PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
PRIMA CAPITAL GROWTH FUND LLC
AND
BOROUGH CORPORATION
_____________________________________________________
DATED AS OF JUNE 3, 2002
_____________________________________________________
This PRIVATE EQUITY LINE OF CREDIT
AGREEMENT is entered into as of June 3, 2002 (this
"Agreement"), by and between Prima Capital Growth Fund LLC, a
New York limited liability corporation ("Investor"), and
BOROUGH CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue
and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase up to $30,000,000 of the Common
Stock (as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Price" shall be the price
based on the VWAP.
Section 1.2 "Bid Price" shall mean the closing bid price
(as reported by Bloomberg, L.P.) of the Common Stock on the
Principal Market.
Section 1.3 "Capital Shares" shall mean the Common
Stock and any shares of any other class of common stock whether
now or hereafter authorized, having the right to participate in the
distribution of earnings and assets of the Company.
Section 1.4 "Closing" shall mean one of the closings of
a purchase and sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a
Closing the twelfth (12th) Trading Day following the Optional
Purchase Date related to such Closing with respect to the first ten
Trading Days of the Valuation Period, and the first Trading Day
following the Valuation Period with respect to the final ten
Trading Days of the Valuation Period, provided all conditions to
such Closing have been satisfied on or before such Trading Days.
There shall be two Closing Dates for each Optional Purchase
Notice.
Section 1.6 "Commitment Amount" shall mean the
$30,000,000 up to which the Investor has agreed to provide to the
Company in order to purchase Put Shares pursuant to the terms
and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period
commencing on the earlier to occur of (i) the Effective Date or (ii)
such earlier date as the Company and the Investor may mutually
agree in writing, and expiring on the earliest to occur of (x) the
date on which the Investor shall have purchased Put Shares
pursuant to this Agreement for an aggregate Purchase Price of
$30,000,000, (y) the date this Agreement is terminated pursuant to
Section 2.5, or (z) the date occurring thirty-six (36) months from
the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's
common stock, $.0001 par value per share.
Section 1.9 "Common Stock Equivalents" shall mean
any securities that are convertible into or exchangeable for
Common Stock or any warrants, options or other rights to
subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
Section 1.10 "Condition Satisfaction Date"- See Section
7.2.
Section 1.11 "Damages" shall mean any loss, claim,
damage, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements and costs and
expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on
which the SEC first declares effective a Registration Statement
registering resale of the Registrable Securities as set forth in
Section 7.2(a).
Section 1.13 "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended and the regulations
promulgated thereunder.
Section 1.14 "Finder" - See Section 13.4.
Section 1.15 "Finder's Fee" - See Section 13.4.
Section 1.16 "Floor Price" shall mean the lowest price
per share at which the Company will issue Put Shares, as may be
determined from time to time by the Company and designated in
an Optional Purchase Notice.
Section 1.17 "Investment Amount" shall mean the dollar
amount (within the range specified in Section 2.2) to be invested
by the Investor to purchase Put Shares with respect to any
Optional Purchase Notice as notified by the Company to the
Investor in accordance with Section 2.2 hereof.
Section 1.18 "Legend" - See Section 9.1.
Section 1.19 "Material Adverse Effect" shall mean any
effect on the business, operations, properties, prospects, or
financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole,
and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to
enter into and perform its obligations under any of (a) this
Agreement and (b) the Registration Rights Agreement in any
material respect.
Section 1.20 "Maximum Put Amount" shall mean the
least of (i) fifteen percent (15%) of the Average Daily Prices for
each of the twenty-two Trading Days immediately preceding the
Optional Purchase Date multiplied by the reported daily trading
volume of the Common Stock on the Principal Market for the
twenty-two Trading Days immediately preceding the Optional
Purchase Date, (ii) the maximum amount of Common Stock that
may be issued without the approval of the Company's
Shareholders according to the rules and regulations of the
Principal Market, or (iii) the amount specified in Section 7.2(j).
Section 1.21 "Minimum Put Amount" shall mean
$100,000 to the Investor for each Optional Purchase Notice.
Section 1.22 "NASD" shall mean the National
Association of Securities Dealers, Inc.
Section 1.23 "Optional Purchase Date" shall mean the
Trading Day during the Commitment Period that an Optional
Purchase Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
Section 1.24 "Optional Purchase Notice" shall mean a
written notice to the Investor setting forth the Investment Amount
that the Company intends to sell to the Investor.
Section 1.25 "Outstanding" when used with reference to
Common Shares or Capital Shares (collectively the "Shares"), shall
mean, at any date as of which the number of such Shares is to be
determined, all issued and outstanding Shares, and shall include all
such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such
Shares then directly or indirectly owned or held by or for the
account of the Company.
Section 1.26 "Person" shall mean an individual, a
corporation, a partnership, an association, a trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.27 "Principal Market" shall mean the Nasdaq
National Market, the Nasdaq Small-Cap Market, the OTC Bulletin
Board, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock. As of the date of this
Agreement, the OTC Bulletin Board Market is the Principal
Market.
Section 1.28 INTENTIONALLY LEFT BLANK.
Section 1.29 "Purchase Price" as used in this Agreement
shall mean the following: For each Trading Day during a
Valuation Period (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this
Agreement) the Purchase Price shall be 87.5% of the VWAP.
Section 1.30 "Put" shall mean each occasion the
Company elects to exercise its right to tender an Optional
Purchase Notice requiring the Investor to purchase a discretionary
amount as determined by the Company of the Company's Common
Stock, subject to the terms of this Agreement, which tender must
be given to the Investor.
Section 1.31 "Put Shares" shall mean all shares of
Common Stock issued or issuable pursuant to a Put that has
occurred or may occur in accordance with the terms and
conditions of this Agreement.
Section 1.32 "Registrable Securities" shall mean the Put
Shares and Warrant Shares until the SEC has declared the
Registration Statement effective and all Put Shares and Warrant
Shares have been disposed of pursuant to the Registration
Statement.
Section 1.33 "Registration Rights Agreement" shall mean
the agreement regarding the filing of the Registration Statement
for the resale of the Registrable Securities, entered into between
the Company and the Investor as of the Subscription Date.
Section 1.34 "Registration Statement" shall mean a
registration statement on Form S-1 or Form SB-2 (if use of such
forms are then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC
for which the Company then qualifies and which form shall be
available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this
Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.35 "Regulation D" shall mean Regulation D of
the Securities Act.
Section 1.36 "SEC" shall mean the Securities and
Exchange Commission.
Section 1.37 "Section 4(2)" shall mean Section 4(2) of
the Securities Act.
Section 1.38 "Securities Act" shall mean the United
States Securities Act of 1933, as amended, and the regulations
promulgated thereunder.
Section 1.39 "SEC Documents" shall mean the
Company's latest Form 10-KSB as of the time in question, all
Forms 10-QSB and 8-K filed thereafter, and the Proxy Statement
for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
Section 1.40 "Subscription Date" shall mean the date on
which this Agreement is executed and delivered by the parties
hereto.
Section 1.41 "Trading Cushion" shall mean, at any time,
the mandatory ten (10) Trading Days after the most recent Closing
Date.
Section 1.42 "Trading Day" shall mean any day during
which the New York Stock Exchange shall be open for business.
Section 1.43 "Valuation Event" shall mean an event in
which the Company at any time during a Valuation Period takes
any of the following actions:
(a) subdivides or combines its Common
Stock;
(b) pays a dividend in its Capital
Stock or makes any other distribution of its Capital
Shares;
(c) issues any additional Capital Shares
("Additional Capital Shares"), otherwise than as
provided in the foregoing Subsections (a) and (b)
above, at a price per share less, or for other
consideration lower, than the Bid Price in effect on
the Trading Day immediately prior to such
issuance, or without consideration;
(d) issues any warrants, options or other
rights to subscribe for or purchase any Additional
Capital Shares and the price per share for which
Additional Capital Shares may at any time
thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into
or exchangeable for Capital Shares and the
consideration per share for which Additional
Capital Shares may at any time thereafter be
issuable pursuant to the terms of such convertible
or exchangeable securities shall be less than the Bid
Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or
evidences of indebtedness to the holders of its
Capital Shares as a dividend in liquidation or by
way of return of capital or other than as a dividend
payable out of earnings or surplus legally available
for dividends under applicable law or any
distribution to such holders made in respect of the
sale of all or substantially all of the Company's
assets (other than under the circumstances provided
for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the
number of Outstanding Capital Shares, other than
an action described in any of the foregoing
Subsections (a) through (f) hereof, inclusive, which
in the opinion of the Company's Board of
Directors, determined in good faith, would have a
materially adverse effect upon the rights of the
Investor at the time of a Put or Closing Date.
Upon each occurrence of any one or more of the foregoing
Valuation Events, the Purchase Price and number of Put Shares to
be issued shall be adjusted to offset the dilutive effect of such one
or more Valuation Events.
Section 1.44 "Valuation Period" shall mean the period of
twenty-two (22) Trading Days during which the Purchase Price of
the Common Stock is determined, which period shall be with
respect to the Purchase Prices on any Optional Purchase Date, the
twenty-two (22) Trading Days following the day on which an
Optional Purchase Notice is deemed to be delivered.
Section 1.45 "VWAP" shall mean the daily volume
weighted average price of the Common Stock on the Principal
Market as reported by Bloomberg, L.P. using the AQR function.
Section 1.46 "Warrant" shall mean the common stock
purchase warrants of the Company described in Section 13.1, a
form of which is annexed hereto as Exhibit E. Each Warrant shall
evidence the right of the holder to purchase one Warrant Share.
Section 1.47 "Warrant Recipient" - See Section 13.1.
Section 1.48 "Warrant Shares" shall mean the Common
Stock issuable upon exercise of a Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts. Upon the terms and conditions set
forth herein (including, without limitation, the provisions of Article
III hereof), on any Optional Purchase Date the Company may
exercise a Put by the delivery of an Optional Purchase Notice.
Optional Purchase Notices must be delivered to the Investor for
such Investment Amount. The number of Put Shares that the
Investor shall receive pursuant to such Put shall be determined by
dividing the relevant portions of the Investment Amount specified
in the Optional Purchase Notice by the corresponding Purchase
Prices for each Trading Day during the Valuation Period.
Section 2.2 Mechanics.
(a) Optional Purchase Notice. At any
time during the Commitment Period, the Company may deliver an
Optional Purchase Notice to the Investor, subject to the conditions
set forth in Section 7.2; provided, however, the aggregate
Investment Amount for each Put for the Investor, as designated by
the Company in the applicable Optional Purchase Notices shall be
neither less than the Minimum Put Amount to the Investor nor
more than the Maximum Put Amount. The Optional Purchase
Notice shall state the commencement date of the Valuation Period
which may not be prior to the delivery of the Optional Purchase
Notice. The Optional Purchase Notice must also state (i) the
maximum amount of Common Stock that may be issued pursuant
to Section 1.20, (ii) support for the calculation thereof, (iii) the
amount of Common Stock outstanding on the Optional Purchase
Date, and (iv) the number of shares of Common Stock available
for resale by the Investor pursuant to the Registration Statement.
(b) Date of Delivery of Optional
Purchase Notice. An Optional Purchase Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 12:00
noon New York time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon
New York time on a Trading Day or at any time on a day which is
not a Trading Day. No Optional Purchase Notice may be deemed
delivered on a day that is not a Trading Day.
(c) Determination of Put Shares
Issuable. The Purchase Price shall be based on the Average Daily
Price on each separate Trading Day during the Valuation Period.
The number of Put Shares to be purchased by the Investor shall be
determined on a daily basis during each Valuation Period and
settled on each Closing Date. Five percent (5%) of the Investment
Amount will be allocated to each Trading Day during the
Valuation Period. The portion of Investment Amount for which
Put Shares may be issued for each Trading Day during the
Valuation Period will equal five percent (5%) of the Investment
Amount.
(d) Maximum Optional Purchase
Notices/Amount. The Company has no obligation to make any
puts under the agreement but if they choose to do so then there
shall be a maximum of thirty-six (36) Optional Purchase Notices
given during the term of this Agreement. Subject to the terms and
conditions of this Agreement, the Company shall have the right to
issue each Optional Purchase Notice for an Investment Amount up
to the Maximum Put Amount. The Company may not issue an
Optional Purchase Notice in connection with any amount of shares
which would exceed the amount permitted to be issued without
approval of the Company's shareholders, if such approval is
required pursuant to the rules of the Principal Market.
(e) Trading Halt Limitations and
Blackouts. The Investor is not required to purchase Put Shares
for any Trading Day during which trading of the Common Stock is
suspended or halted for three or more hours or for any day during
which any of the events described in Section 6.8 has occurred or is
continuing. In such case, five percent (5%) of the Investment
Amount shall be withdrawn from the Investment Amount for each
such Trading Day.
(f) Floor Price. On each such date
during the Valuation Period that the Purchase Price of the
Common Stock is less than the Floor Price ("Low Price Day"), (i)
the Investment Amount specified in the applicable Put Notice shall
be reduced by one-twenty second (1/22nd), and (ii) the Company
shall not sell and the Investor shall not purchase Put Shares equal
to such reduction in the Investment Amount for such Low Price
Day and the Valuation Period shall be extended for each such Low
Price Day as if such Low Price Day were not in the Valuation
Period. However, the Valuation Period may not be extended
more than six Trading Days corresponding to six Low Price Days,
in relation to each Optional Purchase Notice.
Section 2.3 Closings. On each Closing Date for a Put
the Company shall deliver to the Investor or to escrow one or
more certificates, at the Investor's option, representing the Put
Shares to be purchased by the Investor pursuant to Section 2.1
herein, after the Optional Purchase Date and on or prior to such
Closing Date, registered in the name of the Investor or, at the
Investor's option, deposit such certificate(s) into such account or
accounts belonging to the Investor designated by the Investor. If
the Company is qualified to do so, electronic transfer shall at the
Investor's election, make delivery of Put Shares. The Investor
shall deliver to escrow the Investment Amount specified in the
Optional Purchase Notice by wire transfer of immediately available
funds to an account designated by the Company on or before the
Closing Date. In addition, on or prior to the Closing Date, each of
the Company and the Investor shall deliver all documents,
instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein.
Payment of funds to the Company and delivery of the certificates
to the Investor shall occur out of escrow in accordance with the
escrow agreement referred to in Section 7.2(p) following (x) the
Company's deposit into escrow of the certificates representing the
Put Shares and (y) the Investor's deposit into escrow of the
Investment Amount; provided, however, that to the extent the
Company has not paid the fees, expenses and disbursements of the
Investor's counsel in accordance with Section 13.1, the amount of
such fees, expenses and disbursements shall be paid in immediately
available funds drawn out of the deposited funds, at the direction
of the Investor, to Investor's counsel with no reduction in the
number of Put Shares issuable to the Investor on such Closing
Date.
Section 2.4 Liquidated Damages. In the event the
Company issues an Optional Purchase Notice but fails or refuses
to deliver Put Shares on a Closing Date, the Company will pay the
Investor, as liquidated damages for such failure to deliver, and not
as a penalty, five percent (5%) of the applicable Investment
Amount for each seven (7) day period, or part thereof following
such failure, in cash, until such Put Shares have been delivered.
The Escrow Agent shall be directed to pay such liquidated
damages to the Investor out of the Investment Amount delivered
by the Investor to the Escrow Agent.
Section 2.5 Termination of Investment Obligation. The
obligation of an Investor to purchase shares of Common Stock,
unless waived by an Investor, shall terminate permanently
(including with respect to a Closing Date that has not yet
occurred) in the event that (i) there shall occur any stop trade
order by the SEC or Principal Market or suspension by the SEC of
the effectiveness of the Registration Statement for a consecutive
five day calendar period or for an aggregate of twenty-two (22)
Trading Days during the Commitment Period, for any reason, or
(ii) the Company shall at any time fail to comply with the
requirements of Article VI hereof, without regard to any cure
period or written notice to cure which may be permitted or
required.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this
Agreement for its own account and the Investor has no present
arrangement (whether or not legally binding) at any time to sell the
Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor
does not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2 Sophisticated Investor. The Investor is a
sophisticated Investor (as described in Rule 506(b)(2)(ii) of
Regulation D) or an accredited Investor (as defined in Rule 501 of
Regulation D), and Investor has such experience in business and
financial matters that it is capable of evaluating the merits and risks
of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and
involves a high degree of risk.
Section 3.3 Authority. This Agreement has been duly
authorized and validly executed and delivered by the Investor and
is a valid and binding agreement of the Investor enforceable
against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an
officer, director or, to Investor's good faith belief, an "affiliate" (as
that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Absence of Conflicts. The execution and
delivery of this Agreement and any other document or instrument
executed in connection herewith, and the consummation of the
transactions contemplated thereby, and compliance with the
requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on
Investor, or, to the Investor's knowledge, (a) violate any provision
of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is
bound, (b) conflict with or constitute a material default thereunder,
(c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any
third party, or (d) require the approval of any third-party (which
has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which
Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.6 Disclosure; Access to Information.
Investor has received all documents, records, books and other
information pertaining to Investor's investment in the Company
that has been requested by Investor. The Company is subject to the
periodic reporting requirements of the Exchange Act, and Investor
has had access to copies of any such reports that have been
requested by it.
Section 3.7 Manner of Sale. At no time was Investor
presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form
of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The
Company is a corporation duly organized and existing in good
standing under the laws of the State of Florida and has all requisite
corporate authority to own its properties and to carry on its
business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. The
Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure to so
qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the
requisite corporate power and authority to enter into and perform
its obligations under this Agreement and the Registration Rights
Agreement and to issue the Put Shares; (ii) the execution, issuance
and delivery of this Agreement and the Registration Rights
Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required;
and (iii) this Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 Capitalization. The authorized and
outstanding capital stock of the Company as of the Subscription
Date is set forth on Schedule 4.3 hereto. Except as set forth in the
SEC Documents or Schedule 4.3, as of the Subscription Date,
there are no options, warrants or rights to subscribe for securities,
rights or obligations convertible into or exchangeable for, or giving
any rights to receive any Capital Shares. All of the outstanding
shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable.
Section 4.4 Common Stock. As of the commencement
of and throughout the Commitment Period, the Company will have
registered its Common Stock pursuant to Section 12(b) or 12(g)
of the Exchange Act and be in full compliance with all reporting
requirements of the Exchange Act, and the Company will have
maintained all requirements for the continued listing or quotation
of its Common Stock, and such Common Stock is then listed or
quoted on the Principal Market.
Section 4.5 SEC Documents. The Company has
delivered or made available to the Investor true and complete
copies of the SEC Documents (including, without limitation, proxy
information and solicitation materials). The Company has not
provided to the Investor any information that, according to
applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has
not been so disclosed. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable
to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of the Company described above and/or included in the
SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except
(i) as may be otherwise indicated in such financial statements or
the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the
dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
Section 4.6 Valid Issuances. If made in
accordance with this Agreement, the sale by the Company of the
Put Shares and Warrant will be properly accomplished pursuant to
Section 4(2), Regulation D and/or any applicable state law. The
sale by the Company of the Warrant Shares, if made in accordance
with the terms of the Warrant, will be properly accomplished
pursuant to Section 4(2), Regulation D and any applicable state
law. When issued, the Put Shares shall be duly and validly issued,
fully paid, and nonassessable. Neither the sales of the Put Shares
and Warrant Shares pursuant to, nor the Company's performance
of its obligations under, this Agreement or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens,
charges, claims or other encumbrances upon the Put Shares or any
of the assets of the Company, or (ii) entitle the holders of
Outstanding Capital Shares to preemptive or other rights to
subscribe to or acquire the Capital Shares or other securities of the
Company. The Put Shares and Warrant Shares shall not subject the
Investor or holder to personal liability by reason of the possession
thereof.
Section 4.7 No General Solicitation or Advertising in
Regard to this Transaction. Neither the Company nor any of its
affiliates nor any distributor or any person acting on its or their
behalf, if any, (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares or
Warrant Shares, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances
that would require registration of the sale of the Put Shares or the
Warrant Shares under the Securities Act.
Section 4.8 Corporate Documents. The Company has
furnished or made available to the Investor true and correct copies
of the Company's Articles of Incorporation, as amended and in
effect on the date hereof (the "Certificate"), and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-
Laws").
Section 4.9 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby, including, without limitation, the issuance of Common
Stock, Warrant and Warrant Shares do not and will not (i) result in
a violation of the Company's Articles of Incorporation or By-Laws
or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any material agreement, indenture, instrument
or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company
otherwise in violation of, conflict with or in default under any of
the foregoing; provided that, for purposes of the Company's
representations and warranties as to violations of foreign law, rule
or regulation referenced in clause (iv), such representations and
warranties are made only to the best of the Company's knowledge
insofar as the execution, delivery and performance of this
Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby are or may be
affected by the status of the Investor under or pursuant to any such
foreign law, rule or regulation. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of
any governmental entity, except for possible violations that either
singly or in the aggregate does not and will not have a Material
Adverse Effect. The Company is not required under federal, state
or local law, rule or regulation to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the
Common Stock in accordance with the terms hereof other than any
SEC, NASD, Principal Market or state securities filings that may
be required to be made by the Company subsequent to any
Closing, any registration statement that may be filed pursuant
hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the
Principal Market.
Section 4.10 No Material Adverse Change. Since the
date of the most recent financial statements included in the SEC
Documents, no Material Adverse Effect has occurred or exists
with respect to the Company, except as disclosed in the SEC
Documents.
Section 4.11 No Undisclosed Liabilities. The Company
has no liabilities or obligations which are material, individually or
in the aggregate, and are not disclosed in the SEC Documents or
otherwise publicly announced, other than those incurred in the
ordinary course of the Company's businesses since the date of the
most recent financial statements included in the SEC Documents
and which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company.
Section 4.12 No Undisclosed Events or Circumstances.
Since the date of the most recent financial statements included in
the SEC Documents, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, under applicable
law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the
Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, other than
pursuant to this Agreement, under circumstances that would
require registration of the Common Stock under the Securities
Act.
Section 4.14 Litigation and Other Proceedings. Except as
may be set forth in the SEC Documents, there are no lawsuits or
proceedings pending or to the best knowledge of the current
management and Board of Directors of the Company threatened,
against the Company, nor has the Company received any written
or oral notice of any such action, suit, proceeding or investigation,
which might have a Material Adverse Effect. Except as set forth in
the SEC Documents, no judgment, order, writ, injunction or
decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental
agency which might result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication.
The Company and any Person representing the Company, in
connection with the transactions contemplated by this Agreement,
have not made, at any time, any oral or written communication in
connection with same, which contained any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section 4.16 Material Non-Public Information. The
Company is not in possession of, nor has the Company or its
agents disclosed to the Investor, any material non-public
information that (i) if disclosed, would, or could reasonably be
expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have
been disclosed publicly by the Company prior to the date hereof
but which has not been so disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor
covenants for himself only, that such Investor's trading activities
with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws,
rules and regulations.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall
cause the Registration Rights Agreement to remain in full force
and effect and the Company shall comply in all respects with the
terms thereof.
Section 6.2 Reservation of Common Stock. As of the
date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put
Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price
therefor under the terms of this Agreement.
Section 6.3 Listing of Common Stock. The Company
shall maintain the listing of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the
commencement of the Commitment Period) to list the Put Shares
and Warrant Shares on the Principal Market. The Company
further shall, if the Company applies to have the Common Stock
traded on any other Principal Market, include in such application
the Put Shares, and shall take such other action as is necessary or
desirable in the opinion of the Investor to cause the Common
Stock to be listed on such other Principal Market as promptly as
possible. The Company shall take all action necessary to continue
the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of
such Principal Market.
Section 6.4 Exchange Act Registration. The Company
shall cause its Common Stock to continue to be registered under
Section 12(g) or 12(b) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said Act,
and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act. The Company will take all
action to continue the listing and trading of its Common Stock on
the Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws
or rules of the Principal Market.
Section 6.5 Legends. The certificates evidencing the
Common Stock to be sold by the Investor pursuant to Section 9.1
shall be free of legends.
Section 6.6 Corporate Existence. The Company will
take all steps necessary to preserve and continue the corporate
existence of the Company.
Section 6.7 Additional SEC Documents. The Company
will deliver to the Investor, as and when the originals thereof are
submitted to the SEC for filing, copies of all SEC Documents so
furnished or submitted to the SEC.
Section 6.8 Blackout Period. Subject to the
requirements of Regulation FD under the Exchange Act, the
Company will immediately notify the Investor upon the occurrence
of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional
information by the SEC or any other federal or state governmental
authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that
makes any statement made in such Registration Statement or
related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement
or amendment to the related prospectus. The Company shall not
deliver to the Investor any Optional Purchase Notice during the
continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase
Notices. Within ten (10) days after the commencement of each
calendar quarter occurring subsequent to the commencement of
the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it
intends to raise during such calendar quarter, if any, through the
issuance of Optional Purchase Notices. Such notification shall
constitute only the Company's good faith estimate and shall in no
way obligate the Company to raise such amount, or any amount,
or otherwise limit its ability to deliver Optional Purchase Notices.
The failure by the Company to comply with this provision can be
cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar
quarter.
Section 6.10 Consolidation; Merger. The Company shall
not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all or
substantially all of the assets of the Company to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or
securities as the Investor is entitled to receive pursuant to this
Agreement.
Section 6.11 Issuance of Put Shares. The sale and
issuance of the Put Shares and Warrant Shares shall be made in
accordance with the provisions and requirements of applicable
state law.
ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of
the Company to Issue and Sell Common Stock. The obligation
hereunder of the Company to issue and sell the Put Shares to the
Investor incident to each Closing is subject to the satisfaction, at
or before each such Closing, of each of the conditions set forth
below.
(a) Accuracy of the Investor's
Representation and Warranties. The representations and warranties
of the Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such
Closing as though made at each such time.
(b) Performance by the Investor. The
Investor shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the
Company to Deliver an Optional Purchase Notice and the
Obligation of the Investor to Purchase Put Shares. The right of
the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Put
Shares incident to a Closing is subject to the satisfaction, on (i) the
date of delivery of such Optional Purchase Notice, (ii) for each day
during the Valuation Period; and (iii) the applicable Closing Date
(each a "Condition Satisfaction Date"), of each of the following
conditions:
(a) Registration of the Common Stock
with the SEC. As set forth in the Registration Rights Agreement,
the Company shall have filed with the SEC a Registration
Statement with respect to the resale of the Registrable Securities
that shall have been declared effective by the SEC prior to the first
Optional Purchase Date, but in no event later than the date set
forth in the Registration Rights Agreement and shall have filed a
prospectus supplement on the first trading day after each Closing
Date.
(b) Effective Registration Statement.
As set forth in the Registration Rights Agreement, the Registration
Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC
has issued or intends to issue a stop order with respect to the
Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has threatened to
do so, and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related prospectus
shall exist.
(c) Accuracy of the Company's
Representations and Warranties. The representations and
warranties of the Company shall be true and correct in all material
respects as of each Condition Satisfaction Date as though made at
each such time (except for representations and warranties
specifically made as of a particular date) with respect to all
periods, and as to all events and circumstances occurring or
existing to and including each Condition Satisfaction Date, except
for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which
have been corrected with no continuing impairment to the
Company or the Investor.
(d) Performance by the Company. The
Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have
been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced
that may have the effect of prohibiting or adversely affecting any
of the transactions contemplated by this Agreement.
(f) Adverse Changes. Since the date of
filing of the Company's most recent SEC Document, no event that
had or is reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or
Delisting of Common Stock. The trading of the Common Stock
(including, without limitation, the Put Shares) shall not have been
suspended by the SEC, the Principal Market or the NASD and the
Common Stock (including, without limitation, the Put Shares)
shall have been approved for listing or quotation on and shall not
have been delisted from the Principal Market. The issuance of
shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the
Principal Market.
(h) Legal Opinions. The Company shall
have caused to be delivered to the Investor, within five (5) Trading
Days of the effective date of the Registration Statement, an
opinion of the Company's independent counsel in the form of
Exhibit B hereto, addressed to the Investor; provided, however,
that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investor, the Company shall
promptly revise the Registration Statement and shall not deliver an
Optional Purchase Notice. If an Optional Purchase Notice shall
have been delivered in good faith without knowledge by the
Company that an opinion of independent counsel cannot be
delivered as required, at the option of the Investor, either the
applicable Closing Date shall automatically be postponed for a
period of up to five (5) Trading Days until such an opinion is
delivered to the Investor, or such Closing shall otherwise be
canceled. Liquidated damages determined pursuant to Section 2.4
shall be calculated and payable on the Closing Date. The
Company's independent counsel shall also deliver to the Investor,
upon execution of this Agreement, an opinion in form and
substance reasonably satisfactory to the Investor addressing,
among other things, corporate matters and the exemption from
registration under the Securities Act of the issuance of the
Registrable Securities by the Company to the Investor under this
Agreement.
(i) Registration. No dispute between
the Company and the Investor shall exist pursuant to Section
8.2(c) as to the adequacy of the disclosure contained in the
Registration Statement.
(j) LEFT INTENTIONALLY
BLANK.
(k) Cross Default. The Company shall
not be in default of a material term, covenant, warranty or
undertaking of any other agreement to which the Company and
any Investor are parties, nor shall there have occurred an event of
default under any such other agreement.
(l) No Knowledge. The Company shall
have no knowledge of any event more likely than not to have the
effect of causing such Registration Statement to be suspended or
otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) Trading Cushion. The Trading
Cushion shall have elapsed since the immediately preceding
Optional Purchase Date and Closing Date.
(n) Shareholder Vote. The issuance of
shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the
Principal Market or the laws of any jurisdiction to which the
Company is subject.
(o) Escrow Agreement. If requested
by the Company or any Investor, the parties hereto shall have
entered into a mutually approved escrow agreement for the
Purchase Price due hereunder and the Company shall have agreed
to pay the fees and expenses of the Escrow Agent and not be in
default of any such payments. A form of Escrow Agreement is
annexed hereto as Exhibit E.
(p) Voting Restrictions. The Investor
shall not be subject to voting or other restrictions arising under any
applicable "anti-takeover" laws, rules or regulations.
(q) Other. On each Condition
Satisfaction Date, the Investor shall have received and been
reasonably satisfied with such other certificates and documents as
shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2. including, without
limitation, a certificate in substantially the form and substance of
Exhibit C hereto, executed in either case by an executive officer of
the Company and to the effect that all the conditions to such
Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-
PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall
make available for inspection and review by the Investor, advisors
to and representatives of the Investor (who may or may not be
affiliated with the Investor and who are reasonably acceptable to
the Company), any underwriter participating in any disposition of
the Registrable Securities on behalf of the Investor pursuant to the
Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD,
Principal Market, or other filing, all financial and other records, all
SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such
information reasonably requested by the Investor or any such
representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted
by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of
enabling the Investor and such representatives, advisors and
underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company represents and
warrants that the Company and its officers, directors, employees
and agents have not disclosed any non-public information to the
Investor or advisors to or representatives of the Investor. The
Company covenants and agrees that it shall refrain from disclosing,
and shall cause its officers, directors, employees and agents to
refrain from disclosing, unless prior to disclosure of such
information the Company identifies such information as being non-
public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept
such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder,
require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the
Company and the Investor.
(b) The Company acknowledges and
understands that the Investor is entering into this Agreement and
the Registration Rights Agreement at the request of the Company
and in good faith reliance on the Company's representation set forth
in Section 4.16 that neither it nor its agents have disclosed to the
Investor any material non-public information.
(c) Nothing herein shall require the
Company to disclose non-public information to the Investor or its
advisors or representatives, and the Company represents that it
does not disseminate non-public information to any Investor who
purchases stock in the Company in a public offering, to money
managers or to securities analysts, in violation of Regulation FD of
the Exchange Act provided, subject to its compliance with
Regulation FD of the Exchange Act, however, that
notwithstanding anything herein to the contrary, the Company will,
as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation
to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not
requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to
make the statements, therein, in light of the circumstances in which
they were made, not misleading. Nothing contained in this Section
8.2 shall be construed to mean that such persons or entities other
than the Investor (without the written consent of the Investor prior
to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required
to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading.
Section 8.3 Confidentiality. The Company agrees that it
will not publicly or privately disclose the identities of the Investor,
Warrant Recipients, or Finders unless expressly agreed to in
writing by the Investor or otherwise required by law.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below,
each certificate representing Registrable Securities will bear the
following legend (the "Legend"):
THE SECURITIES EVIDENCED
BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR
ANY OTHER APPLICABLE
SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM
THE REGISTRATION
REQUIREMENTS OF THE
SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR
ANY INTEREST OR
PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED,
HYPOTHECATED OR
OTHERWISE DISPOSED OF,
EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION
STATEMENT UNDER THE
SECURITIES ACT OR
PURSUANT TO A
TRANSACTION THAT IS
EXEMPT FROM, OR NOT
SUBJECT TO, SUCH
REGISTRATION. THE HOLDER
OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE
COMPANY SET FORTH IN A
PRIVATE EQUITY LINE OF
CREDIT AGREEMENT AMONG
BOROUGH CORPORATION
AND THE CERTAIN INVESTOR
DATED JUNE 3, 2002. A COPY
OF THE PORTION OF THE
AFORESAID AGREEMENT
EVIDENCING SUCH
OBLIGATIONS MAY BE
OBTAINED FROM THE
COMPANY'S EXECUTIVE
OFFICES.
Upon the execution and delivery hereof, the
Company is issuing to the transfer agent for its Common Stock
(and to any substitute or replacement transfer agent for its
Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in
substantially the form of Exhibit D hereto. Such instructions shall
be irrevocable by the Company from and after the date hereof or
from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as
provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable Securities by
the Investor to issue certificates evidencing such Registrable
Securities free of the Legend during the following periods and
under the following circumstances and without consultation by the
transfer agent with the Company or its counsel and without the
need for any further advice or instruction or documentation to the
transfer agent by or from the Company or its counsel or the
Investor:
(a) at any time after the Effective Date,
upon surrender of one or more certificates evidencing Common
Stock that bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to
replace those surrendered, or prior to issuance of a certificate;
provided that (i) the Registration Statement shall then be effective;
(ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such Common Stock in a bona fide transaction
to a third party that is not an affiliate of the Company; and (iii) the
Investor or sales agent confirms to the transfer agent that the
Investor or sales agent has complied with the prospectus delivery
requirement; and
(b) at any time upon any surrender of
one or more certificates evidencing Registrable Securities that bear
the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor is
permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k)
under the Securities Act or (ii) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise
transfer such Registrable Securities in a manner other than
pursuant to an effective registration statement, to a transferee who
will upon such transfer be entitled to freely tradeable securities.
Any of the notices referred to above in this Section 9.1 may be
sent by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer
Restrictions. No legend other than the one specified in Section
9.1 has been or shall be placed on the share certificates
representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this
Article IX.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement
and the Registration Rights Agreement shall be governed by and
construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the
transactions contemplated by this Agreement or the Registration
Rights Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York.
Both parties and the individuals executing this Agreement and
other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any
provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT;
TERMINATION
Section 11.1 Assignment. Neither this Agreement nor
any rights of the Investor or the Company hereunder may be
assigned by either party to any other person.
Section 11.2 Termination. This Agreement shall
terminate thirty-six (36) months after the commencement of the
Commitment Period; provided, however, that the provisions of
Articles VI, VIII, IX, X, XI, XII, XIII and XIV shall survive the
termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This
Agreement and the Registration Rights Agreement constitute the
full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall
be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set
forth in this Agreement or therein. Except as expressly provided in
this Agreement, neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a
written instrument signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests,
consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the
mail, registered or certified, return receipt requested, postage
prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to
be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to BOROUGH CORPORATION:
BOROUGH CORPORATION
0000 X. Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
If to the Investor:
Prima Capital Growth Fund LLC
000X 0xx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Telecopier: 000-000-0000
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at
least ten (10) days' prior written notice of such changed address or
facsimile number to the other party hereto.
Section 12.2 Indemnification.
(a) The Company agrees to indemnify
and hold harmless the Investor, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and each Person
or entity, if any, who controls the Investor within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which the
Investor, its partners, Affiliates, officers, directors, employees, and
duly authorized agents, and any such Controlling Person becomes
subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of the
Company contained in this Agreement in any event as such
Damages are incurred.
(b) The Investor agrees to indemnify
and hold harmless the Company, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and each Person
or entity, if any, who controls the Investor within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages,
joint or several, and any action in respect thereof to which the
Company, its partners, Affiliates, officers, directors, employees,
and duly authorized agents, and any such Controlling Person
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of the
Investor contained in this Agreement.
Section 12.3 Method of Asserting Indemnification
Claims. All claims for indemnification by any Indemnified Party
(as defined below) under Section 12.2 will be asserted and
resolved as follows:
(a) In the event any claim or demand in
respect of which any person claiming indemnification under any
provision of Section 12.2 (an "Indemnified Party") might seek
indemnity under Section 12.2 is asserted against or sought to be
collected from such Indemnified Party by a person other than the
Company, the Investor or any affiliate of the Company (a "Third
Party Claim"), the Indemnified Party shall deliver a written
notification, enclosing a copy of all papers served, if any, and
specifying the nature of and basis for such Third Party Claim and
for the Indemnified Party's claim for indemnification that is being
asserted under any provision of Section 12.2 against any person
(the "Indemnifying Party"), together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in
good faith, of such Third Party Claim (a "Claim Notice") with
reasonable promptness to the Indemnifying Party. If the
Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice
of such Third Party Claim, the Indemnifying Party will not be
obligated to indemnify the Indemnified Party with respect to such
Third Party Claim to the extent that the Indemnifying Party's
ability to defend has been irreparably prejudiced by such failure of
the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the period ending
thirty (30) calendar days following receipt by the Indemnifying
Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified
Party under Section 12.2 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified
Party against such Third Party Claim.
1. If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Indemnified Party with respect to the
Third Party Claim pursuant to this Section 12.3(a), then the
Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost
and expense of the Indemnifying Party, such Third Party Claim by
all appropriate proceedings, which proceedings will be vigorously
and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the Indemnifying
Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief which affects the
Indemnified Party, other than the payment of monetary damages,
or that provides for the payment of monetary damages as to which
the Indemnified Party will not be indemnified in full pursuant to
Section 12.2). The Indemnifying Party will have full control of
such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party
may, at the sole cost and expense of the Indemnified Party, at any
time prior to the Indemnifying Party's delivery of the notice
referred to in the first sentence of this clause 1, file any motion,
answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at
the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any
Third Party Claim that the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause 1, and except as
provided in the preceding sentence, the Indemnified Party will bear
its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right to indemnity
under Section 12.2 with respect to such Third Party Claim.
2. If the Indemnifying Party fails to notify the
Indemnified Party within the Dispute Period that the Indemnifying
Party desires to defend the Third Party Claim pursuant to Section
12.3(a), or if the Indemnifying Party gives such notice but fails to
prosecute vigorously and diligently or settle the Third Party Claim,
or if the Indemnifying Party fails to give any notice whatsoever
within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying
Party, the Third Party Claim by all appropriate proceedings, which
proceedings will be prosecuted by the Indemnified Party in a
reasonable manner and in good faith or will be settled at the
discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of
the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party
Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this clause 2, if the Indemnifying Party
has notified the Indemnified Party within the Dispute Period that
the Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such
Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause 3 below, the
Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this clause
2 or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party will
reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this clause 2, and the Indemnifying
Party will bear its own costs and expenses with respect to such
participation.
3. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its liability or the amount
of its liability to the Indemnified Party with respect to the Third
Party Claim under Section 12.2 or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party
disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the loss in the
amount specified in the Claim Notice will be conclusively deemed
a liability of the Indemnifying Party under Section 12.2 and the
Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand. In the event any Indemnified Party
should have a claim under Section 12.2 against the Indemnifying
Party that does not involve a Third Party Claim, the Indemnified
Party shall deliver a written notification of a claim for indemnity
under Section 12.2 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of
such claim (an "Indemnity Notice") with reasonable promptness to
the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not
dispute the claim or the amount of the claim described in such
Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim
or the amount of the claim described in such Indemnity Notice, the
Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under
Section 12.2 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand.
ARTICLE XIII
FEES-EXPENSES-WARRANTS
Section 13.1 Warrants. The Investor (sometimes
referred to herein as "Warrant Recipient") shall receive 1.098
million Warrants. A form of Warrant is annexed hereto as Exhibit
F. The Purchase Price (as defined in the Warrant) shall be $.55.
The Warrants will be exercisable for five years from the Issue Date
(as defined in the Warrant). The Investor is granted the
registration rights set forth in the Registration Rights Agreement
with respect to the Warrant Shares. The Warrants must be
delivered to the Investor on the Subscription Date. All the
representations, undertakings and covenants made by the
Company to or for the benefit of the Investor relating to the Put
Shares and to or for the benefit of the holder of Put Shares are also
made by the Company to and for the benefit of the Investor in
relation to the Warrant Shares.
Section 13.2 Timely Delivery. In the event any Warrants
are not timely delivered, the Investor shall have no obligation to
purchase Put Shares pursuant to this Agreement.
Section 13.3 Fees and Expenses. Each of the Company
and the Investor agrees to pay its own expenses incident to the
performance of its obligations hereunder, except that the Company
shall pay the fees, and reasonable expenses and disbursements of
the Investor's counsel on or before the Subscription Date as
follows: Investor's attorney shall be paid $30,000.00.
Section 13.4 Finders. Each of the parties hereto
represents that it has had no dealings in connection with this
transaction with any finder or broker who will demand payment of
any fee or commission from the Company or Investor except as
described on Schedule 13 (each a "Finder"). The Company agrees
to pay to the Finders the fee set forth on Schedule 13 ("Finder's
Fee"). The Finder's Fee shall be paid out of the escrow account
established for deposit of Investment Amounts, if any, but in any
event not later than the Closing Date with respect to which
Finder's Fees are payable. A default by the Company of the
Company's obligations to the Finder shall be deemed a default
under the Agreement, and shall terminate the Investor's obligation
to comply with any Optional Purchase Notices provided such
default is not due to a failure by an escrow agent to comply with
his obligations. The Company on the one hand, and the Investor,
on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any other persons
claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the
transactions contemplated hereby and arising out of such party's
actions.
Section 13.5 Funding Fee. The Company agrees to pay
within ten (10) days following the Subscription Date, the
aggregate amount of $300,000.00 ("Funding Fee") to the Investor.
In the event the Commitment Fee is not timely paid, then the
Investor shall have no obligation to purchase Put Shares pursuant
to this Agreement.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Counterparts. This Agreement may be
executed in multiple counterparts, each of which may be executed
by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually
executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement may be
delivered by telecopier transmission which such copy shall be
deemed an original executed Agreement.
Section 14.2 Entire Agreement. This Agreement, the
Exhibits hereto, the documents delivered in connection herewith,
and the Registration Rights Agreement set forth the entire
Agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are
incorporated herein by this reference and shall constitute part of
this Agreement as if fully set forth herein.
Section 14.3 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall
survive each Closing hereunder. In the event that any provision of
this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision;
provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 14.4 Title and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the Bid
Price, VWAP, trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this
Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall
be required to employ any other reporting entity.
Section 14.6 Remedies for Breach. The Company and
the Investor acknowledges that the other party's remedy at law for
the breach of the provisions provided in this Agreement is
inadequate. Therefore, the Company and the Investor agree that a
breach or violation of this Agreement by the Company, on the one
hand, and the Investor, on the other hand, will entitle the other
party, as a matter of right, to an injunction or other equitable relief,
issued by any court or arbitration panel of competent jurisdiction,
restraining any further or continued breach or violation of this
Agreement. Such right to an injunction will be cumulative and in
addition to, and not in lieu of, any other remedies to which the
Company and the Investor may show themselves justly entitled.
Section 14.7 Publicity. Except as required by applicable
law, neither the Company nor the Investor shall issue any press
release or otherwise make any public statement or announcement
with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement without the prior
consent of the other party, which consent shall not be
unreasonably withheld or delayed.
Section 14.8 Confidentiality. Investor agrees to maintain
the confidentiality of all information about the Company received
from any officer, employee or agent of the Company, until such
time as that confidential information is released to the public
generally as contemplated by Regulation FD of the Exchange Act
other than as a result of any disclosure by Investor.
Section 14.9 Governing Law and venue. This agreement shall
be governed by and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to conflicts of
law principles. Any disputes with respect to the interpretation of
this Agreement or the rights and obligations of the parties hereto
shall be exclusively brought in the U.S. District Court for
Delaware or if such court lacks subject matter jurisdiction, in the
Supreme Court of the County of Delaware or its equivalent. Each
of the parties waives any right to object to the
jurisdiction or venue of either of such Courts or to claim that such
Courts are an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have caused
this Private Equity Line of Credit Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set
forth above.
BOROUGH
CORPORATION
"Company"
By:
______________________________________
PRIMA CAPITAL
GROWTH FUND LLC
"Investor"
By:
_______________________
________________
EXHIBIT B
FORM OF OPINION OF THE COMPANY'S
INDEPENDENT COUNSEL
WITHIN 5 TRADING DAYS FOLLOWING EFFECTIVE
DATE OF
REGISTRATION STATEMENT
TO: Prima Capita Growth Fund LLC
We have acted as counsel to __________________, a
___________ corporation (the "Company"), in connection with
the Private Equity Line of Credit Agreement between the
Company and you, dated as of ______________ (the "Line of
Credit Agreement"), pursuant to which the Company will issue to
you from time to time shares of Common Stock, $_____ par value
(the "Put Shares") and the Registration Rights Agreement between
you and the Company, dated __________ (the "Registration
Rights Agreement," and together with the Line of Credit
Agreement, the "Agreements"). This opinion is rendered to you
pursuant to Section 7.2(h) of the Line of Credit Agreement.
Capitalized terms used without definition in this opinion have the
meanings given to them in the Line of Credit Agreement.
In connection with this opinion, we have assumed the authenticity
of all records, documents, and instruments submitted to us as
originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to the originals of all records,
documents, and instruments submitted to us as copies. We have
also assumed that there are no facts or circumstances relating to
you that might prevent you from enforcing any of the rights to
which our opinion relates. We have based our opinion upon our
review of the following records, documents and instruments:
(a) The Articles of Incorporation of the Company, as
amended to date (the "Articles"), certified by the Secretary of
State [the jurisdiction of incorporation] as of _______________
and certified to us by an officer of the Company as being complete
and in full force and effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an
officer of the Company as being complete and in full force and
effect as of the date of this opinion (the "Bylaws");
(c) Records certified to us by an officer of the
Company as constituting all records of proceedings and actions of
the Board of Directors and the shareholders of the Company
relating to the transactions contemplated by the Agreement;
(d) The Agreements;
(e) A certificate related to the good standing of the
Company issued by the Secretary of State of the State of [the
jurisdiction of incorporation] dated _____________;
(f) A Certificate of the Chief Executive Officer of the
Company as to certain factual matters (the "Officer's Certificate");
(g) The SEC Documents.
With your consent, we have based our opinion expressed in
paragraph 1 below as to the good standing of the Company solely
upon the documents enumerated in (e) and (f) above.
Where our opinion relates to our "knowledge," such
knowledge is based upon our examination of the records,
documents, instruments, and certificates enumerated or described
above and the actual knowledge of attorneys in this firm who are
currently involved in substantive legal representation of the
Company on matters related to the Agreements. With your
consent, we have not examined any records of any court,
administrative tribunal or other similar entity in connection with
our opinion expressed in paragraph 2 of Part III below. We have
assumed, for purposes of our opinion, to the effect that the Put
Shares are fully paid and that the Company in accordance with the
Line of Credit Agreement will receive the consideration for such
Put Shares.
We express no opinion as to any anti-fraud provisions of
applicable federal or state securities laws, any tax, anti-trust, land
use, export, safety, environmental or hazardous materials laws,
rules or regulations.
This opinion is limited to the federal laws of the United
States of America and the laws of the States of [jurisdiction of
incorporation] and Delaware. We disclaim any opinion as to the
laws of any other jurisdiction and we further disclaim any opinion
as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional or local governmental body.
Based upon the foregoing and our examination of such
questions of law as we have deemed necessary or appropriate for
the purpose of this opinion, and subject to the limitations and
qualifications expressed below, it is our opinion that:
1. The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of
[jurisdiction of incorporation] and has all requisite power and
authority to carry on its business and to own, lease and operate its
properties and assets as described in the SEC Documents. To our
knowledge, the Company does not have any subsidiaries other
than as set forth in the SEC Documents.
2. To our knowledge, except as described in the SEC
Documents, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its
properties, or to our knowledge, any officer or director of the
Company in his or her capacity as such, nor to our knowledge has
the Company received any written threat of any such claims,
actions, suits, proceedings or
investigations.
3. To our knowledge, except as described in the
Company's representations and warranties contained in Article IV
of the Line of Credit Agreement, there are no outstanding options,
warrants, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments,
understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of
Common Stock.
4. Subject to the accuracy of your representations in
Article III of the Line of Credit Agreement on the date hereof and
on the date of issuance of any Put Shares and Warrant Shares, and
the statement in the Officer's Certificate that the Company has not
offered or sold, and will not offer or sell, any Put Shares by means
of advertising or public solicitation, the issuance of the Warrant
Shares in conformity with the terms of the Line of Credit
Agreement constitutes transactions exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as
amended. The Put Shares and the Warrant Shares, when issued in
compliance with the Line of Credit Agreement and Registration
Rights Agreement, will be duly authorized, validly issued, fully
paid, and non-assessable and free of preemptive rights set forth in
the Articles, Bylaws and any agreement filed as an exhibit to the
SEC Documents, provided, however, that the Put Shares and
Warrant Shares may be subject to restrictions on transfer under
state and federal securities laws, but only to the extent set forth in
the Line of Credit Agreement.
5. The Company has the requisite corporate power
and authority to enter into and perform its obligations under the
Agreements and to issue the Put Shares.
Each of the Agreements has been duly authorized,
executed and delivered by the Company and the consummation by
it of the transactions contemplated thereby has been duly
authorized by all necessary corporate action and no further consent
or authorization of the Company's board of directors or
shareholders is required. Each of the Agreements has been duly
executed and delivered on the part of the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms,
subject, as to enforcement, (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other laws of
general applicability relating to or affecting creditors' rights,
(ii) to general principles of equity, whether such enforcement is
considered in a proceeding in equity or at law, and (iii) to
limitations imposed by applicable law or public policy on the
enforceability of the indemnification provisions contained in the
Agreements.
6. The execution, delivery and performance of and
compliance with the respective terms of each of the Agreements,
and issuance of the Put Shares in accordance with the Line of
Credit Agreement, will not violate any provision of the Articles or
Bylaws or any law applicable to the Company.
7. The holders of the Common Stock will not be subject
to the provisions of the States of [states of incorporation and
principal office location] anti-takeover statutes.
In connection with the registration of the Put Shares and
Warrant Shares, we advised the Company as to the requirements
of the Securities Act and the applicable Rules and Regulations and
rendered other legal advice and assistance in the course of
preparation of the Registration Statement and Prospectus,
including review and discussion of the contents thereof. On the
basis of the information that was developed in the course of the
performance of such services considered in light of our
understanding of the Securities Act, including the requirements of
Forms S-1 and SB-2, we have no reason to believe that (i) the
Registration Statement (other than the financial statements and
related statements and schedules, as to which we express no
belief), as of its Effective Date, contained any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, or (ii) the Prospectus (other than the financial
statements and related statements and schedules, as to which we
express no belief), as of the Effective Date of the Registration
Statement, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
limitations inherent in the independent verification of factual
matters and the character of determinations involved in the
registration process are such, however, that except as set forth in
this opinion letter we do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus.
Our opinions expressed above are specifically subject to
the following limitations, exceptions, qualifications and
assumptions:
A. The effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting the relief of debtors or the rights and remedies of
creditors generally, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and
preferential transfers.
B. Limitations imposed by state law, federal law or
general equitable principles upon the specific enforceability of any
of the remedies, covenants or other provisions of any applicable
agreement and upon the availability of injunctive relief or other
equitable remedies, regardless of whether enforcement of any such
agreement is considered in a proceeding in equity or at law.
C. This opinion letter is governed by, and shall be
interpreted in accordance with, the Legal Opinion Accord (the
"Accord") of the ABA Section of Business Law (1991). As a
consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord,
including the General Qualifications and the Equitable Principles
Limitation, and this opinion letter should be read in conjunction
therewith.
This opinion is rendered as of the date first written above,
is solely for your benefit in connection with the Agreement and
may not be relied upon or used by, circulated, quoted, or referred
to nor may any copies hereof be delivered to any other person
without our prior written consent. We disclaim any obligation to
update this opinion letter or to advise you of facts, circumstances,
events or developments which hereafter may be brought to our
attention and which may alter, affect or modify the opinions
expressed herein.
Very truly yours,
EXHIBIT C
COMPLIANCE CERTIFICATE
__________________________________
The undersigned, _______________, hereby certifies, with
respect to the shares of Common Stock of
_____________________ (the "Company") issuable in connection
with the Optional Purchase Notice dated _________________
(the "Notice"), delivered pursuant to Article II of the Private
Equity Line of Credit Agreement dated _________________, by
and among the Company and the Investor (the "Agreement"), as
follows:
1. The undersigned is the duly elected
______________________________ of the Company.
2. The representations and warranties of the Company
set forth in the Agreement are true and correct in all material
respects as though made on and as of the date hereof.
3. The Company has performed, in all material
respects, all covenants and agreements to be performed by the
Company on or prior to the Closing Date related to the Notice and
has complied in all material respects with all obligations and
conditions contained in the Agreement.
4. The amount of Common Stock remaining
registered in an effective registration statement on behalf of the
Investor as of this date is set forth on the schedule hereto.
The undersigned has executed this Certificate this ____ day
of ____________.
_________________
_______________________
By:______________
_______________________
Name:
Title:
EXHIBIT D
INSTRUCTIONS TO TRANSFER AGENT
_____________________________________
[TRANSFER AGENT]
Dear Sirs:
Reference is made to the Private Equity Line of Credit
Agreement (the "Agreement"), dated as of
____________________ among the Investor (the "Investor") and
_____________________ (the "Company"). Pursuant to the
Agreement, subject to the terms and conditions set forth in the
Agreement, the Investor has agreed to purchase from the
Company and the Company has agreed to sell to the Investor from
time to time during the term of the Agreement shares of Common
Stock of the Company, $____ par value (the "Common Stock").
As a condition to the effectiveness of the Agreement, the
Company has agreed to issue to you, as the transfer agent for the
Common Stock (the "Transfer Agent"), these instructions relating
to the Common Stock to be issued to the Investor (or a permitted
assignee) pursuant to the Agreement. All terms used herein and
not otherwise defined shall have the meaning set forth in the
Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT
THE LEGEND
Pursuant to the Agreement, the Company is required to prepare
and file with the Commission, and maintain the effectiveness of, a
registration statement or registration statements registering the
resale of the Common Stock to be acquired by the Investor under
the Agreement. The Company will advise the Transfer Agent in
writing of the effectiveness of any such registration statement
promptly upon its being declared effective. The Transfer Agent
shall be entitled to rely on such advice and shall assume that the
effectiveness of such registration statement remains in effect unless
the Transfer Agent is otherwise advised in writing by the Company
and shall not be required to independently confirm the continued
effectiveness of such registration statement. In the circumstances
set forth in the following two paragraphs, the Transfer Agent shall
deliver to the Investor certificates representing Common Stock not
bearing the Legend without requiring further advice or instruction
or additional documentation from the Company or its counsel or
the Investor or its counsel or any other party (other than as
described in such paragraphs).
At any time after the effective date of the applicable
registration statement (provided that the Company has not
informed the Transfer Agent in writing that such registration
statement is not effective) upon any surrender of one or more
certificates evidencing Common Stock which bear the Legend, to
the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered, the
Transfer Agent shall deliver to the Investor the certificates
representing the Common Stock not bearing the Legend, in such
names and denominations as the Investor shall request, provided
that:
(a) in connection with such event, the Investor (or its
permitted assignee) shall confirm in writing to the Transfer Agent
that (i) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such Common Stock in a bona fide transaction
to a transferee that is not an affiliate of the Company; and (ii) the
Investor confirms to the transfer agent that the Investor has
complied with the prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall
represent that it is permitted to dispose of such securities without
limitation as to amount or manner of sale pursuant to Rule 144(k)
under the Securities Act; or
(c) the Investor, its permitted assignee, or either of
their brokers confirms to the transfer agent that (i) the Investor has
held the shares of Common Stock for at least one year, (ii)
counting the shares surrendered as being sold upon the date the
unlegended Certificates would be delivered to the Investor (or the
Trading Day immediately following if such date is not a Trading
Day), the Investor will not have sold more than the greater of (a)
one percent (1%) of the total number of outstanding shares of
Common Stock or (b) the average weekly trading volume of the
Common Stock for the preceding four weeks during the three
months ending upon such delivery date (or the Trading Day
immediately following if such date is not a Trading Day), and (iii)
the Investor has complied with the manner of sale and notice
requirements of Rule 144 under the Securities Act.
Any advice, notice or instructions to the Transfer Agent
required or permitted to be given hereunder may be transmitted via
facsimile to the Transfer Agent's facsimile number of __________.
2. MECHANICS OF DELIVERY OF
CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which
the Investor acquires Common Stock under the Agreement, the
Transfer Agent shall deliver certificates representing Common
Stock (with or without the Legend, as appropriate) as promptly as
practicable, but in no event later than three (3) business days after
such Closing.
3. FEES OF TRANSFER AGENT;
INDEMNIFICATION
The Company agrees to pay the Transfer Agent for
all fees incurred in connection with these Irrevocable Instructions.
The Company agrees to indemnify the Transfer Agent and its
officers, employees and agents, against any losses, claims, damages
or liabilities, joint or several, to which it or they become subject
based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge
and agree that the Investor is an express third party beneficiary of
these Irrevocable Instructions and shall be entitled to rely upon,
and enforce, the provisions hereof.
[THE COMPANY]
By:______________________________________
Name:
Title:
AGREED:
[TRANSFER AGENT]
By:_______________________________
