applicable
success fees set forth in Section 4 herein on transactions
which would generate such fees closed within twelve (12)
months of such termination. At the time of termination,
Seabury will provide the Company with a list of persons and
entities that Seabury believes that a timely transaction with
such persons or entities would give rise to the payment of a
success fee.
(iii) In the event of termination of this Agreement, Section 8 of
this Agreement shall survive such expiration.
(iv) The Company has the right to terminate the contract with 60
days written notice based on non-performance. Non-performance
is defined as failure to raise capital in the minimum amount
of $1,500,000 by June 15, 2001.
Section 9. Indemnification.
----------------
The Company agrees that in connection with Seabury's engagement it will
execute a form of indemnification agreement provided by Seabury as set forth in
Annex A.
Section 10. Agreement and Modification.
---------------------------
Except for certain understandings incorporated by reference, this
Agreement sets forth the entire understanding of the parties to the subject
matter hereof, and supersedes and cancels any prior communications,
understandings and agreement between the parties. This Agreement cannot be
modified or changed nor can any of its provisions be waived, except in writing
signed by all parties.
Section 11. Miscellaneous.
--------------
The laws of the State of New York shall govern this Agreement.
Please confirm that the foregoing is in accordance with your
understanding of the terms of our engagement by signing and returning to us the
enclosed duplicate of this letter, which shall thereupon constitute a binding
agreement between us.
5
Very truly yours,
SEABURY SECURITIES LLC
By: _____/s/______________
John E. Luth
President & CEO
Accepted and agreed:
KLEVER MARKETING, INC.
By:_____/s/___________________
Corey A. Hamilton
President & COO
6
SCHEDULE 1
SEABURY M&A FEE SCHEDULE
For Transaction Value of $7.5 million or less, the M&A Transaction success fee
will be a minimum of $500,000. For Transaction Value greater than $7.5 million,
the M&A Transaction success fee will be calculated in accordance with the
following table.
Transaction Value Base Fee Additional Fee
--------
$ 7,500,001-10,000,000 $500,00 plus 5.00% of the amount over $ 7,500,000
$ 10,000,001-12,500,000 $625,000 plus 3.50% of the amount over $10,000,000
$ 12,500,001-15,000,000 $712,500 plus 2.00% of the amount over $12,500,000
Greater than $15,000,000 $762,500 plus 1.50% of the amount over $15,000,000
As used in this letter agreement, "Transaction Value" means the total present
value of all consideration (including cash, securities or other property) paid
or received or to be paid or received, directly or indirectly, in connection
with a M&A Transaction in respect of assets or outstanding securities on a fully
diluted basis (treating any securities issuable upon the exercise of options,
warrants or other convertible securities and any securities to be redeemed as
outstanding but after applying a reasonable discount factor based upon
likelihood of exercise), plus the amount of any debt (including capitalized
leases) and any other liabilities outstanding or assumed, refinanced or
extinguished in connection with such a M&A Transaction, and present value of
amounts payable in connection with such a M&A Transaction in respect of
employment or consulting agreements (where such employment agreements contain
provisions in excess of the net present value of benefits to executives of the
Company or the board of directors as they existed on September 30, 2000),
agreements not to compete or similar arrangements. If any portion of Transaction
Value is payable in the form of securities, the value of such securities, for
purposes of calculating Seabury's success fee, will be determined based on the
average closing price for such securities for the 20 trading days prior to the
closing of the M&A Transaction. In the case of securities that do not have an
existing public market, Seabury's success fee will be determined based on the
fair market value of such securities as mutually agreed upon in good faith by
the Company and Seabury prior to the closing of the M&A Transaction. Success
fees attributable to amounts paid or securities placed into escrow will be
payable upon the distribution from such escrow. Fees relating to contingent
payments other than escrowed amounts will be calculated based on the present
value of the reasonably expected maximum amount of such contingent payments as
determined in good faith by the Company and Seabury prior to the closing of the
Transaction, utilizing a discount rate equal to the prime rate published in The
Wall Street Journal on the last business day preceding the closing of the
Transaction.
7
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Annex A -
SEABURY SECURITIES LLC
Indemnification
Agreement
--------------------------------------------------------------------------------
December 1, 2000
Seabury Securities LLC
540 Madison Avenue, 17th Floor
New York, NY 10022
Gentlemen:
In connection with the engagement of Seabury Securities LLC and/or one
or more of its affiliates, including Seabury Technology LLC ("Seabury") to
advise and assist the Undersigned (referred to herein as "we", "our", or "us")
with the matters set forth in the Agreement dated the 1st day of December, 2000
between us and Seabury, we hereby agree to indemnify and hold harmless Seabury,
its affiliated companies, and each of Seabury's and such affiliated companies'
respective officers, directors, agent, employees, and controlling persons
(within the meaning of each of Section 20 of the Securities Exchange Act of 1934
and Section 15 of the Securities Act of 1933) (each of the forgoing, including
Seabury, being hereinafter referred to as an "Indemnified Person") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements, and other charges
of counsel), actions (including actions brought by us or our equity holders or
derivative actions brought by any person claiming through us or in our name),
proceedings, arbitration or investigations (whether formal or informal), of
threats thereof (all of the foregoing being referred to as "Liabilities"), based
upon, relating to, or arising out of such engagement or any Indemnified Person's
role therein; provided, however, that we shall not be liable under this
paragraph: (a) for any amount paid in settlement of claims without our consent,
unless our consent is unreasonable withheld or (b) to the extent that it is
finally judicially determined, or expressly stated in an arbitration award, that
such Liabilities resulted primarily from the willful misconduct or gross
negligence of the Indemnified Person seeking indemnification. In connection with
our obligation to indemnify for expenses as set forth above, we further agree to
reimburse each Indemnified Person for all such expenses (including reasonable
fees, disbursements, and other charges of counsel) as they are incurred by such
Indemnified Person; provided, however, that if an Indemnified Person is
reimbursed hereunder for any expenses, the amount so paid shall be refunded if
and to the extent it is finally judicially determined, or expressly stated in an
arbitration award, that the Liabilities in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Person. We hereby
agree that neither Seabury nor any other Indemnified Person shall have any
liability to us (or anyone claiming through us or in our name) in connection
with Seabury's engagement by us except to the extent that such Indemnified
Person has engaged in willful misconduct or been grossly negligent.
Promptly after Seabury receives notice of the commencement of any
action or other proceeding in respect of which indemnification or reimbursement
may be sought hereunder, Seabury will notify us thereof; but the omission so to
notify us shall not relieve us from any obligation hereunder unless, and only to
the extent that, such omission results in our forfeiture of substantive rights
or defenses. If any such action or other proceeding shall be brought against any
Indemnified Person, we shall, upon written notice given reasonably promptly
following your notice to us of such action or proceeding, be entitled to assume
the defense thereof at our expense with counsel chosen by us and reasonably
satisfactory to such Indemnified Person; provided, however, that any Indemnified
Person may, at its own expense retain separate counsel to participate in such
defense. Notwithstanding the foregoing, such Indemnified Person shall have the
right to employ separate counsel at our expense and to control its own defense
of such action or proceeding if, in the reasonable opinion of counsel to such
Indemnified Person, (i) there are or may be legal defenses available to such
Indemnified Person or to other Indemnified Persons that are different from or
additional to those available to us, or (ii) a difference of position or
potential difference of position exists between us and such Indemnified Person
that would make such separate representation advisable; provided, however, that
in no event shall we be required to pay fees and expenses under this indemnity
for more than one firm of attorneys (in addition to local counsel) in any
jurisdiction in any one legal action or group of related legal actions. We agree
that we will not, without the prior written consent of Seabury, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, or proceeding relating to the matters contemplated by Seabury's
engagement (whether or not any Indemnified Person is a party thereto) unless
such settlement, compromise, or consent includes an unconditional release of
Seabury and each other Indemnified Person from all liability arising or that may
arise out of such claim, action, or proceeding.
8
If the indemnification of an Indemnified Person provided for hereunder
is finally judicially determined by a court of competent jurisdiction to be
unenforceable, then we agree, in lieu of indemnifying such Indemnified Person,
to contribute to the amount paid or payable by such Indemnified Person as a
result of such Liabilities in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by us on the one hand and
by Seabury on the other from the transactions in connection with which Seabury
has been engaged. If the allocation provided in the preceding sentence is not
permitted by applicable law, then we agree to contribute to the amount paid or
payable by such Indemnified Person as a result of such Liabilities in such
proportion as is appropriate to reflect not only the relative benefits referred
to in such preceding sentence but also the relative fault of us and of such
Indemnified Person.
Notwithstanding the foregoing, in no event shall the aggregate amount
required to be contributed by all Indemnified Persons taking into account our
contributions as described above exceed the amount of fees received by Seabury
pursuant to such engagement. The relative benefits received or sought to be
received by us on the one hand and by Seabury on the other shall be deemed to be
in the same proportion as (a) the total value of the transactions with respect
to which Seabury has been engaged bears to (b) the fees paid or payable to
Seabury with respect to such engagement.
The rights accorded to Indemnified Persons hereunder shall be in
addition to any rights that any Indemnified Person may have at common law, by
separate agreement or otherwise.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE. WE HEREBY CONSENT, SOLELY FOR THE PURPOSE
OF ALLOWING AN INDEMNIFIED PERSON TO ENFORCE ITS RIGHTS HEREUNDER, TO PERSONAL
JURISDICTION AND SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM FOR WHICH
INDEMNIFICATION MAY BE SOUGHT HEREUNDER IS BROUGHT AGAINST SEABURY OR ANY OTHER
INDEMNIFIED PERSON.
We and Seabury also hereby irrevocably waive any right we and Seabury
may have to a trial by jury in respect of any claim based upon or arising out of
this agreement. This agreement may not be amended or otherwise modified except
by an instrument signed by both Seabury and us. If any provision hereof shall be
determined to be invalid or unenforceable in any respect, such determination
shall not affect such provision in any other respect or any other provision of
this agreement, which shall remain in full force and effect. If there is more
than one Indemnitor hereunder, each Indemnifying Person agrees that its
liabilities hereunder shall be joint and several. Each Indemnified Person is an
intended beneficiary hereunder.
The foregoing indemnification agreement shall remain in effect
indefinitely, notwithstanding any termination of Seabury's engagement.
Very truly yours,
KLEVER MARKETING, INC.
By: __/s/_________________
Name: Corey A. Hamilton
Title: President
9
Acknowledged and Agreed to:
SEABURY SECURITIES LLC
By: ____/s/_________________________
John E. Luth
President & CEO
10
1ST AMENDMENT TO DECEMBER 1, 2000 LETTER AGREEMENT
BETWEEN KLEVER MARKETING, INC. AND SEABURY SECURITIES LLC
This Agreement (the "Amendment Agreement") to amend the December 1,
2000 Letter Agreement between Klever Marketing, Inc. and Seabury Securities LLC
(the "Original Agreement") is made as of May 25, 2001 between Klever Marketing,
Inc., a Delaware corporation (the "Company"), and Seabury Securities LLC
("Seabury"). The Company and Seabury are sometimes referred to herein as the
"Parties". The Parties agree to amend the Original Agreement as follows:
1. Paragraph 4(iii) will be deleted and replaced with a new Paragraph 4(iii)
provided in 1(a) below:
a) In connection with any funds raised from ObjectSoft other than through
the efforts of Seabury, success fees simultaneous with the closing of
the funding commitment equal to 50% of the fees specified in Section
4(ii) above.
2. A new paragraph 4(vii) will be inserted which reads as follows: "For
purposes of this Section 4, all gross proceeds received by the Company
pursuant to that certain Class C Convertible Preferred Stock Purchase
Agreement dated May 25, 2001, shall be considered capital funds, and/or
equity financing, raised by Seabury."
3. A new paragraph 4(v)(a) will be inserted which reads as follows: "The
foregoing success fees will not apply to equipment lease financing obtained
by the Company from Symbol Technologies, Inc."
4. In Paragraph 8(iv), the date June 15, 2001 will be replaced with the date
August 15, 2001.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
by the terms hereof, have caused this Agreement to be executed, under seal, as
of the date first above written by their officers or other representatives
thereunto duly authorized.
The Company: KLEVER MARKETING, INC.
By: /s/
-------------------------------------
Name: Corey Hamilton
Title: Chief Executive Officer
Investors: SEABURY SECURITIES LLC
By: /s/
-------------------------------------
Name: John E. Luth
Title: President & CEO
11
EXHIBIT 4
We, the signatories of the statement on Schedule 13D to which this Agreement is
attached, do hereby agree that such statement is, and any amendments thereto
filed by any of us will be, filed on behalf of each of us.
Dated: June 26, 2001
SEABURY INVESTORS III, LIMITED PARTNERSHIP
By: SEABURY PARTNERS III, LIMITED PARTNERSHIP
By: _____/s/_____________________________
John E. Luth, General Partner
SEABURY PARTNERS III, LIMITED PARTNERSHIP
By: ____/s/______________________________
John E. Luth, General Partner
By:_____/s/______________________________
Michael B. Cox, General Partner
________/s/______________________________
John E. Luth
________/s/______________________________
Michael B. Cox
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